<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2000
REGISTRATION NO. 333-XXXXX
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRINTCAFE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
DELAWARE 7379 94-1854929
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
FORTY 24TH STREET, 5TH FLOOR
PITTSBURGH, PA 15222
(412) 456-1141
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM L. GUTTMAN
CHIEF EXECUTIVE OFFICER
AND
MARC D. OLIN
PRESIDENT
FORTY 24TH STREET, 5TH FLOOR
PITTSBURGH, PA 15222
(412) 456-1141
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
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COPIES TO:
<TABLE>
<S> <C>
IAIN MICKLE, ESQ. JORGE A. DEL CALVO, ESQ.
LOWELL D. NESS, ESQ. DAVINA K. KAILE, ESQ.
JOHN P. COOK, ESQ. JUSTIN D. HOVEY, ESQ.
DENNIS E. MICHAELS, ESQ. PILLSBURY MADISON & SUTRO LLP
ORRICK, HERRINGTON & SUTCLIFFE LLP 2550 HANOVER STREET
400 CAPITOL MALL, SUITE 3000 PALO ALTO, CA 94304
SACRAMENTO, CA 95814 (650) 233-4500
(916) 447-9200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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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, please 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,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Class A common stock, par value $0.0001 per share.... $143,750,000 $37,950
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY 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 THESE SECURITIES AND IT IS NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION -- MARCH 14, 2000
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PRELIMINARY PROSPECTUS
, 2000
[PRINTCAFE LOGO]
SHARES OF CLASS A COMMON STOCK
PRINTCAFE, INC.:
- We are a leading provider of business-to-business electronic commerce
solutions for the printing industry.
- printCafe, Inc.
Forty 24th Street, 5th Floor
Pittsburgh, Pennsylvania 15222
(412) 456-1141
www.printcafe.com
PROPOSED SYMBOL & MARKET:
- PCAF/Nasdaq National Market
THE OFFERING:
- - We are offering shares of our Class A common stock.
- - The underwriters have an option to purchase an additional shares of
Class A common stock from us to cover over-allotments.
- - This is our initial public offering. We anticipate that the initial public
offering price will be between $
and $ per share.
- - We plan to use the net proceeds from this offering to repay outstanding debt,
for working capital and for general corporate purposes.
- - Closing: , 2000.
<TABLE>
<CAPTION>
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Per Share Total
<S> <C> <C>
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Public offering price: $ $
Underwriting fees:
Proceeds to printCafe, Inc.:
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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DONALDSON, LUFKIN & JENRETTE
SG COWEN
THOMAS WEISEL PARTNERS LLC
MCDONALD INVESTMENTS INC.
DLJDIRECT INC.
<PAGE> 3
[DESCRIPTION OF INSIDE COVER COLOR
ARTWORK TO BE FILED BY AMENDMENT]
<PAGE> 4
CORPORATE INFORMATION
We have conducted operations since 1986 through our predecessor companies
Prograph Management Systems, Inc., Prograph Bindery Systems, Inc., Prograph
Production Systems, Inc. and Prograph Progiciels, Inc. On March 31, 1999, we
merged these four predecessor companies to form Prograph Systems, Inc. On
February 4, 2000, we reincorporated from Pennsylvania into Delaware and changed
our name to printCafe, Inc. Our principal executive offices are located at Forty
24th Street, 5th Floor, Pittsburgh, PA 15222, our telephone number at that
location is (412) 456-1141 and our Web site address is www.printcafe.com. Our
Web site, and the information contained therein, is not a part of this
prospectus. Unless the context requires otherwise, references in this prospectus
to "we," "our" and "us" refer to printCafe, Inc., its subsidiaries and its
predecessor companies.
Proteus(R) is a registered trademark and printCafe(TM), the printCafe logo,
prIntellect(TM), printGroups(TM) and SimulSpec(TM) are trademarks of printCafe,
Inc. All other brand names or trademarks appearing in this prospectus are the
property of their respective holders.
Unless stated otherwise, the information in this prospectus assumes that:
- the underwriters' over-allotment option is not exercised; and
- all outstanding preferred stock is converted into the applicable
class of common stock.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
Special Note Regarding
Forward-Looking Statements........ 18
Use of Proceeds..................... 19
Dividend Policy..................... 19
Capitalization...................... 20
Dilution............................ 23
Unaudited Pro Forma Condensed
Consolidated Financial Data....... 24
Selected Financial Data............. 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Business............................ 37
Management.......................... 47
Related Party Transactions.......... 54
Principal Stockholders.............. 57
Description of Capital Stock........ 59
Shares Eligible for Future Sale..... 63
Underwriting........................ 65
Legal Matters....................... 69
Experts............................. 69
Additional Information
Available to You.................. 70
Index to Financial Statements....... F-1
</TABLE>
2
<PAGE> 5
PROSPECTUS SUMMARY
This summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important, so please read
the entire prospectus carefully.
PRINTCAFE, INC.
We are a leading provider of comprehensive business-to-business electronic
commerce solutions for the printing industry. We recently launched our printCafe
solution, which is designed to connect print buyers, printers and printing
industry suppliers and automate the printing process by integrating a new
Web-based print procurement platform with our existing advanced suite of print
design, specification, manufacturing, distribution and supply chain management
enterprise software applications. We believe that printCafe is the first
end-to-end electronic commerce solution capable of integrating and automating
the entire printing process. printCafe is available through our printCafe.com
Web site or as a hosted application service through privately-branded Web sites
that we create for printers, suppliers and print buyers.
Our predecessor company, Prograph Systems, Inc., has been a leading
provider of enterprise software applications for the printing industry since
1986. In October 1999, Prograph merged with nth degree software, inc., a leading
provider of enterprise software applications for print buyers. In February 2000,
Prograph changed its name to printCafe, Inc., and launched the new Web-based
printCafe solution.
printCafe is designed to enable print buyers to:
- design, specify, estimate the cost of and order virtually any type of
print project;
- submit job estimate requests to printers and suppliers of their choice;
- track the real-time status of a project;
- reconcile invoices;
- centrally manage enterprise spending limits and other corporate policies;
and
- communicate and collaborate in real-time with multiple parties throughout
all stages of the printing process.
printCafe is designed to enable printers and suppliers to:
- receive orders for, quote accurate prices for and fulfill virtually any
type of print project;
- manage the entire supply chain from procurement to distribution;
- communicate and collaborate in real-time with multiple parties throughout
all stages of the printing process;
- use a privately-branded Web site to serve their customers; and
- present bills online.
We sell printCafe through our 40-person direct sales organization and the
127-person direct sales organization of our strategic partner, Creo Products,
Inc. Our target customers include the more than 6,500 printing facilities,
suppliers and print buyers worldwide that already employ our printing and
publishing enterprise software applications and the more than 1,400 printing
facilities worldwide that already employ Creo's computer-to-plate pre-press
products. We also market printCafe indirectly through co-marketing agreements
with Andersen Consulting and other strategic partners and through the sales
organizations of our printer and supplier customers.
Since its launch on February 9, 2000, a number of leading print buyers,
printers and suppliers have signed contracts to use printCafe, including
American Airlines, Andersen Consulting, Champion International Corporation,
Costco, Primedia-Intertec, Reader's Digest, Rodale Press, The Sheridan Group,
Time Warner and Weider Publications.
3
<PAGE> 6
OUR MARKET OPPORTUNITY
According to Gartner Group, Inc., an information technology research firm,
the worldwide market for business-to-business electronic commerce will increase
from $145.0 billion in 1999 to $7.3 trillion in 2004. The widespread projected
growth of business-to-business electronic commerce has created a strong demand
for industry-specific electronic commerce solutions capable of connecting large
numbers of disparate buyers and suppliers, enabling automated transaction
execution and integrating complex supply, manufacturing and distribution chains.
The U.S. Department of Commerce estimates that publication and commercial
printing accounted for a $211.1 billion market in the United States in 1998. The
U.S. Department of Commerce also estimates that there were 21,750 publication
printers and 48,250 commercial printers in the United States in 1998.
Traditional printing is characterized by numerous inefficiencies, including
manual data entry; inaccurate project estimates; corporate spending limit
violations; and a lack of integration between design, specification,
procurement, enterprise resource planning and shop floor execution systems.
Although other online services have recently emerged that automate various
elements of the printing process, we believe they fail to fully integrate the
manufacturing, distribution and supply chain management elements of the printing
process, are unable to handle complex publication printing jobs and fail to
preserve printer and supplier brand identity. We believe that the very large,
fragmented and inefficient printing market, together with the limitations of
other online solutions, create an ideal market opportunity for a complete
electronic commerce printing solution.
OUR STRATEGY
Our objective is to be the leading provider of online solutions for print
buyers, printers and suppliers. To achieve this objective, we intend to:
CAPITALIZE ON OUR END-TO-END SOLUTION. We believe that we are the first and
only company to offer a Web-based solution that fully integrates all aspects of
the print procurement and manufacturing process, and we intend to use this
competitive advantage to attract new customers and accelerate the adoption of
printCafe.
TRANSITION EXISTING CUSTOMERS AND ATTRACT NEW CUSTOMERS TO PRINTCAFE. We
are aggressively marketing printCafe directly to our more than 6,500 enterprise
software customers and to potential new customers. We are also marketing
printCafe indirectly to print buyers through our printer and supplier customers.
LEVERAGE OUR STRATEGIC ALLIANCES. We have strategic alliances with Creo and
Andersen Consulting to co-market the printCafe solution. We intend to leverage
these strategic alliances and aggressively pursue new alliances to extend our
customer reach and accelerate the adoption of our solution.
PROMOTE THE PRINTCAFE BRAND. We intend to aggressively promote our brand in
order to establish ourselves as the recognized leading provider of electronic
commerce solutions for the printing industry. We will invest in building our
brand through a variety of marketing and promotional channels both independently
and in connection with our strategic alliances, including participation in
industry-related conferences and events, press coverage, targeted advertising
and promotions.
EXTEND OUR TECHNOLOGY LEADERSHIP. We intend to extend the technological
advantages provided to us by our experience as a leading enterprise software
provider to the printing industry by enhancing the functionality of our
end-to-end solution, and by allowing all of our proprietary enterprise software
applications to be run in a hosted application framework.
4
<PAGE> 7
PURSUE NEW MARKET AND INTERNATIONAL OPPORTUNITIES. We intend to leverage
our position as a leading solution provider for the publication and commercial
printing markets to serve adjacent markets. In addition, we intend to leverage
our existing relationships with leading global print buyers, printers and
suppliers to accelerate the adoption of printCafe in international markets.
RECENT DEVELOPMENTS
As part of our strategy to build a fully-integrated, end-to-end electronic
commerce solution for the printing industry, we have entered into the following
agreements and/or consummated the following transactions:
STRATEGIC ALLIANCE WITH CREO PRODUCTS, INC. In February 2000, we entered
into a comprehensive strategic alliance with Creo, a leading provider of
pre-press software products. As part of the alliance, Creo SRL, an affiliate of
Creo, received 31,186,312 shares of our Series B preferred stock and contributed
$25.0 million in cash, and Creo signed a comprehensive services agreement
providing us use of its global employee base, granted us an exclusive license to
all of the technology related to its print management services business and
signed a reciprocal non-compete agreement.
PROGRAMMED SOLUTIONS, INC. In February 2000, we acquired all of the capital
stock of PSI, a leading provider of production and enterprise resource planning
software products for commercial printing. PSI shareholders received $15.0
million in cash and 1,724,138 shares of our Class A common stock as
consideration.
HAGEN SYSTEMS, INC. In March 2000, we acquired Hagen, a leading provider of
production and enterprise resource planning software products for commercial
printing. Hagen shareholders received $8.0 million in cash, promissory notes in
an aggregate principal amount of $12.0 million, and 2,310,305 shares of our
Class A common stock as consideration.
A.H.P. SYSTEMS, INC. In March 2000, we acquired AHP, a provider of
production and enterprise resource planning software products for commercial
printing. The AHP shareholder received $0.8 million in cash and 396,552 shares
of our Class A common stock as consideration.
LOGIC ASSOCIATES, INC. In March 2000, we signed a definitive agreement to
acquire approximately 97.5% of the outstanding capital stock of Logic, a leading
provider of production and enterprise resource planning software products for
commercial printing. Logic shareholders who entered into the definitive
agreement will receive promissory notes in an aggregate principal amount of
$46.7 million and 652,727 shares of our Class A common stock as consideration.
M DATA, INC. DBA PRINTSMITH. In March 2000, we acquired all of the
outstanding capital stock of PrintSmith, a leading provider of production and
enterprise resource planning software products for commercial printing.
PrintSmith shareholders received $2.0 million in cash, promissory notes in an
aggregate principal amount of $7.0 million and 170,212 shares of our Class A
common stock as consideration.
5
<PAGE> 8
THE OFFERING
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<CAPTION>
<S> <C>
Class A common stock offered by us....... shares
Class A common stock to be outstanding
after this offering.................... shares
Class B common stock to be outstanding
after this offering.................... 31,186,312 shares
Class C common stock to be outstanding
after this offering.................... 1,132,502 shares
Total number of shares of Class A, Class
B and Class C common stock to be
outstanding after this offering........ shares
Use of proceeds.......................... We intend to use the net proceeds of this offering
for repayment of debt, for working capital and for
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol... PCAF
</TABLE>
The above number of outstanding shares are presented as of March 10, 2000
and exclude:
- 908,037 shares of our Class A common stock reserved for issuance under
our 1999 stock incentive plan, of which 899,191 shares are subject to
options outstanding as of March 10, 2000, with a weighted average
exercise price of $1.18 per share;
- 10,000,000 shares of our Class A common stock reserved for issuance
under our 2000 stock incentive plan, of which 1,156,169 shares are
subject to options outstanding as of March 10, 2000, with a weighted
average exercise price of $6.91 per share;
- 2,500,000 shares of our Class A common stock reserved for issuance under
our 2000 employee stock purchase plan, none of which shares are
outstanding; and
- 2,505,072 shares of our Class A common stock issuable upon exercise of
warrants outstanding as of March 10, 2000, with a weighted average
exercise price of $7.58 per share.
See "Capitalization" and Note 13 of Notes to printCafe, Inc.'s Financial
Statements.
6
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The following table presents summary historical and condensed consolidated
pro forma financial data for our business. You should read the following summary
financial data together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and the notes
thereto included elsewhere in this prospectus. The pro forma statement of
operations data give effect to the acquisitions of nth degree software, PSI,
Hagen and Logic as if these transactions were consummated on January 1, 1999 and
should be read together with the pro forma condensed consolidated financial
statements included elsewhere in this prospectus. The pro forma results of
operations are not necessarily indicative of the results that would have
occurred had the transactions been consummated on January 1, 1999. The pro forma
balance sheet data give effect to the acquisitions of nth degree software, PSI,
Hagen and Logic and the common and preferred stock financings described in Note
1 to the unaudited pro forma condensed consolidated balance sheet included in
the section entitled "Unaudited Pro Forma Condensed Consolidated Financial
Data." In addition, the pro forma as adjusted balance sheet data assume the sale
of shares of our Class A common stock in this offering at an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discounts, commissions and offering expenses, and the application
of the resulting net proceeds. The pro forma data excludes the shares and
transactions described on page 22 of this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, 1999
---------------- ---------------------
1997 1998 ACTUAL PRO FORMA
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total revenue.................................. $4,077 $5,242 $ 4,411 $ 50,589
Gross profit................................... 2,990 4,140 2,996 31,154
Income (loss) from operations.................. (413) 38 (10,736) (51,028)
Net income (loss).............................. (504) 16 (10,919) (56,739)
Net income (loss) per share:
Basic and diluted............................ $ (.06) $ .00 $ (1.43) $ (4.15)
Weighted average shares...................... 8,591 8,591 7,627 13,672
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
BALANCE SHEET DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents........................... $ -- $ 22,694
Working capital (deficit)........................... (4,109) 19,547
Total assets........................................ 11,840 162,449
Long-term obligations less current portion.......... 1,046 59,486
Redeemable preferred stock.......................... -- 36,368
Additional paid-in capital.......................... 18,268 67,082
Total stockholders' equity.......................... 4,962 53,777
</TABLE>
7
<PAGE> 10
RISK FACTORS
You should carefully consider these risk factors as well as all of the
other information contained in this prospectus before you decide to purchase
shares of our Class A common stock. If any of the following risks actually
occur, the trading price of our Class A common stock could decline, and you may
lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY AS A COMBINED ENTITY MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS AND OUR PROSPECTS.
We have completed a number of significant acquisitions since October 1999.
As a result, we have a limited operating history as a combined entity, which
makes an evaluation of our current business and prospects difficult. Due to our
limited operating history as a combined entity, we believe that period-to-period
comparisons of our revenue and results of operations are not meaningful. As a
result, you should not rely on results of our operations for any prior period as
an indication of future performance.
OUR PLAN TO DERIVE REVENUES FROM WEB-BASED SUBSCRIPTION FEES RATHER THAN FROM
SOFTWARE LICENSING, MAINTENANCE AND CONSULTING FEES MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS AND OUR PROSPECTS.
To date, substantially all of our revenues have been derived from software
licensing fees and fees for related maintenance and consulting services. With
the launch of printCafe, we expect to derive an increasing percentage of our
revenues going forward by selling printCafe subscription agreements to printers
and their suppliers. This change in our revenue model makes it difficult to
evaluate our business and our prospects. You should not rely on results of our
operations for any prior periods as an indication of future performance.
IF OUR WEB-BASED PRINT SOLUTION DOES NOT ACHIEVE BROAD MARKET ACCEPTANCE, OUR
BUSINESS WILL SUFFER.
Most print buyers, printers and suppliers currently coordinate the design,
specification, procurement and manufacture of print orders through either a
combination of telephone, facsimile and paper or through proprietary software
solutions. Web-based print management solutions are new, rapidly evolving and
represent a fundamental change to the printing process. Widespread commercial
acceptance of our Web-based solution is critical to our future success. If our
existing and potential customers do not adopt our Web-based solution, we will be
unable to increase our revenues and our business and operating results will
suffer. The adoption of our Web-based solution may be hindered by:
- the reluctance of existing and potential customers to change their print
management practices;
- the decision by existing or potential customers to use the products and
services of our competitors;
- the reluctance of our existing and potential customers to accept our
subscription prices; and
- the emergence of new technologies that cause our Web-based solution to be
less competitive or obsolete.
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<PAGE> 11
IF WE FAIL TO SUCCESSFULLY INTEGRATE THE BUSINESSES WE RECENTLY ACQUIRED INTO A
SINGLE ENTERPRISE, OUR BUSINESS WILL SUFFER.
We have completed the following acquisitions and related transactions to
date:
- nth degree software merged with and into Prograph Systems in October
1999;
- Prograph Systems reincorporated in Delaware as printCafe, Inc. in
February 2000;
- we acquired all of the capital stock of PSI in February 2000;
- we acquired all of the capital stock of Hagen in March 2000;
- we acquired all of the capital stock of AHP in March 2000;
- we signed a definitive agreement to acquire approximately 97.5% of the
capital stock of Logic in March 2000; and
- we acquired all of the capital stock of PrintSmith in March 2000.
We have limited experience integrating acquired companies, and we may
encounter unexpected problems relating to, among other things, the diversion of
management's attention to the assimilation of the operations, products and
personnel of the acquired companies, adverse short-term effects on operating
results, integration of financial reporting systems and the amortization of
acquired intangible assets. We may also have trouble integrating the
technologies of these recently acquired companies, which could significantly
harm our ability to fully integrate our printCafe solution on a timely basis, or
at all.
CREO COULD EXERT SUBSTANTIAL CONTROL OVER US.
After this offering Creo, through its affiliate Creo SRL, will beneficially
own 31,186,312 shares of our Class B common stock and 1,132,502 shares of our
Class C common stock, which will represent % of the combined voting power
of our capital stock after this offering. The Class B and Class C common stock
may be converted into Class A common stock at any time. If Creo SRL exercises
its right to convert all of its Class B and Class C common stock to Class A
common stock, Creo SRL's shares will represent % of the combined voting
power of our capital stock after this offering. After such a conversion, Creo
could substantially influence corporate actions that conflict with the interests
of our public stockholders, such as:
- approving or defeating mergers or takeover attempts;
- changing the size and composition of our board of directors and
committees of our board of directors;
- causing us to issue or dispose of securities;
- amending our charter documents;
- determining the amount and time of dividends paid to Creo SRL and holders
of Class A common stock; and
- otherwise controlling management and operations and the outcome of
stockholder votes.
9
<PAGE> 12
SINCE ONE OF OUR DIRECTORS IS THE CHIEF EXECUTIVE OFFICER AND A DIRECTOR OF
CREO, CONFLICTS OF INTEREST MAY ARISE.
Currently, Amos Michelson is a director of our company and the chief
executive officer and a director of Creo, which may create conflicts of
interest. Mr. Michelson has fiduciary duties to manage Creo, including its
investments in subsidiaries and affiliates, in a manner beneficial to Creo and
its stockholders. Similarly, our directors and officers have fiduciary duties to
manage our company in a manner beneficial to us and our stockholders. In some
circumstances, Mr. Michelson's duties to Creo and its stockholders may conflict
with his duties as a director of our company.
AS A RESULT OF OUR RECENT ACQUISITIONS, WE HAVE RECORDED A SIGNIFICANT AMOUNT OF
GOODWILL THAT WILL ADVERSELY AFFECT OUR FUTURE OPERATING RESULTS.
As a result of our recent acquisitions, we have recorded a significant
amount of goodwill that will adversely affect our operating results for the
foreseeable future. Pro forma as of December 31, 1999, we had goodwill of $124.5
million, which we expect to amortize over three years from the dates of these
acquisitions. If the amount of recorded goodwill is increased, or we have future
losses and are unable to demonstrate our ability to recover the amount of
goodwill, the amount of amortization could be increased or the period of
amortization could be shortened. This would increase annual amortization charges
or result in the write-off of goodwill in a one-time non-cash charge, which
could be significant and would likely harm our operating results.
WE EXPECT TO CONTINUE TO INCUR SIGNIFICANT FUTURE NET LOSSES, WHICH MAY CAUSE
OUR STOCK PRICE TO DECLINE.
We incurred an actual net loss of $10.9 million and a pro forma net loss of
$56.7 million for the year ended December 31, 1999. We anticipate that we will
continue to incur net losses for the foreseeable future. If we continue to incur
net losses, we may not be able to hire additional personnel or make necessary
investments in capital equipment, sales, marketing, customer support and
research and development programs in accordance with our present plans. We do
not know when or if we will become profitable. To become profitable, we must
control our costs and significantly increase our revenue through adoption of our
Web-based solution by existing and prospective customers.
WE MAY ENGAGE IN FUTURE ACQUISITIONS OR INVESTMENTS THAT COULD DILUTE YOUR
INVESTMENT, CAUSE US TO INCUR SIGNIFICANT EXPENSES OR HARM OUR BUSINESS.
To expand our business and our customer base, we intend to continue to
pursue acquisition or investment opportunities that we believe would complement
our business or enhance our technological capabilities. To be successful, we
must effectively compete with numerous other potential acquirors. Integrating
any newly acquired businesses, products, services or technologies may be
expensive and time-consuming. To finance any acquisitions or investments, we may
need to raise additional funds through public or private equity or debt
financings. Equity financings would dilute the ownership interests of our
existing stockholders. In addition, we may not be able to operate an acquired
business successfully or effectively integrate any acquired products, services
or technologies. Future acquisitions could also result in large and immediate
write-offs, incurrence of debt and contingent liabilities or amortization of
expenses related to goodwill and other intangibles, any of which could harm our
operating results.
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<PAGE> 13
WE ARE SUBSTANTIALLY DEPENDENT ON OUR STRATEGIC ALLIANCE AGREEMENT WITH CREO,
AND THE TERMINATION OF THAT AGREEMENT WOULD SERIOUSLY HARM OUR BUSINESS.
We are substantially dependent on our strategic alliance agreement with
Creo pursuant to which Creo has agreed to grant us the license to use, modify
and sell all of the technology related to Creo's Web-based print management
services, and provide us with sales support, product servicing services and
research and development services. In addition, Creo has a right of first
refusal to develop all technology used to manipulate or modify digital content,
such as changes to the color or font, and related materials for us. We must
reimburse Creo for costs related to its development of this technology. Creo may
terminate the strategic alliance agreement if we fail to comply with any
provision of the agreement, subject to our ability to cure within 30 days. The
termination of this agreement would significantly harm our business due to the
loss of access to Creo's sales force, and due to the fact that Creo could then
compete with us.
OUR BUSINESS WOULD BE SERIOUSLY HARMED IF WE ARE UNABLE TO ATTRACT AND RETAIN
KEY MANAGEMENT, PRODUCT DEVELOPMENT AND SALES AND MARKETING PERSONNEL.
Our future success depends on the continued services of our current key
management and product development personnel, including William L. Guttman, our
Chairman and Chief Executive Officer, Marc D. Olin, our President and Chief
Operating Officer, Joseph J. Whang, our Chief Financial Officer, David Lemaster,
our Senior Vice President of Worldwide Sales, and Ronald F. Hyland Sr., our
Chief Technology Officer. Our future success also depends on our continuing
ability to identify, attract, train and retain a substantial number of highly
skilled managerial, sales and marketing and technical personnel. Competition for
top management and technical personnel is intense, and we may not be able to
recruit and retain the personnel we need. In addition, most of our existing
management personnel have been employed by us for less than a year and may not
integrate successfully as a team. The loss of any one of our key management
personnel, or the inability to identify, attract, retain and integrate
additional qualified personnel, would make it difficult for us to manage our
business successfully and pursue our strategic objectives.
OUR OPERATING EXPENSES ARE LIKELY TO INCREASE AS WE EXPAND OUR BUSINESS AND IF
OUR REVENUES DO NOT CORRESPONDINGLY INCREASE, OUR BUSINESS AND OPERATING RESULTS
COULD SUFFER.
We expect to increase our operating expenses significantly to:
- integrate the businesses of those companies which we recently acquired;
- expand our sales and marketing organization and activities;
- continue to develop our services and technology; and
- hire additional personnel.
We expect that our operating expenses will continue to increase in absolute
dollars and may increase as a percentage of revenues. If our revenues do not
correspondingly increase, our business and operating results could suffer.
COMPETITION IN THE MARKET FOR PRINT MANAGEMENT IS INTENSE AND OUR BUSINESS WILL
SUFFER IF WE ARE UNABLE TO COMPETE SUCCESSFULLY.
Competition in the market for print management solutions is intense, and we
expect competition to intensify significantly in the future. We currently
compete with companies that offer enterprise software applications for the
printing industry and companies that offer proprietary Web-based print
11
<PAGE> 14
procurement services. We potentially will compete with other companies that
offer business-to-business electronic commerce solutions. Some of our current
and potential competitors have:
- longer operating histories;
- larger customer bases;
- greater brand recognition; and
- significantly greater financial, marketing and other resources.
Our current and potential competitors may develop solutions that are
superior to or achieve greater market acceptance than ours. If we are unable to
provide competitive services, our business will suffer.
WE MAY FAIL TO MEET QUARTERLY FINANCIAL EXPECTATIONS, WHICH MAY CAUSE THE MARKET
PRICE OF OUR CLASS A COMMON STOCK TO DECLINE.
Our operating results are difficult to predict and may vary significantly
from quarter to quarter in the future. Our quarterly operating results may
fluctuate as a result of many factors, including, but not limited to:
- the size and timing of sales and deployment of our Web-based solution;
- market acceptance of and demand for our Web-based solution;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business;
- the costs of integrating acquired companies;
- technical difficulties or system outages;
- the announcement or introduction of new solutions by our competitors;
- changes in our pricing structure or that of our competitors; and
- the fixed nature of our operating expenses.
As a result of the above factors, and since our historical financial
results are not indicative of our future results, our quarterly operating
results are difficult to predict and may fall below market analysts'
expectations in some future quarters, which could lead to a decline in the
market price of our Class A common stock.
OUR RESULTS OF OPERATIONS WILL BE HARMED BY CHARGES ASSOCIATED WITH OUR PAYMENT
OF STOCK-BASED COMPENSATION AND CHARGES ASSOCIATED WITH OTHER SECURITIES
ISSUANCES BY US.
We expect to incur a significant amount of amortization in future periods,
which would negatively affect our operating results. We expect to amortize
approximately $0.4 million of stock-based compensation for the quarter ending
March 31, 2000 and may incur additional amortizable charges in the future in
connection with the grant of stock-based compensation at below market value.
In addition, in March 2000 we issued warrants to purchase an aggregate of
2,505,072 shares of Class A common stock, of which warrants for 1,773,913 shares
are exercisable subject to the occurrence of specified future events or the
achievement of certain milestones. If the exercise price of
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<PAGE> 15
these variable warrants is lower than the market value of our common stock if
and when specified conditions are achieved, we will record an expense. We cannot
quantify the amount of this expense, however based upon the initial public
offering price of $ , the fair value of these warrants is approximately
$ . See Note 13 of Notes to printCafe, Inc.'s Financial Statements. As
a result of issuing these warrants our earnings per share will be adversely
affected.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ENHANCE AND DEVELOP NEW
TECHNOLOGIES.
The market for electronic commerce solutions for the printing industry is
subject to rapidly changing technologies and increasing customer demands. We may
be unable to adapt or enhance our Web-based solution to meet these challenges in
a timely and cost-effective manner. If we fail to improve the integrated
performance features or functionality of our technology, customers may decide
against purchasing our Web-based solution.
OUR TECHNOLOGIES AND PROCESSES MAY CONTAIN UNDETECTED ERRORS OR DEFECTS WHICH
COULD INTERRUPT THEIR OPERATION OR LIMIT THEIR CAPACITY.
Our technologies and processes are complex and may contain undetected
errors or suffer unexpected failures. These errors or failures may disrupt our
operations or those of our customers, damage our reputation, and result in loss
of, or delay in, market acceptance of our Web-based solution. We may discover
software errors in new releases of our technologies and processes after their
introduction. We may experience delays in release, lost revenues and customer
frustration during the period required to correct these errors.
IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITIVE POSITION
AND OUR BUSINESS WOULD BE HARMED.
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success. We rely on patent,
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers and strategic partners to
protect our proprietary rights. These precautions may not prevent
misappropriation or infringement of our intellectual property.
In addition, the status of United States patent protection in the software
and Internet industries is not well defined and will evolve as the U.S. Patent
and Trademark Office grants additional patents. We do not know if any future
patent applications by us will result in a patent being issued within the scope
of the claims we seek, if at all, or whether any patents we may receive will be
challenged or invalidated. In addition, the laws in foreign countries may not
protect our proprietary rights to the same extent as laws in the United States.
WE MAY FACE INTELLECTUAL PROPERTY CLAIMS THAT COULD BE COSTLY TO DEFEND AND
COULD PREVENT US FROM SELLING OUR WEB-BASED PRINT MANAGEMENT SOLUTION.
Third parties may infringe or misappropriate our intellectual property or
assert infringement claims against us. In addition, because the content of
patent applications in the United States are not publicly disclosed until the
patent is issued, applications may have been filed which relate to our Web-based
print management solution. Intellectual property litigation is expensive and
time consuming and could divert management's attention from our business
operations. This litigation could also require us to develop non-infringing
technology or enter into royalty or licensing agreements with third parties.
These royalty or license agreements, if required, may not be available
13
<PAGE> 16
on acceptable terms, if at all. If we cannot develop non-infringing technology
or license the technology, our business would be harmed.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH AND ACCEPTANCE OF THE INTERNET FOR
BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE.
Our success depends on the growth and acceptance of the Internet as a
medium for executing transactions. If companies do not continue to demand
industry specific electronic commerce solutions capable of connecting large
numbers of buyers and suppliers, enabling automated transaction execution and
integrating complex supply chains, then the market for our solution may
disappear. If the market for Web-based print management products and services
fails to grow or grows more slowly than we anticipate, our business would
suffer.
UNPLANNED SYSTEM INTERRUPTIONS AND CAPACITY CONSTRAINTS COULD DISRUPT OUR
BUSINESS AND DAMAGE OUR REPUTATION.
We must offer customers reliable, secure and continuous service to attract
and retain customers and persuade them to increase their reliance on our
Web-based solution. As the volume of data traffic on printCafe-powered Web sites
increases, we must continuously upgrade and enhance our technical infrastructure
to accommodate the increased demands placed on our systems. Our operations also
depend in part on our ability to protect our systems against physical damage
from fire, earthquakes, power loss, telecommunications failures, computer
viruses, unauthorized user access or hacker attacks, physical break-ins and
similar events. Any interruption or decrease in response time of our Web-based
services could damage our reputation, reduce customer satisfaction and decrease
usage of our services.
IF OUR SYSTEM SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER.
A fundamental requirement for online communications and transactions is the
secure transmission of confidential information over public networks. Third
parties may attempt to breach our security or that of our customers. Any breach
in our online security could result in liability to our customers, damage to our
reputation and harm to our business. Our servers are vulnerable to computer
viruses or software programs that disable or impair computers, physical or
electronic break-ins and similar disruptions, which could lead to loss of data.
We may need to spend significant resources to license technologies to protect
against security breaches or to address problems caused by a security breach.
INCREASING GOVERNMENTAL REGULATION ON ELECTRONIC COMMERCE AND LEGAL
UNCERTAINTIES COULD DECREASE DEMAND FOR OUR WEB-BASED PRINT MANAGEMENT SERVICE
OR INCREASE OUR COST OF DOING BUSINESS.
We are subject not only to regulations applicable to businesses generally,
but also to laws and regulations directly applicable to electronic commerce.
Although there are currently few of these laws and regulations, state, federal
and foreign governments may adopt more of these laws and regulations. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our services, increase our cost of doing business or otherwise harm
our business. Federal, state, local and foreign governments are considering a
number of legislative and regulatory proposals relating to Internet commerce. As
a result, a number of laws or regulations may be adopted regarding:
- the pricing and taxation of goods and services offered over the Internet;
- intellectual property ownership; and
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<PAGE> 17
- the characteristics and quality of products and services offered over the
Internet.
It is also uncertain as to how existing laws may be applied to the Internet
in areas such as property ownership, copyright, trademark and trade secrets. The
recent growth of Internet commerce has been attributed by some to the lack of
sales and value-added taxes on interstate sales of goods and services over the
Internet. Numerous state and local authorities have expressed a desire to impose
such taxes on sales to consumers and businesses in their jurisdictions. The
Internet Tax Freedom Act of 1998 prevents imposition of such taxes through
October 2001. If the federal moratorium on state and local taxes on Internet
sales is not renewed, or if it is terminated before its expiration, sales of
goods and services over the Internet could be subject to multiple overlapping
tax schemes, which could substantially hinder the growth of Web-based commerce,
including sales of our solution.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES
AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
Prior to this offering, our Class A common stock was not publicly traded.
An active trading market may not develop or be sustained after this offering.
You may not be able to sell your shares at or above the initial offering price.
The market price for our shares of Class A common stock is likely to be
very volatile due to a number of factors, including:
- actual or anticipated fluctuations in our quarterly operating results;
- changes in, or our failure to meet, analysts' or investors' estimates or
expectations;
- changes in market valuations of similar companies;
- the gain or loss of significant customers;
- announcements of significant contracts or new products and services by us
or our competitors;
- acquisitions, strategic partnerships, joint ventures or capital
commitments by us or our competitors;
- additions or departures of key personnel;
- release of lock-up or other transfer restrictions on our outstanding
shares of Class A common stock or sales of additional shares of Class A
common stock;
- general conditions in the Internet commerce and printing industries; and
- other events or factors that negatively affect the stock market.
WE MAY NEED ADDITIONAL CAPITAL, AND DIFFICULTY IN OBTAINING ADDITIONAL CAPITAL
COULD HARM OUR BUSINESS.
We believe that the net proceeds of this offering, together with cash from
operations and our existing cash and cash equivalents, will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next 12 months. However, we may choose to, or need to, raise
additional capital due to unforeseen circumstances or changes in our growth
strategy. Our future capital requirements will depend on many factors that are
difficult to predict, including:
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<PAGE> 18
- our rate of revenue growth;
- our operating losses;
- the cost of converting existing customers to our Web-based service and
obtaining new customers;
- the cost of upgrading, maintaining and integrating our infrastructure and
other systems; and
- the size, timing and structure of any acquisition that we complete.
As a result, we cannot predict with certainty the timing or amount of our
future capital needs. We have no commitments for additional financing, and we
may experience difficulty in obtaining additional funding on favorable terms, or
at all. Any difficulty in obtaining additional financial resources could force
us to curtail our operations or prevent us from pursuing our growth strategy.
Any future funding may dilute the ownership of our stockholders or impose
limitations on our operations.
WE MAY BECOME INVOLVED IN SECURITIES CLASS ACTION LITIGATION, WHICH COULD DIVERT
MANAGEMENT'S ATTENTION FROM OUR BUSINESS AND HARM OUR BUSINESS.
The stock market has experienced significant price and volume fluctuations
that have affected the market prices for the common stock of technology
companies, particularly Internet companies. These broad market fluctuations may
cause the market price of our common stock to decline. Securities class action
litigation has often been brought against a company following periods of
volatility with respect to that company's stock price. We may become involved in
this type of litigation in the future. This type of litigation is often
expensive and diverts management's attention and resources from our business,
which could harm our business and operating results.
PURCHASERS OF OUR CLASS A COMMON STOCK WILL SUFFER IMMEDIATE AND SUBSTANTIAL
DILUTION.
Purchasers of our Class A common stock in this offering will experience
immediate dilution of $ per share based on an assumed initial public
offering price of $ . Purchasers will also experience additional
dilution upon the exercise of outstanding options and warrants. The initial
public offering price is expected to be substantially higher than the book value
per share of our Class A common stock.
IF WE DO NOT USE THE PROCEEDS FROM THIS OFFERING IN A MANNER BENEFICIAL TO US,
OUR BUSINESS COULD SUFFER.
Our management will have broad discretion over the manner in which the
proceeds of this offering are applied. As a result, our management may not spend
the proceeds from this offering in ways which may be beneficial to us or our
stockholders. See "Use of Proceeds."
OUR EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER ALL
MATTERS REQUIRING STOCKHOLDER APPROVAL.
On completion of this offering, our executive officers, directors and 5%
stockholders and other affiliates, will beneficially own, in the aggregate,
approximately % of our outstanding Class A common stock. As a result, these
stockholders, acting together, would be able to exercise significant control
over all matters requiring stockholder approval, including the election of
directors and
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<PAGE> 19
approval of significant corporate transactions, which may have the effect of
delaying or preventing a third party from acquiring control over us.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW CONTAIN PROVISIONS THAT MAY
DISCOURAGE A TAKEOVER, WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO
PAY IN THE FUTURE FOR OUR CLASS A COMMON STOCK.
Provisions of our certificate of incorporation and our bylaws may have the
effect of delaying or preventing an acquisition, a merger in which we are not
the surviving company or changes in our management. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law. These provisions may prohibit large
stockholders, in particular those owning 15% or more of the outstanding voting
stock, from consummating a merger or combination including us. These provisions
could limit the price that investors might be willing to pay in the future for
our Class A common stock.
FUTURE SALES OF OUR CLASS A COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of our Class A common stock into
the public market after this offering could cause the market price of our Class
A common stock to drop significantly. After this offering, we will have
outstanding shares of Class A common stock assuming no exercise of the
underwriters' over-allotment option. All the shares sold in this offering will
be freely tradable at the date of this prospectus.
Substantially all of the holders of our Class A common stock and stock
options are subject to agreements that limit their ability to sell Class A
common stock. These holders cannot sell or otherwise dispose of any shares of
Class A common stock for a period of at least 180 days after the date of this
prospectus without the prior written approval of Donaldson, Lufkin & Jenrette.
However, if the average price of our shares appreciates by a specified amount
following the date of this prospectus, those holders who are not our officers,
directors or affiliates may be eligible to sell up to 25% of their shares either
90 days after the date of this prospectus or on the second business day
following the release of our next quarterly financial statements, whichever day
comes first. Under these agreements, such holders may also be eligible to sell
an additional 25% of their shares 135 days after the date of this prospectus if
the average price of our shares continues to equal or exceed the targeted
amount. When these agreements expire, all of the shares of Class A common stock
and the shares underlying the options will become eligible for sale, in most
cases only pursuant to the volume, manner of sale and notice requirements of
Rule 144.
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<PAGE> 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Pro Forma Condensed Consolidated Financial
Statements," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
prospectus. They include statements concerning:
- our business strategy;
- liquidity and capital expenditures;
- our use of the proceeds of the offering;
- future sources and nature of revenue;
- future expenses and investments;
- future profitability;
- expansion of our services and technologies;
- sales trends;
- trends in the print industry generally;
- Year 2000 issues;
- trends in government regulation; and
- payment of dividends.
You can identify these statements by forward-looking words such as
"expect," "anticipate," "believe," "goal," "plan," "intend," "estimate,"
"predict," "potential," "continue," "may," "will" and "should" or similar words.
You should be aware that these statements are subject to known and unknown
risks, uncertainties and other factors, including those discussed in the section
entitled "Risk Factors," that could cause the actual results to differ
materially from those suggested by the forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements.
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<PAGE> 21
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of Class A
common stock we are offering will be approximately $ million, at an assumed
initial public offering price of $ per share, after deducting the estimated
underwriters' discount and offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $ million.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our Class A common stock, to enhance our ability
to acquire other businesses, products or technologies and to facilitate future
access to public equity markets. We intend to use approximately $32.8 million of
the net proceeds of this offering for repayment of debt as indicated below. We
intend to use the remaining net proceeds for working capital and other general
corporate purposes. We may also use a portion of the net proceeds from this
offering to acquire or invest in businesses, technologies or products that are
complementary to our business. Except as described under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments," we currently have no commitments or
agreements with respect to any acquisitions. Pending our use of the net
proceeds, we intend to invest them in interest-bearing, investment grade
securities.
The principal amounts and interest rates as of March 10, 2000 of the
outstanding indebtedness which we intend to repay with a portion of the net
proceeds of this offering are summarized in the following table:
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING INTEREST RATE
HOLDER OF PROMISSORY NOTE AS OF MARCH 10, 2000 AS OF MARCH 10, 2000
<S> <C> <C>
Shareholders of Hagen Systems, Inc. ............. $ 6.0 million 8.75%
Shareholders of Logic Associates, Inc. .......... $23.8 million 8.00%
Shareholders of M Data, Inc. dba PrintSmith...... $ 3.0 million 8.00%
-------------
Total.................................. $32.8 million
</TABLE>
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and we do not anticipate paying any cash
dividends in the foreseeable future.
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<PAGE> 22
CAPITALIZATION
The following table illustrates our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to the (i) acquisitions of PSI,
Hagen and Logic, (ii) preferred and common stock financings completed by
us subsequent to December 31, 1999 and (iii) conversion of all
outstanding shares of preferred stock into shares of Class A and Class B
common stock upon the closing of this offering; and
- on the same pro forma basis as above, adjusted to give effect to the
receipt of the net proceeds from the sale by us of the shares of Class A
common stock offered hereby at an assumed initial public offering price
of $ per share, after deducting the estimated underwriters'
discount and offering expenses and the repayment of $32.8 million of
outstanding indebtedness as described in "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt...................... $ 1,538 $ 1,429
Current portion of capital lease obligations........... 102 102
Long-term debt, less current portion................... 953 59,355
Obligations under capital leases....................... 93 131
Series B redeemable convertible preferred stock,
$0.0001 par value; no shares authorized actual;
31,250,000 shares authorized pro forma; no shares
issued and outstanding actual; 31,186,312 shares
issued and outstanding pro forma; none pro forma as
adjusted............................................. -- 24,011
Series C redeemable convertible preferred stock,
$0.0001 par value; no shares authorized actual;
2,015,082 shares authorized pro forma; no shares
issued and outstanding actual; 1,765,082 shares
issued and outstanding pro forma; none pro forma as
adjusted............................................. -- 9,337
Series C-1 redeemable convertible preferred stock,
$0.0001 par value; no shares authorized actual;
150,000 shares authorized pro forma; no shares issued
and outstanding actual; 150,000 shares issued and
outstanding pro forma; none pro forma as adjusted.... -- 770
Series D redeemable convertible preferred stock,
$0.0001 par value; no shares authorized actual;
550,000 shares authorized pro forma; no shares issued
and outstanding actual; 58,125 shares issued and
outstanding pro forma; none pro forma as adjusted.... -- 463
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Series D-1 redeemable convertible preferred stock,
$0.0001 par value; no shares authorized actual;
225,000 shares authorized, issued and outstanding pro
forma; none pro forma as adjusted.................... -- 1,787
Stockholders' equity (deficit):
Series A convertible preferred stock, $0.0001 par
value; 5,000,000 shares authorized actual;
2,500,000 shares authorized pro forma; 2,455,798
shares issued and outstanding actual and pro
forma; none pro forma as adjusted............... -- --
Series A-1 convertible preferred stock, $0.0001
par value; 15,000,000 shares authorized actual;
10,250,000 shares authorized pro forma;
9,725,096 shares issued and outstanding actual
and pro forma; none pro forma as adjusted....... 1 1
Common stock, $0.0001 par value; 25,000,000 shares
authorized actual; 3,907,968 shares issued and
outstanding actual; no shares authorized, issued
and outstanding pro forma and pro forma as
adjusted........................................ -- --
Class A common stock, $0.0001 par value; no shares
authorized actual; 118,750,000 shares authorized
pro forma; no shares issued and outstanding
actual; 8,821,064 shares issued and outstanding
pro forma; shares issued and
outstanding pro forma as adjusted............... -- 1
Class B common stock, $0.0001 par value; no shares
authorized actual; 31,250,000 shares authorized
pro forma; no shares issued and outstanding
actual and pro forma; and 31,186,312 shares
issued and outstanding pro forma as adjusted.... -- --
Class C common stock, $0.0001 par value; no shares
authorized actual; 1,150,000 shares authorized
pro forma; no shares issued and outstanding
actual; 1,132,502 shares issued and outstanding
pro forma and pro forma as adjusted............. -- --
Additional paid-in capital............................. 18,268 67,082
Accumulated deficit.................................... (11,428) (11,428)
Treasury stock......................................... (158) (158)
Notes receivable from Class A common stockholders...... (1,721) (1,721)
-------- -------- --------
Total stockholders' equity............................. 4,962 53,777
-------- -------- --------
Total capitalization................................... $ 7,648 $151,162
======== ======== ========
</TABLE>
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<PAGE> 24
This table excludes the following shares:
- 908,037 shares of our Class A common stock reserved for issuance under
our 1999 stock incentive plan, of which 899,191 shares were subject to
options outstanding as of March 10, 2000 with a weighted average exercise
price of $1.18 per share;
- 10,000,000 shares of our Class A common stock reserved for issuance under
our 2000 stock incentive plan, of which 1,156,169 shares were subject to
options outstanding as of March 10, 2000 with a weighted average exercise
price of $6.91 per share;
- 566,764 shares of our Class A common stock issued in March 2000 in
connection with the acquisitions of AHP and PrintSmith;
- 2,500,000 shares of our common stock reserved for issuance under our 2000
employee stock purchase plan none of which shares are outstanding;
- 2,505,072 shares of our Class A common stock issuable upon exercise of
warrants granted after December 31, 1999, with a weighted average
exercise price of $7.58 per share.
- 66,666 shares of our Class A common stock issued in March 2000 in
connection with the purchase of advertising, and
- 190,948 shares of Series A-1 convertible preferred stock repurchased by
us on March 8, 2000.
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<PAGE> 25
DILUTION
The pro forma net tangible book value of our Class A common stock as of
December 31, 1999 was approximately $ , or $ per share of Class A common
stock. Pro forma net tangible book value represents the amount of total tangible
assets less total liabilities divided by the total number of shares of Class A
common stock outstanding, after giving effect to the acquisitions of PSI, Hagen
and Logic, the related preferred and common stock financings and the conversion
of all shares of preferred stock outstanding at December 31, 1999. After giving
effect to the sale of the shares of Class A common stock offered by us
at an assumed initial public offering price of $ per share, and application
of the estimated net proceeds from this sale after deducting repayment of
certain indebtedness incurred in connection with the acquisitions listed above,
our pro forma net tangible book value as of December 31, 1999 would have been
$ , or $ per share of Class A common stock. This represents an immediate
increase in 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 per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering............................................... $
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, as of December 31, 1999, on the pro forma
basis described above, the differences between the existing stockholders and new
investors with respect to the number of shares of Class A common stock purchased
from us, the total consideration paid to us and the average price per share
paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... % $ % $
New investors............................
------ ----- ------ ------
Totals......................... 100.0% $ 100.0%
====== ===== ====== ======
</TABLE>
The information presented with respect to existing stockholders excludes:
- 908,037 shares of our Class A common stock reserved for issuance under
our 1999 stock incentive plan, of which 899,191 shares were subject to
options outstanding as of March 10, 2000 with a weighted average exercise
price of $1.18 per share;
- 10,000,000 shares of our Class A common stock reserved for issuance under
our 2000 stock incentive plan, of which 1,156,169 shares were subject to
options outstanding as of March 10, 2000 with a weighted average exercise
price of $6.91 per share;
- 2,500,000 shares of our Class A common stock reserved for future issuance
under our 2000 employee stock purchase plan, none of which shares are
outstanding;
- 2,505,072 shares of our Class A common stock issuable upon exercise of
warrants granted after December 31, 1999, with a weighted average
exercise price of $7.58 per share;
- 566,764 shares of our Class A common stock issued in March 2000 in
connection with the acquisitions of PrintSmith and AHP;
- 66,666 shares of Class A Common Stock issued in March 2000 in connection
with the purchase of advertising; and
- 190,948 shares of Series A-1 convertible preferred stock repurchased by
us in March 2000.
See "Management -- Stock Plans," "Related Party Transactions" and Note 13
of Notes to printCafe, Inc.'s Financial Statements.
23
<PAGE> 26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data is
derived from the historical consolidated financial statements of printCafe,
Inc., nth degree software, PSI, Hagen and Logic. The unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1999 and the unaudited pro forma condensed consolidated balance sheet as of
December 31, 1999 are adjusted to give effect to the following:
- the common control merger of Prograph Management Systems, Inc., Prograph
Bindery Systems, Inc., Prograph Production Systems, Inc. and Prograph
Progiciels, Inc.;
- the acquisitions of nth degree, PSI, Hagen and Logic; and
- the issuances of preferred and common stock occurring after December 31,
1999 and the application of the net proceeds thereon,
as if those acquisitions and issuances had occurred as of January 1, 1999 with
respect to the unaudited pro forma condensed consolidated statement of
operations, and December 31, 1999 with respect to the unaudited pro forma
condensed consolidated balance sheet.
The unaudited pro forma adjustments are based upon available information
and certain assumptions that we believe are factually supportable. The unaudited
pro forma condensed consolidated financial data does not purport to represent
what our consolidated results of operations or consolidated financial position
would have been had the acquisitions and issuances described above actually
occurred on the dates indicated. In addition, the unaudited pro forma condensed
consolidated financial data does not purport to project our consolidated results
of operations or consolidated financial position for the current year or any
future date or period. You should read the unaudited pro forma condensed
consolidated financial data in conjunction with the financial statements of
printCafe, nth degree software, PSI, Hagen and Logic and the related notes
included in this prospectus.
24
<PAGE> 27
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NTH DEGREE
TEN MONTHS
HISTORICAL ENDED
COMPANY OCTOBER 31, 1999 PSI HAGEN LOGIC ADJUSTMENTS PRO FORMA
---------- ---------------- ------- ------- ------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licensing.... $ 1,298 $ 403 $ 6,177 $ 7,412 $ 4,183 $ -- $ 19,473
Consulting............ 2,023 317 1,640 2,392 4,333 -- 10,705
Maintenance........... 1,090 194 3,802 5,414 9,911 -- 20,411
---------- ------ ------- ------- ------- -------- ------------
Total
revenue...... 4,411 914 11,619 15,218 18,427 -- 50,589
Cost of revenue:
Software licensing.... 129 142 1,072 1,433 757 -- 3,533
Consulting............ 966 288 1,305 1,180 2,821 -- 6,560
Maintenance........... 320 121 1,559 3,543 3,799 -- 9,342
---------- ------ ------- ------- ------- -------- ------------
Total cost of
revenue............. 1,415 551 3,936 6,156 7,377 -- 19,435
---------- ------ ------- ------- ------- -------- ------------
Gross Profit... 2,996 363 7,683 9,062 11,050 -- 31,154
Operating expenses:
Product development... 1,900 112 1,486 2,306 1,977 -- 7,781
General and
administrative...... 2,704 241 2,999 3,981 3,340 -- 13,265
Sales and marketing... 848 761 2,647 2,125 3,579 -- 9,960
Depreciation and
amortization........ 1,006 113 285 549 965 40,984(1) 43,902
Stock-based
compensation........ 7,274 -- -- -- -- -- 7,274
---------- ------ ------- ------- ------- -------- ------------
Total operating
expenses............ 13,732 1,227 7,417 8,961 9,861 40,984 82,182
---------- ------ ------- ------- ------- -------- ------------
Income (loss)
from
operations... (10,736) (864) 266 101 1,189 (40,984) (51,028)
Other income (expense):
Interest and dividend
income.............. 21 3 76 85 18 -- 203
Interest expense...... (87) (46) -- -- (104) (5,693)(2) (5,930)
Gain (loss) on sale of
investments......... -- -- -- 62 -- -- 62
Minority interest..... (107) -- -- -- -- 83(3) (24)
Other income
(expense)........... (10) -- -- -- (12) -- (22)
---------- ------ ------- ------- ------- -------- ------------
Total other
income
(expense).... (183) (43) 76 147 (98) (5,610) (5,711)
---------- ------ ------- ------- ------- -------- ------------
Income (loss)
before
taxes........ (10,919) (907) 342 248 1,091 (46,594) (56,739)
Income tax expense...... -- -- 7 -- 120 (127)(4) --
---------- ------ ------- ------- ------- -------- ------------
Net income (loss)....... $ (10,919) $ (907) $ 335 $ 248 $ 971 $(46,467) $ (56,739)
========== ====== ======= ======= ======= ======== ============
Basic and diluted net
income (loss) per
common share.......... $ (1.43) $ (4.15)
========== ============
Weighted average common
shares outstanding.... 7,627 13,672
========== ============
</TABLE>
25
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Represents the amortization expense resulting from the increase in goodwill
which is being amortized over a three year period. The merger of all
entities under common control and the acquisitions have been accounted for
using the purchase method and accordingly, each purchase price has been
allocated to the acquired assets and liabilities assumed on the basis of
their fair values on the acquisition dates. Goodwill resulting from these
transactions relates to the following:
<TABLE>
<S> <C>
Acquisitions:
nth degree software....................................... $ 9,375
PSI....................................................... 23,902
Hagen..................................................... 38,482
Logic..................................................... 52,502
Merger of all entities under common control................. 1,013
--------
Pro forma goodwill as of January 1, 1999.................... $125,274
========
Annual amortization......................................... $ 41,758
Amortization recorded in the historical financial
statements................................................ (774)
--------
Pro forma adjustment........................................ $ 40,984
========
</TABLE>
(2) Reflects the repayment of debt upon the closing of the preferred and common
stock offerings and the related decrease in interest expense, and the
increase in debt issued and related interest expense in connection with the
acquisitions as follows:
<TABLE>
<S> <C>
Increases:
Notes payable in connection with the acquisition of Logic
($23,764 at 8% and
$22,974 at 12%)........................................ $4,690
Notes payable in connection with the acquisition of Hagen
($12,000 at 8.5%)...................................... 1,020
Notes payable in connection with the acquisition of nth
degree software ($920 at 9% less actual interest
expense recorded in the historical financial statement
of $14)................................................ 69
Decreases:
Line of credit (average balance of $620 at an average
interest rate of 8.13%)................................ (50)
Note payable to bank due July 1, 2004 (amount represents
actual interest expense)............................... (29)
Note payable to bank due March 1, 2000 (balance of $423
outstanding for two months at 10.5%)................... (7)
------
Pro forma adjustment...................................... $5,693
======
</TABLE>
(3) Adjustment to reflect 2.5% minority interest of Logic based on net income of
$971 (($24)) and elimination of minority interest resulting from common
control merger ($107).
(4) Adjustment to reflect income taxes at the amount which would have been
recognized on a consolidated basis.
26
<PAGE> 29
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL
COMPANY PSI HAGEN LOGIC ADJUSTMENTS PRO FORMA
---------- ------ ------ ------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ -- $ 14 $1,135 $ 692 $ 20,853(1) $ 22,694
Marketable securities....................... -- -- 633 -- -- 633
Accounts receivable, net.................... 1,588 1,629 1,224 2,458 -- 6,899
Other current assets........................ 135 279 711 953 -- 2,078
-------- ------ ------ ------- -------- --------
Total current assets............... 1,723 1,922 3,703 4,103 20,853 32,304
Property and equipment, net................. 502 634 451 1,337 -- 2,924
Deferred taxes.............................. -- -- -- 1,030 (1,030)(2) --
Goodwill, net............................... 9,615 -- -- -- 114,886(2) 124,501
Other noncurrent assets..................... -- 469 1,575 676 -- 2,720
-------- ------ ------ ------- -------- --------
Total assets....................... $ 11,840 $3,025 $5,729 $ 7,146 $134,709 $162,449
======== ====== ====== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Line of credit.............................. $ 500 $ -- $ -- $ 500 $ (500)(1) $ 500
Accounts payable............................ 945 496 359 889 -- 2,689
Current portion of long term debt and
capital lease obligations................. 1,640 -- 296 176 (581)(1) 1,531
Deferred revenue............................ 1,993 438 1,427 1,057 -- 4,915
Other current liabilities................... 754 493 1,229 646 -- 3,122
-------- ------ ------ ------- -------- --------
Total current liabilities.......... 5,832 1,427 3,311 3,268 (1,081) 12,757
Long-term debt.............................. 953 -- -- 343 58,059(2) 59,355
Obligations under capital lease............. 93 -- -- 38 -- 131
-------- ------ ------ ------- -------- --------
Total liabilities.................. 6,878 1,427 3,311 3,649 56,978 72,243
Redeemable preferred stock.................. -- -- -- -- 36,368(1) 36,368
Minority interest........................... -- -- -- -- 61(2) 61
Shareholders' equity
Convertible Preferred Stock
Series A................................ -- -- -- -- -- --
Series A-1.............................. 1 -- -- -- -- 1
Common Stock..............................
Class A................................. -- -- -- -- 1(3) 1
Class B................................. -- -- -- -- -- --
Class C................................. -- -- -- -- --(3) --
Common Stock.............................. -- 80 2 4,105 (4,187)(4) --
Additional paid-in capital................ 18,268 -- -- 2,198 46,616(3) 67,082
Retained earnings (deficit)............... (11,428) 1,518 2,274 (2,806) (986)(4) (11,428)
Accumulated other comprehensive income.... -- -- 142 -- (142)(4) --
Treasury stock............................ (158) -- -- -- -- (158)
Notes receivable from common
shareholders............................ (1,721) -- -- -- -- (1,721)
-------- ------ ------ ------- -------- --------
Total shareholders' equity.................. 4,962 1,598 2,418 3,497 41,302 53,777
-------- ------ ------ ------- -------- --------
Total liabilities and shareholders'
equity.................................... $ 11,840 $3,025 $5,729 $ 7,146 $134,709 $162,449
======== ====== ====== ======= ======== ========
</TABLE>
27
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(1) Reflects the issuances of preferred and common stock and cash paid for
acquisitions as follows:
<TABLE>
<S> <C>
Source of Proceeds:
Financing transactions:
Preferred stock:
Series B redeemable preferred stock (net of $1,000
issuance costs)..................................... $24,011
Series C redeemable preferred stock (net of $900
issuance costs)..................................... 9,337
Series C-1 redeemable preferred stock (net of $100
issuance costs)..................................... 770
Series D redeemable preferred stock (net of $50
issuance costs)..................................... 463
Series D-1 redeemable preferred stock (net of $200
issuance costs)..................................... 1,787
-------
Total redeemable preferred stock..................... 36,368
Common stock:
Class A common stock (net of $200 issuance
costs).......................................... 1,795
Class C common stock (net of $1,050 issuance
costs).......................................... 8,950
-------
47,113
Application of Proceeds:
Acquisitions:
PSI.................................................... 15,000
Hagen.................................................. 8,000
Transaction costs (excluding stock issuance costs of
$3,500)................................................ 1,500
Paydown of line of credit................................. 500
Paydown of current debt and lease obligations............. 581
Paydown of long-term debt................................. 679
-------
26,260
-------
$20,853
=======
</TABLE>
(2) The estimated purchase price is as follows:
<TABLE>
<CAPTION>
PSI HAGEN LOGIC TOTAL
------- ------- ------- --------
<S> <C> <C> <C> <C>
Purchase price:
Cash................................. $15,000 $ 8,000 $ - $ 23,000
Notes payable........................ -- 12,000 46,738 58,738
Common stock......................... 10,000 20,400 7,670 38,070
Minority interest(a)................. -- -- 61 61
Transaction costs.................... 500 500 500 1,500
------- ------- ------- --------
$25,500 $40,900 $54,969 $121,369
======= ======= ======= ========
</TABLE>
The adjustment to long-term debt consists of the following:
<TABLE>
<S> <C>
Issuance of notes payable................................... $58,738
Paydown of long-term debt(1)................................ (679)
-------
$58,059
=======
</TABLE>
- ---------------
(a) Adjustment to reflect 2.5% minority interest in Logic.
28
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
The preliminary purchase price allocation is as follows:
<TABLE>
<CAPTION>
PSI HAGEN LOGIC TOTAL
------- ------- ------- --------
<S> <C> <C> <C> <C>
Estimated adjustment for goodwill...... $23,902 $38,482 $52,502 $114,886
Deferred income taxes.................. -- -- (1,030) (1,030)
Fair value of net assets acquired...... 1,598 2,418 3,497 7,513
------- ------- ------- --------
$25,500 $40,900 $54,969 $121,369
======= ======= ======= ========
</TABLE>
(3) To reflect the issuances of preferred and common stock as follows:
<TABLE>
<CAPTION>
AMOUNT ADDITIONAL
RECORDED PAID-IN
SHARES PAR VALUE AS CAPITAL CAPITAL
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Class A common stock............. 8,821,064 0.0001 1 $ 39,864
Class C common stock............. 1,132,502 0.0001 -- 8,950
Elimination of additional paid-in
capital of acquired
businesses..................... (2,198)(4)
--------
$ 46,616
========
</TABLE>
(4) To eliminate the shareholders' equity accounts of acquired businesses as
follows:
<TABLE>
<CAPTION>
ADDITIONAL RETAINED ACCUMULATED OTHER
COMMON PAID-IN EARNINGS COMPREHENSIVE
STOCK CAPITAL (DEFICIT) INCOME
------ ---------- --------- -----------------
<S> <C> <C> <C> <C>
PSI.......................... $ 80 $ -- $ 1,518 $ --
Hagen........................ 2 -- 2,274 142
Logic........................ 4,105 2,198 (2,806) --
------ ------ ------- ----
$4,187 $2,198 $ 986 $142
====== ====== ======= ====
</TABLE>
29
<PAGE> 32
SELECTED FINANCIAL DATA
The selected financial and operating data set forth below should be read in
conjunction with the financial statements, the notes thereto and the other
information contained in this prospectus. The selected balance sheet data as of
December 31, 1998 and 1999 and the selected statement of operations data for the
three years ended December 31, 1999 have been derived from our audited financial
statements appearing elsewhere in this prospectus. The selected balance sheet
data as of December 31, 1995, 1996 and 1997 and the selected statement of
operations data for the two years ended December 31, 1996 have been derived from
our unaudited financial statements not included in this prospectus. The
unaudited financial statements have been prepared by us on a basis consistent
with the audited financial statements appearing elsewhere in this prospectus
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for fair presentation of such data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software licensing............................... $1,697 $2,079 $1,835 $2,228 $ 1,298
Consulting....................................... 526 1,102 1,851 2,107 2,023
Maintenance...................................... 198 387 391 907 1,090
------ ------ ------ ------ --------
Total revenue............................... 2,421 3,568 4,077 5,242 4,411
Cost of revenue:
Software licensing............................... 273 399 274 267 129
Consulting....................................... 164 240 661 675 966
Maintenance...................................... 49 52 152 160 320
------ ------ ------ ------ --------
Total cost of revenue....................... 486 691 1,087 1,102 1,415
------ ------ ------ ------ --------
Gross profit........................................ 1,935 2,877 2,990 4,140 2,996
Operating expenses:
Product development.............................. 759 1,092 1,243 1,601 1,900
General and administrative....................... 664 1,032 1,544 1,651 2,704
Sales and marketing.............................. 239 320 470 397 848
Depreciation and amortization.................... 101 152 146 199 1,006
Stock-based compensation......................... -- -- -- 254 7,274
------ ------ ------ ------ --------
Total operating expenses.................... 1,763 2,596 3,403 4,102 13,732
------ ------ ------ ------ --------
Income (loss) from operations....................... 172 281 (413) 38 (10,736)
Other income (expense).............................. 15 12 (91) (22) (183)
------ ------ ------ ------ --------
Net income (loss)................................... $ 187 $ 293 $ (504) $ 16 $(10,919)
====== ====== ====== ====== ========
Basic and diluted net income (loss) per share....... $ .02 $ .03 $ (.06) $ .00 $ (1.43)
====== ====== ====== ====== ========
Weighted average shares............................. 8,591 8,591 8,591 8,591 7,627
====== ====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................ $387 $ 536 $ (442) $ (566) $(4,109)
Total assets............................. 934 1,939 2,277 2,025 11,840
Long term obligations, less current
portion............................... 209 76 98 68 1,046
Total stockholders' equity (deficit)..... 295 653 (150) (489) 4,962
</TABLE>
30
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read together with "Selected Financial Data" and
our financial statements and related notes appearing elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading provider of comprehensive business-to-business electronic
commerce solutions for the printing industry. We recently launched our printCafe
solution, which is designed to connect print buyers, printers and printing
industry suppliers and automate the printing process by integrating a new
Web-based print procurement platform with our existing advanced suite of print
design, specification, manufacturing, distribution and supply chain management
enterprise software applications. We believe that printCafe is the first
end-to-end electronic commerce solution capable of integrating and automating
the entire printing process. printCafe is available through our printCafe.com
Web site or as a hosted application service through privately-branded Web sites
that we create for printers, suppliers and print buyers.
We sell printCafe through our 40-person direct sales organization and the
127-person direct sales organization of our strategic partner, Creo. Our target
customers include the more than 6,500 printing facilities, suppliers and print
buyers worldwide that already employ our printing and publishing software
applications and the more than 1,400 printing facilities worldwide that already
employ Creo's computer-to-plate pre-press products. We also market printCafe
indirectly through co-marketing agreements with Andersen Consulting and other
strategic partners and through the sales organizations of our printer and
supplier customers.
Since its launch on February 9, 2000, a number of leading print buyers,
printers and suppliers have signed contracts to use printCafe, including
American Airlines, Andersen Consulting, Champion International Corporation,
Costco, Primedia-Intertec, Reader's Digest, Rodale Press, The Sheridan Group,
Time Warner and Weider Publications.
Our predecessor company, Prograph Systems, Inc., has been a leading
provider of software applications for the printing industry since 1986. In
October 1999, Prograph Systems merged with nth degree software, inc., a leading
provider of software applications for print buyers. In February 2000, Prograph
Systems changed its name to printCafe, Inc., and launched the new Web-based
printCafe solution. During 1999, we committed significant resources in an effort
to develop printCafe, including developing an infrastructure, building a
management team and hiring additional personnel. As a result, we incurred a net
loss of $10.9 million in 1999 and had an accumulated deficit of approximately
$11.4 million as of December 31, 1999.
Our historical revenue was derived from fees for software licensing and
related maintenance and consulting. Software licensing revenue is generally
recognized upon installation and acceptance by the customer provided that
collection is probable. Revenue derived from service and maintenance contracts
is recognized ratably over the period during which the applicable service is
performed or the term of the contract.
With the launch of printCafe, we expect to derive an increasing percentage
of our revenue going forward by selling printCafe subscription agreements to
printers and their suppliers. Subscription fees
31
<PAGE> 34
will vary according to the needs of, and level of functionality required by,
each customer. We will continue to perform obligations under our existing
service and maintenance contracts for customers who do not wish to transition to
printCafe.
RECENT DEVELOPMENTS
As part of our strategy to build a fully-integrated, end-to-end electronic
commerce solution for the printing industry, we have entered into the following
agreements and/or consummated the following transactions:
STRATEGIC ALLIANCE WITH CREO PRODUCTS, INC. In February 2000, we entered
into a comprehensive strategic alliance with Creo, a leading provider of
pre-press software products. As part of the alliance, Creo SRL, an affiliate of
Creo, received 31,186,312 shares of our Series B preferred stock and contributed
$25.0 million in cash, and Creo signed a comprehensive services agreement
providing us use of its global employee base, granted us an exclusive license to
all of the technology related to its print management services business and
signed a reciprocal non-compete agreement.
PROGRAMMED SOLUTIONS, INC. In February 2000, we acquired all of the capital
stock of PSI, a leading provider of production and enterprise resource planning
software products for commercial printing. PSI shareholders received $15.0
million in cash and 1,724,138 shares of our Class A common stock as
consideration.
HAGEN SYSTEMS, INC. In March 2000, we acquired Hagen, a leading provider of
production and enterprise resource planning software products for commercial
printing. Hagen shareholders received $8.0 million in cash, promissory notes in
an aggregate principal amount of $12.0 million, and 2,310,305 shares of our
Class A common stock as consideration.
A.H.P. SYSTEMS, INC. In March 2000, we acquired AHP, a provider of
production and enterprise resource planning software products for commercial
printing. The AHP shareholder received $0.8 million in cash and 396,552 shares
of our Class A common stock as consideration.
LOGIC ASSOCIATES, INC. In March 2000, we signed a definitive agreement to
acquire approximately 97.5% of the outstanding capital stock of Logic, a leading
provider of production and enterprise resource planning software products for
commercial printing. Logic shareholders who entered into the definitive
agreement will receive promissory notes in an aggregate principal amount of
$46.7 million and 652,727 shares of our Class A common stock as consideration.
M DATA, INC. DBA PRINTSMITH. In March 2000, we acquired all of the
outstanding capital stock of PrintSmith, a leading provider of production and
enterprise resource planning software products for commercial printing.
PrintSmith shareholders received $2.0 million in cash, promissory notes in an
aggregate principal amount of $7.0 million and 170,212 shares of our Class A
common stock as consideration.
We accounted for the acquisition of nth degree software using the purchase
method of accounting. Accordingly, their results of operations have been
included in our financial statements since October 29, 1999, the date of
acquisition. Because the transactions with PSI, Hagen, AHP, Logic and PrintSmith
had not been completed prior to December 31, 1999, their results of operations
are not reflected in our financial statements. We do present certain financial
data that is pro forma for the PSI, Hagen and Logic acquisitions (see "Pro Forma
Condensed Consolidated Financial Statements"), although these historical pro
forma results may not be indicative of the future performance of the combined
entity.
32
<PAGE> 35
As a result of our recent acquisitions, the launch of printCafe, and our
transition to a subscription-based revenue model, our historical financial data
is not a meaningful indicator of, and should not be used to predict, our future
operating results.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUE
Total revenue increased 27% from $4.1 million in 1997 to $5.2 million in
1998 and decreased 17% to $4.4 million in 1999. The increase in revenue from
1997 to 1998 was primarily attributable to an increase in software support
agreements and consulting revenue. The decrease in revenue from 1998 to 1999 was
primarily attributable to our transition to a Web-based subscription model.
COST OF REVENUE
Cost of revenue primarily includes direct labor and other direct costs
relating to the installation and support of our printing and publishing software
applications. Cost of revenues were $1.1 million in 1997 and 1998 and increased
in absolute dollars to $1.4 million in 1999. The increase in absolute dollars
was primarily attributable to overall growth in the size of our product support
staff. Cost of revenues as a percentage of revenues decreased from 27% in 1997
to 21% in 1998 and increased to 32% in 1999. This decrease from 1997 to 1998 was
primarily attributable to the increase in revenues. The increase from 1998 to
1999 was mainly the result of the decrease in revenue coupled with the
additional personnel costs. We believe our cost of revenues in the future will
primarily consist of expenses related to printCafe. We believe these costs will
mainly include direct set-up personnel costs, Web site licensing costs, hosting
costs, networking and communication costs and depreciation.
OPERATING EXPENSES
We classify our operating expenses into five general categories: product
development, general and administrative, sales and marketing, depreciation and
amortization and stock-based compensation, based upon the nature of the
expenditure. We also allocate the total costs for overhead and facilities, based
upon headcount, to each of the functional areas that use these services. These
allocated charges include general overhead items such as building rent,
equipment leasing costs, telecommunication charges and depreciation.
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
expenses related to the development and upgrade of our proprietary software and
other technologies. These expenses include employee compensation for software
developers and quality assurance personnel and third-party contract development
costs. Product development expenses increased from $1.2 million in 1997 to $1.6
million in 1998 and $1.9 million in 1999. Product development expenses as a
percentage of revenues increased from 30% in 1997 to 31% in 1998 and 43% in
1999. The increase in absolute dollar amounts from 1997 to 1999 was primarily
attributable to continued investment in research and development activities
related to the proprietary software products of our predecessor and to develop
the Web-based prIntellect(TM) and SimulSpec(TM) technologies. We expect our
product development expenses to increase in absolute dollars as we integrate and
improve our existing technologies and invest in new technologies.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation for administrative personnel and fees for outside
professional advisors. General and administrative expenses increased from $1.5
million in 1997 to $1.7 million in 1998 and $2.7 million in 1999. General and
administrative expenses as a percentage of revenues decreased from 38% in 1997
to 31% in 1998 and increased to 61% in 1999. The increase in absolute dollar
amounts from
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1997 to 1999 was primarily from the addition of finance, human resources,
executive and other administrative personnel to support our growth. We expect
that general and administrative expenses will continue to increase in absolute
dollars in future periods as we integrate our recent acquisitions. These costs
are also expected to increase to support our growth and increased costs
associated with being a public company.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
costs related to sales and marketing employee compensation, travel, public
relations, trade shows and advertising. Sales and marketing expenses decreased
from $0.5 million in 1997 to $0.4 million in 1998 and increased to $0.8 million
in 1999. Sales and marketing expenses as a percentage of revenues decreased from
12% in 1997 to 8% in 1998 and increased to 19% in 1999. The increase in absolute
dollar amounts from 1997 to 1999 was primarily attributable to increased sales
and marketing activities as the business developed and the additional personnel
associated with the nth degree software acquisition. We expect our sales and
marketing expenses to increase in absolute dollars as we increase the size of
our sales force, use the Creo sales force, promote our brand and pursue our
business development strategy.
DEPRECIATION AND AMORTIZATION. Goodwill related to the acquisition of
other businesses is ratably amortized over a period of three years. Depreciation
and amortization expenses increased from $0.1 million in 1997 to $0.2 million in
1998 and to $1.0 million in 1999. Depreciation and amortization expenses as a
percentage of revenues were 4% in 1997 and 1998 and increased to 23% in 1999.
The increase in absolute dollar amounts from 1998 to 1999 was primarily
attributable to the amortization of goodwill recorded in connection with our
acquisition of nth degree software and the merger of entities under common
control. We expect depreciation and amortization expenses to increase as a
result of our other recent acquisitions and our investments in Internet-related
equipment and facilities.
STOCK-BASED COMPENSATION. Stock-based compensation expense relates to
grants of employee stock options and issuances of stock with exercise prices
lower than the deemed fair value of the underlying shares at the time of grant
or issuance and issuance of stock in consideration of salary. Stock-based
compensation for employee stock options granted and stock issued is amortized
over the vesting period for option grants and recorded immediately for stock
issuances. Stock-based compensation expense was $7.3 million in 1999.
OTHER INCOME (EXPENSE)
Other income (expense) consists primarily of interest income received from
the investment of proceeds from our financing activities and gains on the sale
of investments, offset by interest expense and other fees related to our
borrowings. Other income (expense) decreased from net expense of ($0.1) million
in 1997 to net expense of ($20,000) in 1998 and increased to net expense of
($0.2) million in 1999. The increase in absolute dollar amounts in 1998 and the
related decrease in 1999 was primarily a result of a non-recurring gain on the
sale of our investments. We expect interest income to increase in the short term
as a result of investing the net proceeds of this offering and our Series C and
Series D preferred stock financings. We also expect interest expense to increase
as a result of the interest payable under the promissory notes issued in
connection with the Hagen, Logic and PrintSmith acquisitions.
INCOME TAXES
During 1997 and 1998, we had in place a valid election to be taxed under
Subchapter S of the Internal Revenue Code and the respective state codes. As an
S corporation, our stockholders were responsible for any federal and state
income taxes resulting from our taxable income. Accordingly, the
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financial statements for the years ended December 31, 1997 and 1998 do not
include a provision for federal or state income taxes.
On October 29, 1999, our S election was terminated. As a result, we are
responsible for federal and state income taxes on a going-forward basis,
starting October 29, 1999. This change in tax status did not result in our
recording of a tax benefit for deferred taxes since a full valuation allowance
was recorded on the net deferred tax asset at the time of conversion.
At December 31, 1999, we had accumulated net operating loss carryforwards
for tax purposes of approximately $6.2 million which will expire beginning in
2017 through 2019. Utilization of certain net operating loss carryforwards is
subject to limitations under Section 382 of the Internal Revenue Code. A full
valuation allowance has been recorded at December 31, 1999 on our management's
determination that the recognition criteria for realization of the net deferred
tax assets has not been met.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily through funds from operations, term
loans and loans from stockholders. As of December 31, 1999, our principal
sources of liquidity included approximately $0.1 million of cash and cash
equivalents. In February and March 2000, we received an aggregate of $50.6
million through private equity financings, of which $25.8 million was used to
fund cash payments at the close of the PSI, Hagen, AHP and PrintSmith
acquisitions.
Net cash provided (used) by operating activities totaled ($0.6) million in
1999, $0.2 million in 1998 and ($0.3) million in 1997, primarily due to our net
losses in 1997 and 1999 and our net income in 1998. These were partially offset
by non-cash charges of depreciation and amortization of goodwill, deferred
revenue adjustments, stock-based compensation and changes in accounts receivable
and accounts payable.
Net cash provided (used) by investing activities totaled ($0.1) million in
1999, $0.1 million in 1998 and ($0.1) million in 1997. Substantial investments
in computer equipment and software, office furniture and leasehold improvements,
and the acquisition of nth degree software, have all required the use of cash.
These amounts have been offset by the proceeds from the sale of investments of
$0.2 million in 1997 and $0.3 million in 1998.
Net cash provided (used) by financing activities was $0.6 million in 1999,
($0.3) million in 1998 and $0.4 million in 1997. Cash from investing activities
in 1999 was mainly attributable to the issuance of common stock and the
origination of term loans, offset by principle payments on debt and repayments
on our line of credit. Cash used by investing activities in 1998 was the result
of S corporation distributions and repayment of our line of credit. Cash
provided by investing activities in 1997 was primarily the result of borrowings
on the line of credit offset by S corporation distributions.
We expect to fund future operating expenses from revenue generated through
the sale of printCafe subscriptions, public or private financings and the net
proceeds of this offering. We currently anticipate that the net proceeds from
this offering, together with our current cash, cash equivalents, capital lease
financing and financings obtained in February and March 2000 will be sufficient
to meet our anticipated cash needs for working capital and capital expenditures
for at least the next 12 months. However, we may need to raise additional
capital to fund our future operations and potential acquisitions.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging Activities, which we will be required to adopt for the
year ending December 31, 2001. FAS 133 establishes new methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because we do not currently
hold any derivative financial instruments and are not currently engaged in
hedging activities, the adoption of FAS 133 is not expected to have a material
impact on our financial condition or results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
For the year ended December 31, 1999, revenue from foreign customers
approximated 5% of our total revenue and, as a result, we have not had any
material exposure to factors such as changes in foreign currency exchange rates
or weak economic conditions in foreign markets. However, in future periods, we
expect to increase sales in foreign markets, including Canada and Europe. As our
sales are made in U.S. dollars, a strengthening of the U.S. dollar could cause
printCafe to be less attractive in foreign markets. Most of our cash
equivalents, short-term investments and capital lease obligations are at fixed
interest rates, therefore the fair value of these investments is affected by
changes in the market interest rates. However, because our investment portfolio
is primarily comprised of investments in money market funds and high-grade
commercial paper with short maturities, an immediate 10% change in market
interest rates would not have a material effect on the fair market value of our
portfolio. Therefore, we would not expect our operating results or cash flows to
be affected to any significant degree by the effect of a sudden change in market
interest rates on our investment portfolio.
YEAR 2000 READINESS DISCLOSURE
To date, we have not experienced any material interruptions in our
operations related to the year 2000 issue. We have not incurred material costs
with respect to our year 2000 remediation efforts and do not expect that future
costs will be material. However, if we, or third-party providers of hardware,
software and communications services fail to remedy any future year 2000 issues,
the result could be lost revenues, increased operating expenses, the loss of
users and other business interruptions, any of which could harm our business.
The failure to adequately address year 2000 compliance issues in the delivery of
products and services to our users could result in claims against us of
misrepresentation or breach of contract and related litigation, any of which
could be costly and time consuming to defend.
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BUSINESS
OVERVIEW
We are a leading provider of comprehensive business-to-business electronic
commerce solutions for the printing industry. We recently launched our printCafe
solution, which is designed to connect print buyers, printers and printing
industry suppliers and automate the printing process by integrating a new
Web-based print procurement platform with our existing advanced suite of print
design, specification, manufacturing, distribution and supply chain management
enterprise software applications. We believe that printCafe is the first
end-to-end electronic commerce solution capable of integrating and automating
the entire printing process. printCafe is available through our printCafe.com
Web site or as a hosted application service through privately-branded Web sites
that we create for printers, suppliers and print buyers.
We sell printCafe through our 40-person direct sales organization and the
127-person direct sales organization of our strategic partner, Creo. Our target
customers include the more than 6,500 printing facilities, suppliers and print
buyers worldwide that already employ our printing and publishing enterprise
software applications and the more than 1,400 printing facilities worldwide that
already employ Creo computer-to-plate pre-press products. We also market
printCafe indirectly through co-marketing agreements with Andersen Consulting
and other strategic partners and through the sales organizations of our printer
and supplier customers.
Since its launch on February 9, 2000, a number of leading print buyers,
printers and suppliers have signed contracts to use printCafe, including
American Airlines, Andersen Consulting, Champion International Corporation,
Costco, Primedia-Intertec, Reader's Digest, Rodale Press, The Sheridan Group,
Time Warner and Weider Publications.
INDUSTRY BACKGROUND
THE GROWTH OF BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
The Internet is fundamentally changing the way companies conduct business
by providing a means to integrate complex business processes, exchange
information easily with multiple partners and provide buyers and sellers with an
efficient means of executing transactions. As a result, companies of all sizes
are adopting Internet strategies to conduct business. According to Gartner
Group, Inc., an information technology research firm, the worldwide market for
business-to-business electronic commerce will increase from $145.0 billion in
1999 to $7.3 trillion in 2004. Gartner Group also estimates that the
business-to-business electronic commerce market will approach $3.0 trillion in
2004 in North America alone. The widespread growth of business-to-business
electronic commerce has created a strong demand for industry-specific electronic
commerce solutions capable of connecting large numbers of disparate buyers and
suppliers, enabling automated transaction execution and integrating complex
supply, manufacturing and distribution chains.
THE PRINTING INDUSTRY
The printing industry is a large, fragmented and geographically dispersed
market. The U.S. Department of Commerce estimates that publication and
commercial printing accounted for a $211.1 billion market in the United States
in 1998. The U.S. Department of Commerce also estimates that there were 21,750
publication printers and 48,250 commercial printers in the United States in
1998.
The printing industry is divided into publication and commercial printing.
Publication printing includes newspapers, catalogs, magazines, books and retail
inserts. Commercial printing includes
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standardized business cards, stationery, brochures, financial printing, direct
mail, business forms, customized packaging, labels and other shipping materials.
Both publication and commercial printing are characterized by high fixed costs
related to plant and equipment and low margins due to competitive pressures.
Publication printing, which accounted for 54% of the $211.1 billion market,
is typically distinguished by:
- high workflow complexity, including various binding processes, multiple
change orders and last minute project changes and additions;
- extensive postal compliance requirements; and
- long-term contracts and established customer relationships among print
buyers, printers and suppliers.
Commercial printing, which accounted for 46% of the $211.1 billion market,
is typically distinguished by:
- excess capacity due to unpredictable demand;
- significant customer service and retention costs due to the ease with
which customers can switch to other printers; and
- a lower degree of job complexity than publication printing.
As a result of the characteristics of the publication and commercial
printing markets, printers continue to seek ways to reduce operating costs,
improve productivity, address highly complex print jobs, increase customer
satisfaction and enhance customer loyalty.
THE TRADITIONAL PRINT PRODUCTION PROCESS AND ITS INEFFICIENCIES
The production of customized print products is highly complex and involves
numerous interactions within and among print buyers, printers and suppliers. The
production process itself can be divided into three separate stages: design and
specification; procurement; and manufacturing, distribution and supply chain
management.
DESIGN AND SPECIFICATION. Printed materials are generated through a
collaborative process involving a print buyer's in-house and external design,
purchasing, sales, marketing and creative personnel. Once all aspects of a print
job have been designed, the print job request must be specified, or prepared for
communication to the printer in a form that the printer and its systems
understand. A printer cannot estimate the cost of a print job until an extensive
and detailed list of items, including paper, content, configuration, binding and
distribution methods has been provided.
Traditional means of designing and specifying customized print products
have been limited by:
- the need to manually input and output large amounts of data from multiple
sources;
- the need for a print buyer to understand the intricacies of the printing
process and printing terminology in order to submit a complete bid
request;
- the inability for a print buyer to accurately or completely specify a
desired design; and
- the absence of error-checking mechanisms in a complex process where a
single design or specification error can dramatically impact the outcome.
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PROCUREMENT. The procurement of a print project begins with the
transmission of a print specification to one or more printers in order to obtain
and evaluate bids that estimate the cost, timing and other elements of a
project. The print buyer then uses this information to modify job designs and
specifications and select a printer.
The procurement process has traditionally been characterized by high costs,
delays and customer dissatisfaction resulting from:
- communication with multiple parties across disparate media, including
telephone, facsimile, email, voice mail and paper;
- inconsistent and inaccurate bids due to a print buyer's failure to
accurately specify a request, a printer's misinterpretation of a
specified request or errors in the manual transmission of data;
- job requests that violate print buyer spending limits and other corporate
policies; and
- the inability of a print buyer to track the real-time status of a
project.
MANUFACTURING, DISTRIBUTION AND SUPPLY CHAIN MANAGEMENT. This stage
encompasses management of the entire supply chain and production process, from
inventory of raw materials through pre-press, plating, press, binding,
finishing, distribution, invoicing and payment processing.
The manufacturing, distribution and supply chain management stage has
traditionally been characterized by high costs, production errors, delays and
customer dissatisfaction stemming from:
- inconsistent and inaccurate print specifications;
- the lack of integration between enterprise resource planning and shop
floor execution systems;
- the inability to track the real-time status of inventories and
works-in-progress;
- the inability to manage customer change orders in a timely and accurate
manner;
- the inability to measure, control, and improve the efficiency of
production; and
- the inability of a print buyer to reconcile invoices and process
payments.
THE LIMITATIONS OF OTHER ONLINE PRINTING SOLUTIONS
Recently, several online services have emerged that automate various
elements of the printing process. While these services improve some of the
inefficiencies associated with the traditional printing process by improving
communication between print buyers and printers, we believe that they fail to
provide a complete solution for the following reasons:
- they lack an end-to-end solution that integrates the three stages of the
printing process;
- they are unable to handle high-end, publication print projects and the
customized designs and specifications they entail;
- they dilute printer and supplier brand identities and customer
relationships by acting as an intermediary between printers, suppliers
and their customers;
- they require the printer to manually input job specifications into its
existing manufacturing, distribution and supply chain management systems
to produce a bid request;
- they fail to provide accurate cost estimates due to poor specifications
and errors associated with manual data entry; and
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- they fail to integrate with a printer's enterprise resource planning and
shop floor execution systems.
We believe that the limitations of the traditional print processes as well
as those of other online solutions create an opportunity for a company to
provide an end-to-end, online printing solution that addresses the
inefficiencies that currently exist throughout all stages of the printing
process.
THE PRINTCAFE SOLUTION
We are a leading provider of business-to-business electronic commerce
solutions for the printing industry. We recently launched printCafe, which is
designed to connect print buyers, printers and printing industry suppliers and
automate the printing process by integrating a new Web-based print procurement
platform with our existing advanced suite of print design, specification,
manufacturing, distribution and supply chain management enterprise software
applications.
The printCafe solution is designed to:
MAXIMIZE PRODUCTIVITY AND MINIMIZE COSTS THROUGH A COMPLETE END-TO-END
SOLUTION. We believe printCafe is the only existing solution that is designed to
integrate and automate all stages of the printing process -- from design and
specification to procurement to manufacturing, distribution and supply chain
management.
printCafe is designed to enable print buyers to:
- design, specify, estimate the cost of and order virtually any type of
print project;
- submit job estimate requests to printers and supplies of their choice;
- track the real-time status of a project;
- reconcile invoices;
- centrally manage enterprise spending limits and other corporate
policies; and
- communicate and collaborate in real-time with multiple parties
throughout all stages of the printing process.
printCafe is designed to enable printers and suppliers to:
- receive orders for, quote accurate prices for and fulfill virtually
any type of print project;
- manage the entire supply chain from procurement to distribution;
- communicate and collaborate in real-time with multiple parties
throughout all stages of the process;
- use a privately-branded Web site to serve their customers; and
- present bills online.
HANDLE COMPLEX JOBS. We believe printCafe is the leading electronic
commerce solution for complex, high-end publication printing. Our customizable
user interface enables a print buyer to simply and easily construct a complete
representation of the print job. Our design and specification technology
automatically generates a printer-ready job specification. In addition, our
Web-browser sharing technology enables printers to guide novice print buyers
through design and specification.
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PROVIDE FULLY-AUTOMATED, ACCURATE JOB ESTIMATES. We believe printCafe is
the only existing solution that is designed to allow printers and suppliers to
automatically generate accurate job estimates for both complex, high-end
publication print jobs and commercial print jobs. printCafe technology
automatically converts print buyer job designs into printer-ready job
specifications and compares the specifications against negotiated price lists or
other predetermined pricing information. The integration of our design and
specification technology with our supply chain management software enables
printCafe to check the real-time availability and pricing of required
inventories and supplies.
PRESERVE AND ENHANCE PRINTER AND SUPPLIER BRAND IDENTITY. We offer
fully-hosted, customized, privately-branded Web sites using the underlying
printCafe technology platform to printers and suppliers. This allows printers
and suppliers to:
- communicate directly with their customers over the Internet rather than
through a third-party Web site;
- retain control of customer relationships;
- retain ownership of customer data; and
- preserve and enhance their brand.
OUR STRATEGY
Our objective is to be the leading provider of a complete online solution
for print buyers, printers and suppliers in the publication and commercial
printing markets. Key elements of our strategy are to:
CAPITALIZE ON OUR END-TO-END SOLUTION. We believe that we are the first and
only company to offer a Web-based solution that fully integrates the printing
design, specification, procurement, manufacturing, distribution and supply chain
management processes. We intend to use this competitive advantage to attract new
customers and accelerate adoption of our solution.
TRANSITION EXISTING CUSTOMERS AND ATTRACT NEW CUSTOMERS TO PRINTCAFE. We
are aggressively marketing printCafe to our more than 6,500 existing enterprise
software customers and to potential new customers through our own direct sales
force, as well as the direct sales force of our strategic partner, Creo. We
believe that the technological advantages of printCafe will accelerate its
adoption by our existing software customers and potential new customers. We
believe that our printers and suppliers will serve as key marketing channels for
printCafe because the Web-based print procurement sites we create for them will
preserve and extend their brand identities as well as help printers and
suppliers achieve higher returns on their investments in electronic commerce.
LEVERAGE OUR STRATEGIC ALLIANCES. We have strategic alliances to co-market
the printCafe solution with:
- Creo Products, Inc. Serving more than 1,400 printing facilities, Creo is
one of the leading providers of computer-to-plate pre-press products; and
- Andersen Consulting. Andersen, a leading management consulting and
systems integration firm, serves more than 85 of the global Fortune 100
companies.
We intend to leverage these strategic alliances and aggressively pursue new
alliances to extend our customer reach and accelerate the adoption of our
solution.
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PROMOTE THE PRINTCAFE BRAND. We intend to aggressively promote our brand in
order to establish ourself as the recognized leading provider of electronic
commerce solutions for the printing industry. We will invest in building our
brand through a variety of marketing and promotional channels both independently
and in conjunction with our strategic alliances, including participation in
industry-related conferences and events, press coverage, targeted advertising
and promotions.
EXTEND OUR TECHNOLOGY LEADERSHIP. We believe that our experience as a
leading software provider for the printing industry gives us a technological
advantage over current and future competitors. We intend to extend our
technology leadership position by enhancing the functionality of our Web site
and our end-to-end solution, and by allowing all of our proprietary enterprise
software applications to be run in a hosted application framework.
PURSUE NEW MARKET AND INTERNATIONAL OPPORTUNITIES. We intend to leverage
our position as a leading solution provider for the publication and commercial
printing markets to serve adjacent markets such as quick printing, packaging and
advertising. In addition, we intend to leverage our existing relationships with
leading global print buyers, printers and suppliers to accelerate the adoption
of printCafe in international markets.
SERVICES AND TECHNOLOGIES
printCafe connects print buyers, printers and suppliers and automates the
printing process by integrating a new Web-based print procurement platform with
our existing advanced suite of print design, specification, manufacturing,
distribution and supply chain management enterprise software applications.
SERVICES
Customers can subscribe to printCafe through two Web-based service
offerings, printCafe Basic or printCafe Pro:
- PRINTCAFE BASIC. printCafe Basic provides a Web-based platform for the
design, specification and procurement of publication and commercial print
projects.
- PRINTCAFE PRO. printCafe Pro integrates the printCafe Basic design,
specification and procurement platform with our existing advanced suite
of manufacturing, distribution and supply chain management enterprise
software applications.
These services are available through the printCafe.com Web site or as hosted
application services through privately-branded Web sites that we create for
printers, suppliers and print buyers.
TECHNOLOGIES
The printCafe services integrate our existing advanced suite of proprietary
software tools, applications and technologies, including:
- PRINTELLECT(TM). prIntellect technology simplifies print purchasing
through a guided, Web-based design and specification tool. The
user-friendly interface of prIntellect's Java-based wizard technology
makes it easy to design and specify complex print jobs, even for those
with little experience in the process, by eliminating the need for a
sophisticated understanding of printing terminology and process detail.
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- PROTEUS(R). Proteus, the industry leading software tool for planning
complex print products, serves as a meta-document layout tool for
magazines, catalogs, books and directories, and automates a wide array of
internal processes, including the quote and order process.
- SITEMANAGER(TM). SiteManager is a site configuration tool used to create
a customized user interface based on a print buyer's own terminology.
SiteManager automatically translates production details into
printer-ready specifications and also allows print buyers to manage user
access, project spending limits and other corporate policies.
- SIMULSPEC(TM). SimulSpec allows printers and print buyers to see print
designs and specifications in a real-time, collaborative environment
through a Web-based browser sharing technology. Simulspec is also used by
printers to guide novice print buyers through the design and
specification process.
- PRINTGROUPS(TM). printGroups technology allows print buyers, printers and
their suppliers to collaborate with co-workers and supply-chain partners
with Web-based file access and file sharing.
- PRINTQUOTES(TM). printQuotes links estimating, scheduling and shop floor
systems in pre-press, press and post-press operations to provide
accurate, real-time price estimates and job bids.
- AHP, HAGEN, LOGIC, PRINTSMITH, PSI AND PROGRAPH ENTERPRISE RESOURCE
PLANNING SOFTWARE. These enterprise software applications are designed to
drive significant gains in performance by managing all stages of
production, including pre-press, printing and post-press and they
automate the make-up process, provide EDI transmissions, create detailed
job instructions, schedule all stages of print production from pre-press
to mailing, optimize printing and binding operations, automate ink-jet
and selective binding controller management, collect real-time data to
integrate bindery, press, and pre-press equipment within the production
workflow, and create timely, detailed job cost analyses, status reports
and invoices.
CUSTOMERS
Since its launch on February 9, 2000, a number of print buyers, printers
and suppliers have signed contracts to use printCafe, including:
American Airlines
Andersen Consulting
Arteck Printing Inc.
Champion International Corporation
Costco
Dynagraf, Inc.
Grand River Printing
Image Media Group, Inc.
The John Roberts Company
Lake County Press
Medical Economics
Network World
Primedia-Intertec
Readers Digest Canada, Ltd.
Rodale Press
Sheridan Group
The Globe and Mail
Time Warner
Weider Publications
World Publications
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Our printing and publishing software applications are used by more than
6,500 print buyers, printing facilities and suppliers worldwide, including 17 of
the 20 largest publication and commercial printers in North America. Our
software customers include:
Alpha Graphics
AT-A-GLANCE
Banta
Brown Printing
Cadmus Communications
Consolidated Graphics
Integra Color Group
Mail-Well
Master Graphics
Moore Corp. Ltd.
Perry-Judd's
PIP Printing
Quebecor-World
R.R. Donnelley & Sons
Salomon Smith Barney
Sir Speedy
Time Warner
Wallace Computer Services
Valassis
Xerox
SALES, MARKETING AND CUSTOMER SERVICE
We sell printCafe through our 40-person direct sales organization and the
127-person direct sales organization of our strategic partner, Creo. We also
market printCafe indirectly through co-marketing agreements with Andersen
Consulting and other strategic partners and through the sales organizations of
our printer and supplier customers.
Our marketing programs are designed to promote our brand, educate our
existing and potential customers about printCafe and generate new sales leads.
As of March 10, 2000, our marketing team consisted of 28 professionals. Our
marketing activities will include participation in industry trade shows and
seminars, direct mailings, trade journal advertising and public relations
activities.
Our customer service organization customizes and implements printCafe and
provides training to our customers on its use. As of March 10, 2000, we employed
227 professionals in our customer service organization. Our customer services
professionals are available by telephone, over the Web or by email in order to
assist with customer support requests twenty-four hours a day, seven days a
week.
SYSTEM ARCHITECTURE
We use an advanced, secure Internet-based and client-based system
architecture. The Internet portion of our system resides on servers in our
corporate headquarters. Our enterprise resource planning software runs on
client-based servers and works in conjunction with our Internet platform. Our
Web-based applications are designed to run using standard Internet browsers. Our
printing and publishing software applications can be integrated with our
Web-based platform through native application interfaces using the open
information exchange standard XML.
INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We also enter into confidentiality agreements with our employees and consultants
and other third parties and control access to software, documentation and other
proprietary information. On December 20, 1999, we received a notice of allowance
on our patent application covering the computerized layout and optimization of
printed products. We have obtained a registered trademark for Proteus, and have
applied for registered trademarks for printCafe, printCafe.com, prIntellect and
SimulSpec. However, we cannot be certain that the steps we have taken to protect
our intellectual property rights will be adequate or that third
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parties will not infringe or misappropriate our proprietary rights. We also
cannot be sure that competitors will not independently develop technologies that
are substantially equivalent or superior to the proprietary technologies
employed in our Web-based services. If we fail to protect our proprietary rights
adequately, our competitors could offer similar services, potentially harming
our competitive position and decreasing our revenues in the United States and
other jurisdictions.
In addition, in recent years, there has been significant litigation in the
United States involving patents and other intellectual property rights,
including among companies in the Internet industry. We cannot be certain that
our business activities will not infringe on the proprietary rights of others,
or that other parties will not assert infringement claims against us. Any claim
of infringement of proprietary rights of others, even if ultimately decided in
our favor, could result in substantial costs and diversion of resources. If a
claim is asserted that we infringed the intellectual property of a third party,
we may be required to seek licenses to that technology. We cannot be sure that
licenses to third-party technology will be available to us at a reasonable cost,
or at all. If we were unable to obtain a license on reasonable terms, we could
be forced to cease using the third-party technology.
We have entered into a non-exclusive license agreement under which we
obtained rights to use the technology covered by a United States patent. This
patent covers automated printing control systems that allow for interaction
between print purchasers and printers across computer networks such as the
Internet. The license agreement requires us to make annual payments for a
specified period of time. The license agreement may be terminated by the
licensor if we default on our payment obligations or breach any material term of
the agreement and we fail to cure the default or breach within 30 days of
receipt of notice from the licensor. The termination of this agreement could
seriously harm our business.
COMPETITION
Our solution primarily competes with traditional methods of designing and
managing print orders. The enterprise software application components of our
solution also compete with Primac, Avanti Systems and other software application
vendors that serve the printing industry. The Web-based print procurement
component of our solution also competes with ImageX.com, Inc., Impresse
Corporation, Noosh, Inc. and other online printing services that have recently
emerged. However, we are unaware of any competitors that currently offer an
end-to-end electronic commerce solution that competes with printCafe.
We believe that the principal competitive factors affecting our market
include adoption by a significant number of print buyers and printers, product
quality and performance, customer service, core technology, product features and
value of solution. Although we believe that our solution currently competes
favorably with respect to these factors, our market is relatively new and is
evolving rapidly. We may not be able to maintain our competitive position
against current and potential competitors, especially those with significantly
greater financial, marketing, service, support, technical and other resources.
EMPLOYEES
As of March 10, 2000, we had 488 full-time employees. Of these employees,
68 were in sales and marketing, 128 were in research and development and 292
were in general and administrative services and operations. Our employees are
not represented by a labor union, and we consider our employee relations to be
good.
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<PAGE> 48
FACILITIES
We are headquartered in Pittsburgh, Pennsylvania, where we lease
approximately 16,000 square feet pursuant to two term leases. The lease for
approximately 13,000 square feet of this space expires in October 2006 and the
lease for the remaining 3,000 square feet expires in January 2001. These
facilities are used for executive office space, including sales and marketing,
finance and administration, research and design and customer support. We also
lease an aggregate of approximately 24,000 square feet in Eden Prairie,
Minnesota under a lease which expires in January 2005, approximately 22,000
square feet in Lebanon, New Hampshire under a lease which expires in September
2006, approximately 14,000 square feet in Norwalk, Connecticut under a lease
which expires in July 2003 and approximately 5,000 square feet in Chandler,
Arizona under a lease which expires in April 2003. We believe that we will need
to obtain additional space for our headquarters in the near future and that this
additional space can be obtained on commercially reasonable terms.
LEGAL PROCEEDINGS
From time to time, we may be involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. Currently, we are
not a party to any material litigation or arbitration proceedings.
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<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of March 10, 2000
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
William L. Guttman...................... 38 Chairman of the Board, Chief Executive
Officer and Assistant Secretary
Marc D. Olin............................ 35 President, Chief Operating Officer,
Assistant Secretary and Director
Joseph J. Whang......................... 35 Chief Financial Officer
Ronald F. Hyland Sr..................... 36 Vice President and Chief Technology
Officer
David Lemaster.......................... 40 Senior Vice President of Worldwide Sales
Amos Michelson.......................... 47 Director
Charles J. Billerbeck................... 42 Director
Peter Ruh............................... 43 Director
</TABLE>
William L. Guttman has served as our Chairman since March 2000, our Chief
Executive Officer and Assistant Secretary since February 2000 and as a director
since November 1999. From November 1999 to February 2000, Mr. Guttman served as
our Co-Chairman and Co-Chief Executive Officer. Mr. Guttman served as the
President and Chief Executive Officer of nth degree software from its
incorporation in 1993 until it merged with Prograph in November 1999. From 1989
to 1993, Mr. Guttman served as the Managing Director and Chief Executive Officer
of the Lexicon Group, a company offering management consulting services to the
media publishing industry. Prior to 1989, Mr. Guttman served as an economist and
consultant to the U.S. Department of State, the World Bank, the International
Monetary Fund, the Organization for Economic Cooperation and Development and the
Center for Strategic and International Studies. Mr. Guttman received a B.A. from
the University of California at Los Angeles, and doctorate and master degrees in
Philosophy from Balliol College, Oxford University.
Marc D. Olin has served as our Chief Operating Officer since March 2000, as
our President and a director since November 1999 and as an Assistant Secretary
since February 2000. From November 1999 to February 2000, Mr. Olin also served
as our Co-Chairman and Co-Chief Executive Officer. From 1992 to 1999, Mr. Olin
served as President of Prograph. Prior to 1992, Mr. Olin was a co-founder and
the Vice President of Prograph Management Systems. Mr. Olin received a B.S. from
Carnegie Mellon University. Mr. Olin is currently a director of the Graphic Arts
Technical Foundation and the Graphic Communications Association.
Joseph J. Whang has served as our Chief Financial Officer since February
2000. From October 1998 to February 2000, Mr. Whang was a Managing Director of
McDonald Investments, an investment banking firm. Mr. Whang was a founding
partner of Carleton, McCreary, Holmes & Co., an investment banking firm, and
served as a Managing Director from May 1996 to October 1998 and a Vice President
from January 1993 to August 1994 and from November 1995 to May 1996. From August
1994 to November 1995, Mr. Whang was President of Practisys, Inc., a software
company. From October 1989 to December 1992, Mr. Whang was an associate of The
Carleton Group, an investment banking firm. From July 1987 to October 1989, Mr.
Whang was a Certified Public Accountant with Price Waterhouse. Mr. Whang
received a B.S. from the Wharton School of the University of Pennsylvania.
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<PAGE> 50
Ronald F. Hyland Sr. has served as our Vice President and Chief Technology
Officer since April 1999. Mr. Hyland was President of Prograph Bindery Systems,
a predecessor of Prograph, from 1996 to 1999 and was the Vice President and
Chief Operating Officer of Prograph Bindery Systems from 1994 to 1996. From 1988
to 1994, Mr. Hyland was Manager of Advanced Technology for Time Warner.
David Lemaster has served as our Senior Vice President of World Wide Sales
since February 2000. From December 1993 to January 2000, Mr. Lemaster served as
Director of National Accounts and in a variety of other positions for Creo. From
January 1990 to December 1993, Mr. Lemaster worked for Timsons NA where he was
responsible for creating new markets for Timsons NA, including the software
documentation market.
Amos Michelson has served as a director since February 2000. Mr. Michelson
also currently serves as Chief Executive Officer of Creo and has served as a
director of Creo since March 1992. From August 1991 to June 1995, Mr. Michelson
served as the Vice President of Business Strategy for Creo. Mr. Michelson
received a B.S. in electrical engineering from the Technion in Israel and an
M.B.A. from the Stanford Graduate School of Business in the United States.
Charles J. Billerbeck has served as a director since February 2000. Mr.
Billerbeck has also served as a Managing Director of Mellon Ventures, Inc., a
venture capital division of Mellon Financial Corporation, since 1996. From 1987
to 1996, Mr. Billerbeck was Vice President and Manager of Mellon's Leveraged
Finance Unit. Mr. Billerbeck is a Certified Public Accountant, and received a
B.A. in accounting from Marquette University and an M.B.A. from Indiana
University.
Peter Ruh has served as a director since March 2000. Mr. Ruh also currently
serves as a Director of Business Development and Mergers & Acquisitions at Cisco
Systems. Since 1994, Mr. Ruh has held various senior marketing and business
development roles within Cisco before joining the Mergers & Acquisitions group
in 1996. Prior to Cisco he has held both sales and marketing positions at
Kalpana and ROLM/Siemens. Mr. Ruh received a B.A. from Skidmore College, and an
M.B.A. from the University of Dallas.
BOARD OF DIRECTORS
We currently have authorized seven directors. Each director is elected for
a period of one year at our annual meeting of stockholders and serves until the
next annual meeting or until a successor is duly elected and qualified. The
executive officers serve at the discretion of the board of directors. There are
no family relationships among any of our directors or executive officers.
Except for reimbursement for reasonable travel expenses relating to
attendance at board of directors' meetings and the grant of stock options,
directors are not compensated for their services as directors. Directors are
eligible to participate in our 2000 stock incentive plan. See "Stock Plans"
below.
Board Committees. In March 2000, the board of directors authorized the
establishment of an audit committee and a compensation committee, although the
members of those committees have not yet been determined. The audit committee
will review our annual audit and meet with our independent auditors to review
our internal controls and financial management practices. The compensation
committee will recommend compensation for certain of our personnel to the board
of directors and will administer our stock plans.
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<PAGE> 51
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The persons to be appointed by the board of directors to our compensation
committee will not be, and will not have been, an officer or employee of ours.
The persons to be appointed by the board of directors to our compensation
committee will not serve as a director or compensation committee members of any
entity that has one or more executive officers serving as a director of ours or
on our compensation committee.
EXECUTIVE COMPENSATION
The following table provides summary information concerning the
compensation awarded to, earned by or paid to our Chief Executive Officer and
each of the other most highly compensated executive officers whose aggregate
compensation exceeded $100,000 (the "Named Officers") during the year ended
December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
----------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) (#) ($)
<S> <C> <C> <C> <C>
William L. Guttman............................ 180,000 75,000 24,454 650(1)
Chief Executive Officer
Marc D. Olin.................................. 180,000 75,000 24,452 7,800(2)
President and Chief Operating Officer
Ronald F. Hyland Sr. ......................... 144,000 40,000 24,454 7,800(3)
Vice President and Chief Technology Officer
</TABLE>
- -------------------------
(1) We leased a car for Mr. Guttman's use. The aggregate car lease payment
during 1999 totalled approximately $650. Effective December 31, 1999, we
ceased making car lease payments for Mr. Guttman.
(2) We leased a car for Mr. Olin's use. The aggregate car lease payments during
1999 totalled approximately $7,800. Effective December 31, 1999, we ceased
making car lease payments for Mr. Olin.
(3) We leased a car for Mr. Hyland's use. The aggregate lease payments during
1999 totalled approximately $7,800. Effective December 31, 1999, we ceased
making car lease payments for Mr. Hyland.
The table above does not include any information regarding the compensation
of Joseph J. Whang, our Chief Financial Officer, who became an executive officer
subsequent to December 31, 1999. Mr. Whang's 2000 annual base salary is
$170,000.
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<PAGE> 52
EMPLOYMENT AGREEMENTS
See "Related Party Transactions" for information regarding the employment
agreements between us, and Messrs. Guttman, Hyland, Lemaster, Olin and Whang.
OPTION GRANTS
The following table provides summary information regarding stock options
granted to the Named Officers during the fiscal year ended December 31, 1999.
The options were granted pursuant to our 1999 stock option plan. Stock price
appreciation of 5% and 10% is assumed pursuant to rules promulgated by the
Securities and Exchange Commission and does not represent a prediction of our
stock performance.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
William L. Guttman............ 24,454 0.05% $1.20 7/31/09 $ $
Marc D. Olin.................. 24,452 0.05 1.20 7/31/09
Ronald F. Hyland Sr. ......... 24,454 0.05 1.20 7/31/09
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table provides summary information concerning the shares of
our Class A common stock acquired in 1999, the value realized upon exercise of
stock options in 1999, and the year-end number and value of unexercised options
with respect to each of the Named Officers as of December 31, 1999. The value
was calculated by determining the difference between the fair market value of
underlying securities and the exercise price. The fair market value of our Class
A common stock throughout 1999 was assumed to be $ per share.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
William L. Guttman.................. -- 24,454 $-- $--
Marc D. Olin........................ -- 24,452 -- --
Ronald F. Hyland Sr................. -- 24,454 -- --
</TABLE>
STOCK PLANS
1999 Stock Option Plan. Our 1999 stock option plan was adopted by our board
of directors and approved by our stockholders in August 1999. Our 1999 stock
option plan provides for the granting to
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<PAGE> 53
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code and for the granting to employees, directors and
consultants of nonstatutory stock options and stock appreciation rights. A total
of 908,037 shares of our Class A common stock have been reserved for issuance
under the 1999 stock option plan. As of March 10, 2000, options to purchase an
aggregate of 899,191 shares of Class A common stock were outstanding under our
1999 stock option plan. Our board of directors has determined that no further
options shall be granted under the 1999 stock option plan after this offering.
The 1999 stock option plan provides that in the event of our acquisition by
another corporation, each outstanding option may be assumed or substituted for
by the successor corporation. Our board of directors may fully vest options held
by individuals whose service may be terminated in connection with "change of
control" transactions.
2000 Stock Incentive Plan. Our 2000 stock incentive plan was adopted by our
board of directors and approved by our stockholders in February 2000. The 2000
stock incentive plan provides for the discretionary grant of incentive stock
options to employees, including officers and employee directors, and for the
discretionary grant of nonstatutory stock options, stock appreciation rights,
stock units and stock purchase rights to employees, directors and consultants.
If our board decides to implement this feature, the 2000 stock incentive plan
also provides for the periodic automatic grant to non-employee directors of
nonstatutory stock options.
A total of 10,000,000 shares of our Class A common stock have been reserved
for issuance under our 2000 stock incentive plan. As of March 10, 2000, options
to purchase an aggregate of 1,156,169 shares of Class A common stock were
outstanding under our 2000 stock incentive plan. Unless terminated sooner, the
2000 stock incentive plan will terminate automatically in February 2010, ten
years from its effective date.
The compensation committee of the board will generally serve as
administrator of the 2000 stock incentive plan from and after the date of this
offering. The administrator of our 2000 stock incentive plan generally has the
power to determine the terms of the options, stock purchase rights, stock
appreciation rights and stock units granted, including: the exercise price, if
any, of each award; the number of shares subject to each award; the
exercisability of each award; and the form of consideration, if any, payable on
the exercise of each award.
The board of directors is the administrator of our 2000 stock incentive
plan's automatic non-employee director grant program. If the board of directors
implements that program, non-employee directors who first join our board after
the date of this prospectus will receive a grant of an option to purchase 15,000
shares when they become non-employee directors. In addition, all non-employee
directors will receive a grant of an option to purchase 3,750 shares at each
subsequent annual meeting, provided they continue to serve after such annual
meeting. These options vest one year from the date of the grant, provided the
individual is serving as a director on the vesting date. These options also
provide for accelerated vesting in the event of change of control transactions.
The board of directors has the authority to amend, suspend or terminate the
2000 stock incentive plan, so long as no such action affects any shares of Class
A common stock previously issued and sold or any award previously granted under
the 2000 stock incentive plan. The maximum number of shares subject to options
and/or stock appreciation rights each optionee may be granted during a fiscal
year is 1,250,000 shares. Restricted stock and stock unit grants are limited to
125,000 shares per person in any fiscal year.
The exercise price of all incentive stock options and nonstatutory stock
options granted automatically to non-employee directors must be at least equal
to the fair market value of the common stock on the date of grant. The exercise
price of other nonstatutory stock options and stock purchase rights granted
under the 2000 stock incentive plan is determined by the administrator, but
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<PAGE> 54
with respect to nonstatutory stock options intended to quality as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must be at least equal to the fair
market value of our common stock on the date of the grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must at least equal 110% of the fair market value on the
grant date and the term of such incentive stock option must not exceed five
years. The term of all other options granted under the 2000 stock incentive plan
may not exceed ten years.
The 2000 stock incentive plan provides that in the event that we are
acquired by another corporation, or sell substantially all of our assets, each
award may be assumed or an equivalent award substituted for by the successor
corporation. If the outstanding awards are not assumed or substituted for by the
successor corporation, the holder may fully vest in and have the right to
exercise or receive all the benefits of the award, including shares to which the
holder would not otherwise be entitled.
2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan
was approved by our board of directors in March 2000 and will be approved by our
stockholders prior to the completion of this offering. A total of 2,500,000
shares of our Class A common stock will be reserved for issuance under the 2000
purchase plan.
Under the 2000 purchase plan, which is intended to qualify under Section
423 of the Internal Revenue Code, our board of directors may determine the
duration and frequency of stock purchase periods. Initially the plan will
operate using consecutive, overlapping, twenty-four month offering periods. Each
offering period will include four approximately six-month purchase periods. The
offering periods generally start on the first trading day on or after and
each year, except for the first such offering period which commences on
the first trading day on or after the effective date of this offering and ends
on the last trading day on or before .
Our employees and the employees of any participating subsidiaries will be
eligible to participate. However, employees may not be granted an option to
purchase stock under the 2000 purchase plan if they, immediately after grant,
own stock possessing 5% or more of the total combined voting power or value of
all classes of our capital stock.
The 2000 purchase plan permits participants to purchase our Class A common
stock through payroll deductions of up to 15% of their total compensation,
including bonuses and commissions.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 purchase plan is generally 85% of the lower of the fair
market value of the Class A common stock either at the beginning of the offering
period or at the end of the purchase period.
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically reenrolled in a new offering period. Participants may
end their participation at any time upon termination of their employment.
Rights granted under the 2000 purchase plan are not transferable by a
participant other than upon death or by a special determination by the plan
administrator. Each outstanding option under the 2000 purchase plan will be
subject to the acquisition agreement in the event we merge with or into another
corporation or sell substantially all of our assets.
Our board of directors has the authority to amend or terminate the 2000
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 2000 purchase plan, provided that the board
of directors may terminate an offering period on any exercise
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<PAGE> 55
date if the board determines that the termination of the 2000 purchase plan is
in the best interests of printCafe and its stockholders. Notwithstanding
anything to the contrary, the board of directors may, in its sole discretion,
amend the 2000 purchase plan to the extent necessary and desirable to avoid
unfavorable financial accounting consequences by altering the purchase price for
any offering period, shortening any offering period or allocating remaining
shares among the participants. Unless earlier terminated by our board of
directors, the 2000 purchase plan will terminate automatically ten years from
its effective date.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, we have included a
provision in our certificate of incorporation to eliminate the personal
liability of our officers and directors for monetary damages for breach or
alleged breach of their fiduciary duties as officers or directors, other than in
cases of fraud or other willful misconduct. In addition, our bylaws provide that
we are required to indemnify our officers and directors even when
indemnification would otherwise be discretionary, and we are required to advance
expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. We have entered into
indemnification agreements with our officers and directors containing provisions
that are in some respects broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. The indemnification
agreements require us to indemnify our officers and directors against
liabilities that may arise by reason of their status or service as officers and
directors (but not for liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms. We have obtained
directors' and officers' liability insurance.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of ours in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
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RELATED PARTY TRANSACTIONS
Since March 1, 1997, there has not been any transaction or series of
similar transactions to which we were or are a party in which the amount
involved exceeded or exceeds $60,000 and in which any director or executive
officer of us, any holder of more than 5% of any class of our voting securities
or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest, other than the transactions
described below.
AGREEMENTS WITH MANAGEMENT
In November 1999, we entered into an employment agreement with William L.
Guttman, our Chairman and Chief Executive Officer. This agreement entitles Mr.
Guttman to an annual base salary of $180,000 for fiscal year 1999 and an annual
base salary of $207,000 for fiscal year 2000.
In November 1999, we entered into an employment agreement with Marc D.
Olin, our President and Chief Operating Officer. This agreement entitles Mr.
Olin to an annual base salary of $180,000 for fiscal year 1999 and an annual
base salary of $207,000 for fiscal year 2000.
In November 1999, we entered into an employment agreement with Ronald F.
Hyland Sr., our Chief Technology Officer. This agreement entitles Mr. Hyland to
an annual base salary of $144,000 for fiscal year 1999 and an annual base salary
of $168,000 for fiscal year 2000.
In March 2000, we entered into an employment agreement with David Lemaster.
The agreement does not provide for any cash compensation but, in connection with
the agreement, Mr. Lemaster was granted options to purchase 170,261 shares of
Class A common stock at $8.83 per share. This option grant was in addition to a
February 2000 grant made by us to Mr. Lemaster for 172,414 shares of Class A
common stock at $5.80 per share.
In March 2000, we entered into an amended and restated employment agreement
with Joseph J. Whang, our Chief Financial Officer. This agreement entitles Mr.
Whang to an annual base salary of $170,000.
We have entered into indemnification agreements with each of our officers
and directors containing provisions which may require us, among other things, to
indemnify our officers and directors against certain liabilities that may arise
by reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.
LOANS TO MANAGEMENT
In November 1999, in connection with the issuance and sale of 1,654,702
shares of Class A common stock to William L. Guttman, our Chairman and Chief
Executive Officer, we provided a loan to Mr. Guttman, pursuant to a note secured
by a stock pledge agreement, in the principal amount of approximately $380,581
with an interest rate of 6%. In February 2000, Mr. Guttman repaid $295,000 of
this loan. Unless we elect to accelerate the note for a material breach of the
note or the stock pledge agreement, the balance of this note is due on November
7, 2004.
In November 1999, in connection with the issuance and sale of 381,854
shares of Class A common stock to Marc D. Olin, our President and Chief
Operating Officer, we provided a loan to Mr. Olin, pursuant to a note secured by
a stock pledge agreement, in the principal amount of approximately $87,826 with
an interest rate of 6%. In March 2000, Mr. Olin repaid $61,478 of this
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<PAGE> 57
loan. Unless we elect to accelerate the note for a material breach of the note
or the stock pledge agreement, the note is due on November 7, 2004.
In November 1999, in connection with the issuance and sale of 158,851
shares of Class A common stock to Ronald F. Hyland Sr., our Chief Technology
Officer, we provided a loan to Mr. Hyland, pursuant to a note secured by a stock
pledge agreement, in the principal amount of approximately $36,536 with an
interest rate of 6%. Unless we elect to accelerate the note for a material
breach of the note or the stock pledge agreement, the note is due on November 7,
2004.
In December 1999, in connection with the issuance and sale of 1,018,278
shares of Class A common stock to Joseph J. Whang, our Chief Financial Officer,
we provided a loan to Mr. Whang, pursuant to a note secured by a stock pledge
agreement, in the principal amount of approximately $1,048,826 with an interest
rate of 6%. Unless we elect to accelerate the note for a material breach of the
note or the stock pledge agreement, the note is due on December 21, 2004.
ISSUANCE OF COMMON STOCK AND PREFERRED STOCK TO DIRECTORS, EXECUTIVE OFFICERS
AND 5% STOCKHOLDERS
The following table summarizes the shares of common and preferred stock
purchased since March 1, 1997 by directors, executive officers and 5%
stockholders of ours and persons and entities associated with them in private
placement transactions. Each share of Series B preferred stock converts
automatically upon closing of this offering into one share of Class B common
stock. Each share of Series A, A-1, C, C-1, D and D-1 preferred stock converts
automatically upon closing of this offering into one share of Class A common
stock.
<TABLE>
<CAPTION>
SERIES A AND SERIES C AND SERIES D AND
CLASS A CLASS C A-1 SERIES B C-1 D-1
NAME OF STOCKHOLDER COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
<S> <C> <C> <C> <C> <C> <C>
William L. Guttman...... 1,654,702 -- 1,041,080 -- -- --
Marc D. Olin............ 381,854 -- 3,859,969
Creo SRL................ -- 1,132,502 -- 31,186,312 -- --
(Amos Michelson)
Mellon Ventures II,
L.P. ................. -- -- -- -- 1,293,103 283,125
(Charles J. Billerbeck)
Joseph J. Whang......... 1,018,278 -- -- -- -- --
Ronald F. Hyland Sr. ... 609,158 -- -- -- -- --
</TABLE>
STRATEGIC ALLIANCE AGREEMENT WITH CREO
We entered into a strategic alliance agreement, dated January 25, 2000,
with Creo Products, Inc. Pursuant to the terms of this agreement:
- we acquired an unlimited, exclusive, perpetual and royalty-free license
to use, modify and sell all of the technology related to Creo's Web-based
print management service;
- we granted Creo a right of first refusal to develop all technology and
related materials for printCafe relating to content management;
- we were designated as Creo's exclusive application services provider for
Creo's Prinergy(R) products;
- Creo agreed to provide sales support, product servicing services,
research and development and other services to us as may be reasonably
requested by us and mutually agreed by the parties;
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<PAGE> 58
- we agreed with Creo to include references to each other and each other's
products in any promotional materials specifically targeted to the
graphic arts industry;
- we agreed with Creo not to compete with each other's business; and
- we agreed with Creo not to induce or attempt to induce any employee of
the other party to leave the employ of the other party.
If Creo develops technology or related materials for content management, we
must reimburse Creo for certain costs and any such technology or related
materials so developed would be jointly owned by Creo and us. To the extent Creo
provides us with sales support, product servicing services, research and
development or other services, we are obligated to reimburse Creo for its costs
associated with the provision of such services and we must also reimburse Creo
for any commissions paid to the Creo sales force in connection with the sale of
the printCafe solution.
Creo may terminate the strategic alliance agreement with us at any time by
written notice to us upon the occurrence of any of the following events:
- the failure by us to comply with any provision of the agreement, unless
such failure is remedied by us within 30 days of receiving a notice of
breach;
- from and after the fifth anniversary of the date that Creo first ceases
to be a beneficial owner of any of our equity securities; or
- our bankruptcy or receivership or the passing of a resolution for our
winding up or dissolution.
We may terminate the strategic alliance agreement with Creo at any time by
written notice to Creo upon the occurrence of any of the following events:
- the failure by Creo to comply with any provision of the agreement, unless
such failure is remedied by Creo within 30 days of receiving a notice of
breach; or
- the bankruptcy or receivership of Creo or the passing of a resolution for
its winding up or dissolution.
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our Class A common stock, Class B common stock and Class C common
stock as of March 10, 2000 (assuming the conversion of all outstanding preferred
stock upon completion of this offering) and as adjusted to reflect the sale of
the Class A common stock offered by us under this prospectus by:
- each of our directors and Named Officers;
- all directors and executive officers as a group; and
- each person who is known by us to own beneficially more than 5% of our
Class A common stock or Class B common stock (our Class C common stock is
non-voting).
Except as otherwise noted, the address of each person listed in the table
is c/o printCafe, Inc., Forty 24th Street, 5th Floor, Pittsburgh, Pennsylvania
15222. The table includes all shares of common stock issuable within 60 days of
March 10, 2000 upon the exercise of options and other rights beneficially owned
by the indicated stockholders on that date. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares. To our knowledge,
except under applicable community property laws or as otherwise indicated, the
persons named in the table have sole voting and sole investment control with
respect to all shares beneficially owned. The applicable percentage of ownership
for each stockholder prior to this offering is based on an aggregate of
25,029,699 shares of Class A common stock and 31,186,312 shares of Class B
common stock outstanding as of March 10, 2000, together with applicable options
for that stockholder. Shares of Class A common stock issuable upon exercise of
options and other rights beneficially owned were deemed outstanding for the
purpose of computing the percentage ownership of the person holding these
options and other rights, but are not deemed outstanding for computing the
percentage ownership of any other person.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B
---------------------------------- COMMON
PERCENT OF STOCK PERCENT OF TOTAL
OWNERSHIP ------------ VOTING POWER
SHARES ------------------- SHARES -------------------
BENEFICIALLY BEFORE AFTER BENEFICIALLY BEFORE AFTER
OWNED OFFERING OFFERING OWNED OFFERING OFFERING
------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
Creo SRL(1).......................... -- --% % 31,186,312 17.2% (2)
2nd Street, Holetown
St. James, Barbados
Elizabeth Jones...................... 3,477,605 14.6 -- 9.8
Mellon Ventures II, L.P.(3).......... 1,576,228 6.6 -- 4.4
One Mellon Center
Suite 5300
Pittsburgh, PA 15258
Menlo Ventures VII, L.P.(4).......... 1,372,768 5.7 3.9
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
DIRECTORS AND OFFICERS:
William L. Guttman(5)................ 2,776,136 11.6 -- 7.8
Marc D. Olin(6)...................... 4,184,504 12.5 -- 11.7
Ronald F. Hyland Sr.(7).............. 633,612 2.7 -- 1.8
Amos Michelson(8).................... -- -- -- --
Charles Billerbeck(9)................ 1,576,228 6.6 -- 4.4
Peter Ruh............................ -- -- -- --
All directors and executive officers
as a group (8 persons)(10)......... 10,188,758 42.5 31,186,312 28.5
</TABLE>
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<PAGE> 60
- -------------------------
(1) Creo Products, Inc., whose address is 3700 Gilmore Way, Burnaby British
Columbia, Canada V5G 4M1, may be deemed to be the beneficial owner of these
shares.
(2) Assumes conversion after this offering of 1,132,502 shares of Class C
common stock held by Creo SRL into shares of Class A common stock on a
one-for-one share basis.
(3) The general partner of Mellon Ventures II, L.P. is MVMA II L.P., and the
general partner of MVMA II L.P. is MVMA Inc.
(4) Consists of 1,314,425 shares of Class A common stock held by Menlo Ventures
VII, L.P. and 58,343 shares of Class A common stock held by Menlo
Entrepreneurs Fund VII, L.P. The general partner of Menlo Ventures VII,
L.P. and Menlo Entrepreneurs Fund VII, L.P. is MV Management VII, L.L.C.
(5) Includes 24,454 shares issuable upon exercise of options which are or will
be vested within 60 days of March 10, 2000 and 500,000 shares held in three
separate trusts of which Mr. Guttman is a trustee.
(6) Includes 24,452 shares issuable upon exercise of options which are or will
be vested within 60 days of March 10, 2000 and 170,261 shares held in a
trust, of which Mr. Olin is the trustee.
(7) Includes 24,454 shares issuable upon exercise of options which are or will
be vested within 60 days of March 10, 2000.
(8) Does not include the 31,186,312 shares of Class B common stock and the
1,132,502 shares of Class C common stock held of record by Creo SRL, an
affiliate of Creo Products, Inc. Mr. Michelson is one of our directors and
a director and the Chief Executive Officer of Creo Products, Inc. Mr.
Michelson disclaims beneficial ownership of these shares.
(9) Consists of the 1,576,228 shares of Class A common stock held of record by
Mellon Ventures VII, L.P. Mr. Billerbeck is one of our directors and a
Managing Director of Mellon Ventures, Inc.
(10) Includes 73,360 shares issuable upon exercise of options which will be
vested within 60 days of March 10, 2000.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
Following the close of the sale of the Class A common stock offered hereby,
our authorized capital stock will consist of 200,000,000 shares of Class A
common stock, par value $0.0001 per share, 51,250,000 shares of Class B common
stock, par value $0.0001 per share, 1,150,000 shares of Class C common stock,
par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value
$0.0001 per share. As of March 10, 2000, there were 56,216,011 shares of capital
stock outstanding and 117 stockholders of record.
The following summarizes the material provisions of our capital stock and
anti-takeover provisions of our certificate of incorporation and bylaws. This
summary is qualified by our certificate of incorporation and bylaws, copies of
which have been filed as exhibits to the registration statement of which this
prospectus is a part and by the provisions of applicable Delaware law.
COMMON STOCK
Shares of Class A common stock, Class B common stock and Class C common
stock are identical in all respects, except for voting rights, liquidation
rights and conversion rights, as described below.
VOTING RIGHTS
Class A common stock. Each outstanding share of Class A common stock is
entitled to one vote on all matters submitted to a vote of our stockholders,
including the election of directors.
Class B common stock. Each outstanding share of Class B common stock is
entitled to a fraction of a vote on all matters submitted to a vote of our
stockholders, including the election of directors. Immediately following this
offering, each outstanding shares of Class B common stock is entitled to a
fraction of a vote equal to , which, together with the fractional
voting rights of all other outstanding shares of Class B common stock,
represents approximately 17% of the total voting power of our outstanding voting
securities. The holders of Class B common stock have the option to increase the
fractional voting rights of the Class B common stock at any time up to a maximum
of one vote per share of Class B common stock. If the holders of Class B common
stock were to fully exercise this right, the Class B common stock would
represent % of the combined voting power of both classes of our common
stock after this offering. Holders of Class B common stock must pay us a
conversion price if our valuation, as determined by an appraiser or other means
specified in the certificate of incorporation, is less than $250 million on the
date of exercise of such right. If the holders of Class B common stock fully
exercise the voting conversion right and our valuation is less than $250
million, the conversion price is calculated as follows:
- if our valuation is less than $145 million on the date of exercise of
such right, the conversion price is equal to $62 million; and
- if our valuation is between $145 million and $250 million on the date of
exercise of such right, the amount of the conversion price decreases as
the valuation increases by approximately $590,500 per million.
If the holders of Class B common stock elect to increase their fractional voting
rights to a fraction that is less than one vote per share, then such holders
must pay only a portion of the conversion price, if any, as calculated above,
based on the percentage increase in its voting rights.
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<PAGE> 62
Class C common stock. Except as otherwise required under Delaware law, each
outstanding share of Class C common stock shall not be entitled to vote on any
matters submitted to a vote of our stockholders, including election of
directors.
DIVIDENDS, DISTRIBUTIONS AND STOCK SPLITS
Holders of Class A common stock, Class B common stock and Class C common
stock are entitled to receive dividends at the same rate if, as and when such
dividends are declared by our board of directors out of assets legally available
therefor after payment of dividends required to be paid on shares of preferred
stock, if any.
The Class A common stock, Class B common stock and Class C common stock may
not be subdivided or combined in any manner unless the other class is subdivided
or combined in the same proportion.
CONVERSION
The shares of Class A common stock are not convertible.
Each share of Class B common stock is convertible into one share of Class A
common stock at any time at the option of the holder, provided that such holder
has fully paid the voting conversion price described above and we have obtained
all required governmental consents in connection with such conversion.
Each share of Class C common stock is convertible into one share of Class A
common stock at the option of the holder, provided that we have obtained all
required governmental consents in connection with such conversion.
The holders of Class B common stock and Class C common stock shall have,
upon conversion of their shares into shares of Class A common stock, one vote
per share of Class A common stock held.
LIQUIDATION
In the event of any dissolution, liquidation, or winding up of our affairs,
whether voluntary or involuntary, after payment of our debts and other
liabilities and making provision for the holders of preferred stock, if any, our
remaining assets will be distributed ratably among the holders of the Class A
common stock, Class B common stock and Class C common stock, treated as a single
class; provided, however, that the holders of Class B common stock shall only be
entitled to participate in the distribution of such remaining assets until such
holders shall have received an aggregate of $0.802 per share of Class B common
stock.
MERGERS AND OTHER BUSINESS COMBINATIONS
Upon a merger, combination or other similar transaction in which shares of
our common stock are exchanged for or changed into other stock or securities,
cash and/or any other property, holders of the Class A common stock, Class B
common stock and Class C common stock will be entitled to receive an equal
amount per share of stock, securities, cash, and/or any other property, as the
case may be, into which or for which each share of any other class of common
stock is exchanged or changed; provided that in any transaction in which shares
of capital stock are distributed, such shares so exchanged for or changed into
may differ as to voting rights and conversion rights to the extent and only to
the extent that the voting rights and conversion rights of Class A common stock,
Class B common stock and Class C common stock differ at that time.
60
<PAGE> 63
All shares of Class A common stock, Class B common stock and Class C common
stock outstanding are fully paid and nonassessable, and all the shares of Class
A common stock, Class B common stock and Class C common stock to be outstanding
upon completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
Upon completion of the offering, 1,000,000 shares of undesignated preferred
stock will be authorized, and no shares will be outstanding. Our board has the
authority to issue preferred stock in one or more series and to establish the
rights and restrictions granted to or imposed on any unissued shares of
preferred stock and to fix the number of shares constituting any series without
any further vote or action by the stockholders. Our board has the authority,
without approval of the stockholders, to issue preferred stock that has voting
and conversion rights superior to the common stock, which could have the effect
of delaying or preventing a change in control. We currently have no plans to
issue any shares of preferred stock.
WARRANTS
At March 10, 2000, there were warrants outstanding to purchase an aggregate
of 2,505,072 shares of our Class A common stock. Generally, each warrant
contains provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of the warrant under certain
circumstances, including stock dividends, stock splits, reorganizations,
reclassifications and consolidations.
REGISTRATION RIGHTS
The holders of 2,428,391 shares of Class A common stock, 31,186,312 shares
of Class B common stock and 1,132,502 shares of Class C common stock (assuming
the conversion of all outstanding preferred stock upon completion of this
offering) or their transferees are entitled to certain rights with respect to
the registration of such shares under the Securities Act of 1933, as amended.
These rights are provided under the terms of an agreement between us and the
holders of these securities.
Demand Registration Rights. Subject to limitations in the agreement, the
holders of at least 51% of these securities then outstanding may require, on two
occasions beginning six months after the date of this prospectus, that we use
our best efforts to register these securities for public resale if Form S-3 is
not available, provided, among other limitations, that the proposed aggregate
selling price, net of any underwriters' discounts or commissions, is at least $5
million.
Piggyback Registration Rights. If we register any of our common stock
either for our own account or for the account of other security holders, the
holders of these securities are entitled to include their shares of common stock
in that registration, subject to the ability of the underwriters to limit the
number of shares included in the offering.
Form S-3 Registration Rights. The holders of at least 10% of these
securities then outstanding may also require us, not more than twice in any
twelve-month period, to register all or a portion of these securities on Form
S-3 when the use of that form becomes available to us, provided, among other
limitations, that the proposed aggregate selling price, net of any underwriters'
discounts or commissions, is at least $1 million. We will be responsible for
paying all registration expenses, and the holders selling their shares will be
responsible for paying all selling expenses.
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<PAGE> 64
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our charter documents could make our
acquisition and the removal of incumbent officers and directors more difficult.
These provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us to negotiate with us first. We believe that the benefits
of increased protection of our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure us outweigh
the disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, subject to exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior, did own, 15% or more of the corporation's voting
stock. These provisions may have the effect of delaying, deferring or preventing
a change in control without further action by the stockholders.
Our certificate of incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and may not be taken
by written consent. Our bylaws provide that special meetings of stockholders can
be called only by the board of directors, the Chairman, if any, the President or
holders of 66 2/3% of the votes entitled to be cast at a meeting. Moreover, the
business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting by the board of directors,
the Chairman, if any, the President or any such 50% holder. Our bylaws set forth
an advance notice procedure with regard to the nomination, other than by or at
the direction of the board of directors, of candidates for election as directors
and with regard to business to be brought before a meeting of stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A common stock is
Continental Stock Transfer and Trust Company. The transfer agent's address is
Two Broadway, New York, NY 10004, and its telephone number is (212) 509-4000.
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<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of Class
A common stock, 31,186,312 shares of Class B common stock and 1,132,502 shares
of Class C common stock outstanding. Each share of Class B common stock and
Class C common stock is convertible into one share of Class A common stock. Of
the shares of Class A common stock outstanding after this offering,
all of the shares which are offered hereby will be available for immediate sale
in the public market, subject in some cases to compliance with volume and other
limitations of Rule 144. The remaining shares of Class A, B and C common
stock held by existing stockholders were issued and sold by us in reliance on
exemptions from the registration requirements of the Securities Act. All of
these shares will be subject to "lock-up" agreements which prohibit these
stockholders from offering, selling or otherwise disposing of any of the shares
of Class A, B or C common stock owned by them for a period of 180 days after the
date of this offering. Subject to the following exceptions applicable to
stockholders who are not officers, directors or affiliates of printCafe, Inc.:
- 25% of a holder's shares may be sold on the earlier of 90 days after the
date of this offering or on the second trading day after the first public
release of our quarterly results if the last recorded sale price on the
Nasdaq National Market for 20 of the 30 trading days ending on such date
is at least twice the price per share in the initial public offering; and
- an additional 25% of each holder's shares may be sold 135 days after the
date of this offering if the price per share of common stock has achieved
the same target level.
However, Donaldson, Lufkin & Jenrette may, in its sole discretion, at any
time without notice, release all or any portion of the shares subject to lock-up
agreements. Upon expiration of the lock-up agreements, shares will become
eligible for sale pursuant to Rule 144(k), shares will become eligible
for sale under Rule 144 and shares will become eligible for sale under
Rule 701.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
(LISTED BY DATE UPON WHICH SHARES BECOME SALEABLE)
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
OF SHARES ELIGIBLE
DAYS AFTER THE DATE OF THIS PROSPECTUS FOR FUTURE SALE COMMENT
<S> <C> <C>
On effectiveness............................................ Restricted shares
subject to lock-up
provision
90 days after the effective date or second trading day
following first public release of quarterly earnings(1)... Shares saleable
under Rule 701
135 days after the effective date(1)........................ Shares saleable
under Rule 701
180 days after the effective date (expiration of lock-up)... Shares saleable
under Rule 144,
144(k), 701
February , 2001........................................... Shares saleable
under Rule 144
March , 2001.............................................. Shares saleable
under Rule 144
</TABLE>
- ---------------
(1) The number of shares listed may be offered, sold or traded provided that the
last recorded sale price per share for 20 of the 30 trading days ending on
such date is at least twice the initial public offering price per share.
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<PAGE> 66
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned shares for at least one year is entitled to sell
within any three-month period commencing 90 days after the date of this
prospectus 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 this
offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale requirements, and
depending on the amount sold, the filing of a Form 144 with respect to the sale.
Under Rule 144(k), a person, or persons whose shares are aggregated, is
entitled to sell his or her shares without regard to the limitations described
above if:
- the person has not been an affiliate of ours, such as an officer,
director or 10%-or-greater stockholder, at any time during the 90 days
immediately preceding the sale; and
- the person has beneficially owned his or her shares for at least two
years.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered hereby.
Any of our employees or professionals who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of Class A common stock subject to
outstanding stock options and common stock issued or issuable under our stock
plans. We expect to file the registration statement covering shares offered
pursuant to the 1999 and 2000 stock incentive plans within 180 days after the
date of this prospectus, thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the Securities
Act.
In addition, after this offering, holders of 34,747,205 shares will be
entitled to rights with respect to registration of their shares under the
Securities Act. Registration of such shares would result in such shares, except
for shares purchased by our affiliates, becoming freely tradable without
restriction under the Securities Act immediately on the effectiveness of such
registration.
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<PAGE> 67
UNDERWRITING
Under the terms and conditions contained in an underwriting agreement,
dated , 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, SG Cowen Securities
Corporation, Thomas Weisel Partners LLC, McDonald Investments, Inc., a KeyCorp
Company, and DLJdirect Inc., have severally agreed to purchase from us the
number of shares of Class A common stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
SG Cowen Securities Corporation.............................
Thomas Weisel Partners LLC..................................
McDonald Investments, Inc., a KeyCorp Company...............
DLJdirect Inc. .............................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares of Class A common
stock offered by this prospectus are subject to approval by their counsel of
legal matters concerning this offering and to conditions that must be satisfied
by us. The underwriters are obligated to purchase and accept delivery of all the
shares of Class A common stock offered by this prospectus, other than those
shares covered by the over-allotment option described below, if any are
purchased.
The underwriters initially propose to offer some of the shares of Class A
common stock directly to the public at the initial public offering price set
forth on the cover page of this prospectus and in part to dealers at the initial
public offering price less a concession not in excess of $ per share. The
underwriters may allow, and those dealers may re-allow, a concession not in
excess of $ per share. After the initial offering of the Class A common
stock to the public, the public offering price and other selling terms may be
changed by the representatives at any time without notice. The underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
An electronic prospectus will be available on the Web site maintained by
DLJdirect Inc., one of the underwriters and an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation. Other than the prospectus in electronic format,
the information on that Web site relating to this offering is not part of this
prospectus and has not been approved or endorsed by us or the underwriters, and
should not be relied on by prospective investors.
We have granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of Class A common stock at
the initial public offering price less underwriting discounts and commissions.
The underwriters may exercise the option solely to cover over-allotments, if
any, made in connection with this offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.
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<PAGE> 68
The following table sets forth the compensation payable to the underwriters
by us in connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our Class A common stock.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
Per share...................................................
Total.......................................................
</TABLE>
We will pay the offering expenses, estimated to be $ .
We have agreed to indemnify the underwriters against liabilities which may
arise in connection with this offering, including liabilities under the
Securities Act, or to contribute to payments that the underwriters may be
required to make with respect to these liabilities.
We, our executive officers, directors, stockholders and optionholders are
subject to lock-up agreements providing that, for a period of 180 days after the
date of this prospectus, they will not:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A common stock or any
securities convertible into or exercisable or exchangeable for Class A
common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Class A
common stock, regardless of whether any such transaction described above
is to be settled by delivery of Class A common stock or other securities,
in cash, or otherwise without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
However, 25% of the shares of Class A common stock subject to the
restrictions described above (other than shares owned by our directors, officers
or affiliates) will be released from these restrictions on the later to occur of
the end of the 90-day period after the date of this prospectus or the second
trading day following the first public release of our quarterly results,
provided that the reported sale price of the Class A common stock on the Nasdaq
National Market is at least twice the initial public offering price for 20 of
the 30 trading days ending on such date. An additional 25% of the shares subject
to the restrictions described above (other than shares owned by our directors,
officers or affiliates) will be released from these restrictions if the reported
last sale price of the Class A common stock on the Nasdaq National Market is at
least twice the initial public offering price for 20 of the 30 trading days
ending on the last trading day of the 135-day period after the date of this
prospectus. Each person subject to the lock-up agreement described above has
agreed to execute any transaction released from restriction in accordance with
the terms in this paragraph only through Donaldson, Lufkin & Jenrette Securities
Corporation or any of its affiliates acting as broker, unless otherwise agreed
in writing by Donaldson, Lufkin & Jenrette Securities Corporation.
In addition, during such 180-day period, we have also agreed not to file
any registration statement with respect to, and each of our executive officers,
directors and stockholders have agreed not to make any demand for, or exercise
any class right with respect to, the registration of any shares of Class A
common stock or any securities convertible into or exercisable or exchangeable
for Class A common stock without the prior written consent of Donaldson, Lufkin
& Jenrette Securities Corporation.
66
<PAGE> 69
Prior to this offering, there has been no established trading market for
our Class A common stock. The initial public offering price of the shares of our
Class A common stock offered by this prospectus will be determined by
negotiation among us and the representatives of the underwriters. The factors to
be considered in determining the initial public offering price include:
- the history of and the prospects for the industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future earnings;
- the recent market prices of securities of generally comparable companies;
and
- the general condition of the securities markets at the time of the
offering.
At our request, the underwriters have reserved up to shares of Class
A common stock to be sold in this offering for sale to some of our employees,
associates of our employees and directors, and other individuals or companies
who have commercial arrangements or personal relationships with us. No shares
have been reserved for sale to our directors or officers. Through this directed
share program, we intend to ensure that those individuals and companies that
have supported us, or who are in a position to support us in the future, have
the opportunity to purchase our Class A common stock at the same price that we
are offering our shares to the general public. Indications of interest will be
sought by means of a written notice, which conforms to Rule 134 under the
Securities Act, accompanied by a copy of this prospectus. Prospective
participants will be permitted to participate in this offering at the initial
public offering price presented on the cover page of this prospectus. No
commitment to purchase shares by any participant in the directed share program
will be accepted until after the registration statement of which this prospectus
is part is effective and an initial public offering price has been established.
The number of shares of our Class A common stock available for sale to the
general public will be reduced by the number of shares sold through the directed
share program. Any shares reserved for the directed share program which are not
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "PCAF".
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of Class A common
stock included in this offering in any jurisdiction where action for that
purpose is required. The shares of Class A common stock included in this
offering may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in connection with
the offer and sale of any of these shares of Class A common stock be distributed
or published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of such jurisdiction. We
advise persons who receive this prospectus to inform themselves about and to
observe any restrictions relating to this offering and the distribution of this
prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of Class A common stock included in this offering in any
jurisdiction where such an offer or solicitation is unlawful.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the Class
A common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. The underwriters may bid for and purchase
our shares of Class A common stock in the open market to cover such syndicate
short
67
<PAGE> 70
positions or to stabilize the price of our Class A common stock. In addition,
the underwriting syndicate may reclaim selling concessions from syndicate
members and selected dealers if they repurchase previously distributed Class A
common stock in syndicate covering transactions, in stabilizing transactions or
otherwise. These activities may stabilize or maintain the market price of the
Class A common stock above independent market levels. The underwriters are not
required to engage in these activities and may end any of these activities at
any time.
In October 1999, McDonald Investments, Inc., a KeyCorp Company, one of the
representatives of the underwriters, earned $300,000 for financial advisory
services rendered in connection with the acquisition of nth degree software,
inc. by Prograph Systems, Inc. In February 2000, we paid McDonald Investments
this $300,000 amount.
In February 2000, McDonald Investments earned $1.0 million for financial
advisory services rendered in connection with our Series B preferred stock and
Series C preferred stock financings. In February 2000, we paid McDonald
Investments this $1.0 million amount.
In February 2000, an entity affiliated with McDonald Investments purchased
344,828 shares of our Series C preferred stock at a purchase price of $5.80 per
share.
In March 2000, individuals related to Donaldson, Lufkin & Jenrette
Securities Corporation and Thomas Weisel Partners LLC, representatives of the
underwriters, purchased 10,757 shares of our Class A common stock at a purchase
price of $8.83 per share.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 132
filed public offerings of equity securities, of which 101 have been completed,
and has acted as a syndicate member in an additional 71 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or controlling persons,
except with respect to its contractual relationship with us pursuant to the
underwriting agreement entered into in connection with this offering.
68
<PAGE> 71
LEGAL MATTERS
The validity of the Class A common stock offered hereby will be passed upon
for us by Orrick, Herrington & Sutcliffe LLP, Sacramento, California. Selected
legal matters in connection with this offering will be passed upon for the
underwriters by Pillsbury Madison & Sutro LLP, Palo Alto, California. As of the
date of this prospectus, Orrick, Herrington & Sutcliffe LLP and two partners of
Orrick, Herrington & Sutcliffe LLP beneficially owned an aggregate of 114,724
shares of our Class A common stock.
EXPERTS
The financial statements of printCafe, Inc. at December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999, appearing
in this prospectus and registration statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The financial statements of Programmed Solutions, Inc. at December 31, 1999
and 1998, and for each of the two years in the period ended December 31, 1999,
appearing in this prospectus and registration statement have been audited by
Dylewsky & Goldberg, LLC, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Hagen Systems, Inc. at December 31, 1999 and
1998, and for each of the two years in the period ended December 31, 1999,
appearing in this prospectus and registration statement have been audited by
Larson, Allen, Weishair & Co., LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Logic Associates, Inc. at December
31, 1999 and 1998, and for each of the two years in the period ended December
31, 1999, appearing in this prospectus and registration statement have been
audited by Bridgman Valiante & Villard, PC, independent auditors, as set forth
in their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
The audited financial statements for nth degree software, inc. at December
31, 1998 and for the year then ended have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements for nth degree software, inc. as of
December 31, 1997 and for the year then ended included in this prospectus have
been so included in reliance on the report (which contains an emphasis of a
matter paragraph) of PricewaterhouseCoopers LLP, independent accountants given
on the authority of said firm as experts in auditing and accounting.
69
<PAGE> 72
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the Class A
common stock offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules which are part of the
registration statement. For further information with respect to us and the Class
A common stock offered hereby, we refer you to the registration statement and to
the exhibits and schedules. Statements made in this prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each such document filed as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved. The registration statement and the exhibits and schedules may be
inspected without charge at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, DC 20549, and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York, NY
10048, and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part of the registration statement
may be obtained from the SEC's offices upon payment of fees prescribed by the
SEC. The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants, like us,
that file electronically with the SEC. The address of the site is www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and, accordingly, will file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the Web site of the SEC referred to above.
70
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements of printCafe, Inc. for the
Years Ended December 31, 1997, 1998 and 1999.............. F-3
Audited Financial Statements of Programmed Solutions, Inc.
for the Years Ended December 31, 1998 and 1999............ F-23
Audited Financial Statements of Hagen Systems, Inc. for the
Years Ended December 31, 1998 and 1999.................... F-33
Audited Consolidated Financial Statements of Logic
Associates, Inc. for the Years Ended December 31, 1998 and
1999...................................................... F-45
Audited Consolidated Financial Statements of nth degree
software, inc. for the Year Ended December 31, 1998....... F-60
Audited Consolidated Financial Statements of nth degree
software, inc. for the Year Ended December 31, 1997....... F-74
PRINTCAFE, INC.
Report of Independent Auditors............................ F-3
Balance Sheets at December 31, 1998 and 1999.............. F-4
Statements of Operations for the years ended December 31,
1997, 1998 and 1999.................................... F-5
Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1997, 1998, and 1999................ F-6
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999.................................... F-7
Notes to Financial Statements............................. F-8
PROGRAMMED SOLUTIONS, INC.
Independent Auditors' Report.............................. F-23
Balance Sheets at December 31, 1999 and 1998.............. F-24
Statements of Operations for the years ended December 31,
1999 and 1998.......................................... F-25
Statements of Stockholders' Equity for the years ended
December 31, 1999 and 1998............................. F-26
Statements of Cash Flows for the years ended December 31,
1999 and 1998.......................................... F-27
Notes to Financial Statements............................. F-28
HAGEN SYSTEMS, INC.
Independent Auditor's Report.............................. F-33
Balance Sheets at December 31, 1998 and 1999.............. F-34
Statements of Income and Comprehensive Income for the
years ended December 31, 1998 and 1999................. F-35
Statements of Stockholders' Equity for the years ended
December 31, 1998 and 1999............................. F-36
Statements of Cash Flows for the years ended December 31,
1998 and 1999.......................................... F-37
Notes to Financial Statements............................. F-38
LOGIC ASSOCIATES, INC.
Independent Auditors' Report.............................. F-45
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-46
Consolidated Statements of Income for the years ended
December 31, 1999 and 1998............................. F-48
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1999 and 1998................. F-49
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998............................. F-50
Notes to Consolidated Financial Statements................ F-51
</TABLE>
F-1
<PAGE> 74
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NTH DEGREE SOFTWARE, INC.
Report of Independent Public Accountants.................. F-60
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998...................... F-61
Consolidated Statements of Operations and Comprehensive
Loss for the year ended December 31, 1998 and the nine
months ended September 30, 1999 and 1998 (unaudited)... F-62
Consolidated Statement of Stockholders' Deficit for the
year ended December 31, 1998 and for the nine months
ended September 30, 1999 (unaudited)................... F-63
Consolidated Statements of Cash Flows for the year ended
December 31, 1998 and the nine months ended September
30, 1999 and 1998 (unaudited).......................... F-64
Notes to Consolidated Financial Statements................ F-65
Report of Independent Accountants......................... F-74
Consolidated Balance Sheet as of December 31, 1997........ F-75
Consolidated Statement of Operations for the year ended
December 31, 1997...................................... F-76
Consolidated Statement of Stockholders' Equity (Deficit)
for the year ended December 31, 1997................... F-77
Consolidated Statement of Cash Flows for the year ended
December 31, 1997...................................... F-78
Notes to Consolidated Financial Statements................ F-79
</TABLE>
F-2
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
Board of Directors
printCafe, Inc.
We have audited the accompanying balance sheets of printCafe, Inc.
(formerly Prograph Systems, Inc.) as of December 31, 1998 and 1999, and the
related statements of operations, shareholders' equity (deficit), and cash flows
for each of the three years in the period ended December 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of printCafe, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
March 10, 2000
Pittsburgh, PA
F-3
<PAGE> 76
PRINTCAFE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 56,240 $ 58
Accounts receivable, net of allowance for doubtful
accounts of $-0- in 1998 and $250,000 in 1999.......... 1,587,294 1,588,310
Receivables from related parties.......................... 60,571 --
Other current assets...................................... 1,625 134,774
---------- ------------
Total current assets........................................ 1,705,730 1,723,142
---------- ------------
Property and equipment, net................................. 319,578 502,225
Goodwill, net of accumulated amortization of $774,081 in
1999...................................................... -- 9,614,277
---------- ------------
Total assets................................................ $2,025,308 $ 11,839,644
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ $ 740,000 $ 500,000
Accounts payable.......................................... 114,415 944,753
Accrued transaction fees.................................. -- 300,000
Accrued compensation and related taxes.................... 380,024 423,345
Accrued liabilities....................................... 237,329 31,698
Deferred revenue.......................................... 669,510 1,992,586
Current portion of long-term debt......................... 130,000 1,537,943
Current portion of capital lease obligations.............. -- 101,601
---------- ------------
Total current liabilities................................... 2,271,278 5,831,926
---------- ------------
Long-term debt.............................................. 67,500 952,812
Obligations under capital lease............................. -- 92,962
Commitments and contingencies (Note 8)...................... -- --
Minority interest........................................... 175,662 --
Shareholders' equity (deficit):
Series A convertible preferred stock, $0.0001 par value;
5,000,000 shares authorized at December 31, 1999;
2,455,798 shares issued and outstanding in 1999,
liquidation value of $5,648,335........................ -- 246
Series A-1 convertible preferred stock, $0.0001 par value;
15,000,000 shares authorized at December 31, 1999;
9,725,096 shares issued and outstanding in 1999,
liquidation value of $20,033,698....................... -- 973
Common stock, $0.0001 par value; 25,000,000 shares
authorized at December 31, 1998 and 1999; 8,591,272 and
3,907,968 shares issued and outstanding at December 31,
1998 and 1999, respectively............................ 859 391
Additional paid-in capital................................ 3,980 18,267,677
Retained deficit.......................................... (457,971) (11,428,244)
Treasury stock (30,000 and 132,062 shares at December 31,
1998 and 1999, respectively)........................... (36,000) (158,474)
Notes receivable from common shareholders................. -- (1,720,625)
---------- ------------
Total shareholders' equity (deficit)........................ (489,132) 4,961,944
---------- ------------
Total liabilities and shareholders' equity (deficit)........ $2,025,308 $ 11,839,644
========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
PRINTCAFE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Revenues:
Software licensing................................ $1,834,604 $2,227,560 $ 1,298,262
Consulting........................................ 1,850,685 2,107,457 2,023,367
Maintenance....................................... 391,344 906,901 1,089,660
---------- ---------- ------------
4,076,633 5,241,918 4,411,289
Cost of revenues:
Software licensing................................ 273,957 267,339 128,813
Consulting........................................ 661,234 674,968 966,013
Maintenance....................................... 151,686 159,889 319,952
---------- ---------- ------------
1,088,677 1,102,196 1,414,778
---------- ---------- ------------
Gross profit........................................ 2,989,756 4,139,722 2,996,511
Operating expenses:
Product development............................... 1,242,410 1,601,284 1,899,715
General and administrative........................ 1,543,792 1,650,766 2,704,415
Sales and marketing............................... 470,034 396,718 847,968
Depreciation and amortization..................... 146,306 198,669 1,005,652
Stock-based compensation.......................... -- 254,000 7,274,312
---------- ---------- ------------
Total operating expenses............................ 3,402,542 4,101,437 13,732,062
---------- ---------- ------------
(Loss) income from operations....................... (412,786) 38,285 (10,735,551)
Other income and (expense):
Interest and dividend income...................... 7,544 17,544 21,345
Interest expense.................................. (30,927) (53,608) (87,433)
Gain (loss) on sale of investments................ (45,543) 185,419 --
Minority interest................................. 5,960 (174,098) (107,454)
Other income (expense)............................ (28,360) 2,278 (9,732)
---------- ---------- ------------
Total other income and (expense).................... (91,326) (22,465) (183,274)
---------- ---------- ------------
Net income (loss)................................... $ (504,112) $ 15,820 $(10,918,825)
========== ========== ============
Earnings (loss) per share:
Basic and diluted................................. $ (.06) $ .00 $ (1.43)
========== ========== ============
Shares used to compute basic and diluted earnings
(loss) per share.................................. 8,591,272 8,591,272 7,626,804
========== ========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
PRINTCAFE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED PREFERRED
SERIES A SERIES A-1 COMMON STOCK ADDITIONAL RETAINED
------------------ ------------------ ------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997........ -- $ -- -- $ -- 8,591,272 $ 859 $ 3,980 $ 552,881
Repurchase of 30,000 shares of
common stock................... -- -- -- -- -- -- -- --
S corporation distributions...... -- -- -- -- -- -- -- (317,607)
Unrealized gains on marketable
equity securities of $9,199,
net of reclassification
adjustment for losses included
in net income of $45,543....... -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- (504,112)
Comprehensive income (loss)...... -- -- -- -- -- -- -- --
--------- ---- --------- ---- ---------- ----- ----------- ------------
Balance at December 31, 1997...... -- -- -- -- 8,591,272 859 3,980 (268,838)
S corporation distributions...... -- -- -- -- -- -- -- (204,953)
Unrealized gain on marketable
equity securities of $35,420,
net of reclassification
adjustment for gains included
in net income of $185,419...... -- -- -- -- -- -- -- --
Net income....................... -- -- -- -- -- -- -- 15,820
Comprehensive income............. -- -- -- -- -- -- -- --
--------- ---- --------- ---- ---------- ----- ----------- ------------
Balance at December 31, 1998...... -- -- -- -- 8,591,272 859 3,980 (457,971)
Repurchase of 102,062 shares of
common stock................... -- -- -- -- -- -- -- --
S corporation distributions...... -- -- -- -- -- -- -- (51,448)
Acquisition of minority
interests...................... -- -- -- -- -- -- 1,296,000 --
Issuance of common stock to
management..................... -- -- -- -- 211,667 21 253,979 --
Sale of common stock to the
Company's 401(k) plan.......... -- -- -- -- 45,260 5 54,307 --
Acquisition of nth degree
software, inc. ................ 2,455,798 246 -- -- 876,897 88 7,664,865 --
Conversion of common stock issued
in the acquisition of nth
degree software, inc. ......... -- -- 876,897 88 (876,897) (88) -- --
Conversion of common stock into
preferred stock................ -- -- 8,848,199 885 (8,848,199) (885) -- --
Sale of common stock to
management..................... -- -- -- -- 2,889,690 289 670,131 --
Sale of common stock to
nonemployee.................... -- -- -- -- 1,018,278 102 1,050,103 --
Stock-based compensation......... -- -- -- -- -- -- 7,274,312 --
Net loss......................... -- -- -- -- -- -- -- (10,918,825)
--------- ---- --------- ---- ---------- ----- ----------- ------------
Balance at December 31, 1999...... 2,455,798 $246 9,725,096 $973 3,907,968 $ 391 $18,267,677 $(11,428,244)
========= ==== ========= ==== ========== ===== =========== ============
<CAPTION>
ACCUMULATED NOTES
OTHER RECEIVABLE
COMPREHENSIVE TREASURY FROM COMMON
INCOME STOCK SHAREHOLDERS TOTAL
<S> <C> <C> <C> <C>
Balance at January 1, 1997........ $ 95,257 $ -- $ -- $ 652,977
Repurchase of 30,000 shares of
common stock................... -- (36,000) -- (36,000)
S corporation distributions...... -- -- -- (317,607)
Unrealized gains on marketable
equity securities of $9,199,
net of reclassification
adjustment for losses included
in net income of $45,543....... 54,742 -- -- 54,742
Net loss......................... -- -- -- (504,112)
------------
Comprehensive income (loss)...... -- -- -- (449,370)
--------- --------- ----------- ------------
Balance at December 31, 1997...... 149,999 (36,000) -- (150,000)
S corporation distributions...... -- -- -- (204,953)
Unrealized gain on marketable
equity securities of $35,420,
net of reclassification
adjustment for gains included
in net income of $185,419...... (149,999) -- -- (149,999)
Net income....................... -- -- -- 15,820
------------
Comprehensive income............. -- -- -- (134,179)
--------- --------- ----------- ------------
Balance at December 31, 1998...... -- (36,000) -- (489,132)
Repurchase of 102,062 shares of
common stock................... -- (122,474) -- (122,474)
S corporation distributions...... -- -- -- (51,448)
Acquisition of minority
interests...................... -- -- -- 1,296,000
Issuance of common stock to
management..................... -- -- -- 254,000
Sale of common stock to the
Company's 401(k) plan.......... -- -- -- 54,312
Acquisition of nth degree
software, inc. ................ -- -- -- 7,665,199
Conversion of common stock issued
in the acquisition of nth
degree software, inc. ......... -- -- -- --
Conversion of common stock into
preferred stock................ -- -- -- --
Sale of common stock to
management..................... -- -- (670,420) --
Sale of common stock to
nonemployee.................... -- -- (1,050,205) --
Stock-based compensation......... -- -- -- 7,274,312
Net loss......................... -- -- -- (10,918,825)
--------- --------- ----------- ------------
Balance at December 31, 1999...... $ -- $(158,474) $(1,720,625) $ 4,961,944
========= ========= =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
PRINTCAFE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income.................................... $(504,112) $ 15,820 $(10,918,825)
Adjustments to reconcile net (loss) income to net
cash (used) provided by operating activities:
Minority interest.................................. (5,960) 174,098 107,454
Depreciation and amortization...................... 146,306 198,669 1,005,652
Provision for doubtful accounts.................... -- -- 250,000
Stock-based compensation........................... -- 254,000 7,274,312
(Gain) loss on sale of investments................. 45,543 (185,419) --
Changes in assets and liabilities, net of effects
from acquisition of business:
Accounts receivable................................ (326,529) (31,355) (206,954)
Receivables from related parties................... 21,646 (42,227) 60,571
Other assets....................................... 628 (1,025) (106,115)
Accounts payable................................... 112,783 (2,550) 694,088
Accrued liabilities................................ 129,249 20,864 (14,546)
Deferred revenue................................... 120,117 (222,688) 1,323,076
--------- --------- ------------
Net cash (used) provided by operating activities..... (260,329) 178,187 (531,287)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acquired........ -- -- 60,016
Purchase of property, plant, and equipment........... (326,120) (145,328) (147,552)
Proceeds from sale of investments.................... 191,984 282,701 --
--------- --------- ------------
Net cash (used) provided by investing activities..... (134,136) 137,373 (87,536)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt................................... 65,100 -- 1,344,207
Principal payments on debt........................... (76,806) (30,000) (393,682)
Net (repayments) borrowings on line of credit........ 797,000 (107,000) (240,000)
Principal payments on capital lease obligations...... -- -- (28,274)
S corporation distributions.......................... (317,607) (204,953) (51,448)
Repurchase of common stock........................... (36,000) -- (122,474)
Issuance of common stock............................. -- -- 54,312
--------- --------- ------------
Net cash provided (used) by financing activities..... 431,687 (341,953) 562,641
--------- --------- ------------
Increase (decrease) in cash and cash equivalents..... 37,222 (26,393) (56,182)
Cash and cash equivalents -- beginning of year....... 45,411 82,633 56,240
--------- --------- ------------
Cash and cash equivalents -- end of year............. $ 82,633 $ 56,240 $ 58
========= ========= ============
Supplemental disclosure of cash flow information
Cash paid for interest............................. $ 30,927 $ 53,608 $ 79,686
</TABLE>
See accompanying notes.
F-7
<PAGE> 80
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
printCafe, Inc. (the Company) provides business-to-business electronic
commerce solutions for the printing industry. The Company's principal customers
are in North America and Europe. The Company operates in one segment.
On March 31, 1999, the Company merged Prograph Management Systems, Inc.,
Prograph Bindery Systems, Inc., Prograph Production Systems, Inc. and Prograph
Progiciels, Inc., which were S corporations under common control and formed
Prograph Systems, Inc., which has been renamed printCafe, Inc.
Prograph Management Systems, Inc. marketed software which helps printers
plan job execution in their facilities. Additional product offerings provide
estimating, job costing and invoicing. Prograph Bindery Systems, Inc. managed
recipients' address and demographic information at the printer or mailer and
ensured that the correct information is imaged on the proper product. Prograph
Production Systems, Inc. developed a shop floor count control system for bindery
lines which interfaced directly to machines at the printing plant to track time,
amount of product produced, product waste during the manufacturing process and
job status. Prograph Progiciels, Inc. developed and marketed a stand alone
scheduling application for printing companies.
On October 29, 1999, the Company acquired nth degree software, inc. (see
Note 3). On the date of acquisition, the Company's S election automatically
terminated (see Notes 2 and 9).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On March 31, 1999, all entities under common control were merged and
Prograph Systems, Inc. was formed. Prior to the merger, common control
shareholders owned 100%, 87%, 70% and 70% of Prograph Management Systems, Inc.,
Prograph Bindery Systems, Inc., Prograph Production Systems, Inc. and Prograph
Progiciels, Inc., respectively. The merger resulted in the issuance of 1,080,000
shares of common stock to minority interest holders. Goodwill of $1,012,884 was
recorded based upon an independent valuation and is being amortized over a
three-year period. These financial statements have been prepared on a combined
basis for all periods presented.
The results of operations for nth degree software, inc. have been included
from the date of acquisition.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-8
<PAGE> 81
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
LONG-LIVED ASSETS
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives. Minor repairs and
maintenance, which do not improve or extend the lives of assets, are expensed as
incurred. Major renewals are capitalized. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is recognized in operations. Amortization of
assets recorded under capital leases is included with depreciation expense.
Estimated useful lives of the assets are as follows:
<TABLE>
<CAPTION>
ASSET CLASS USEFUL LIVES
<S> <C>
Buildings................................................... 31.5 years
Equipment and fixtures...................................... 3.0 years
Leasehold improvements...................................... 5.0 years
</TABLE>
Goodwill, which arose from the October 29, 1999 acquisition of nth degree
software, inc. and the merger of all entities under common control, is being
amortized over a period of three years.
VALUATION OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, based on
factors such as current market value, future asset utilization, business climate
and future undiscounted cash flows expected to result from the use of the
related assets. The Company's policy is to record an impairment loss in the
period when it is determined that the carrying amount of the asset may not be
recoverable. The impairment loss is calculated as the amount by which the
carrying amount of the asset exceeds the undiscounted estimate of future cash
flows from the asset.
REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued SOP No. 97-2, Software Revenue Recognition, which superseded SOP
No. 91-1. SOP No. 97-2 was adopted by the Company in the year beginning January
1, 1998. SOP No. 97-2 provides guidance on applying generally accepted
accounting principles for software revenue recognition transactions. Based on
the Company's interpretation of the requirements of SOP No. 97-2, application of
this statement has not materially impacted the Company's revenues, results of
operations or financial position. The Company generates several types of revenue
including the following:
Software Licensing. The Company's standard end user license agreement for
the Company's products provides for an initial fee to use the product in
perpetuity. The Company also enters into other license agreement types,
typically with major end user customers, which allow for the use of the
Company's products, usually restricted by the number of employees, the number of
users or the license term. Fees from licenses are recognized as revenue upon
contract execution, provided all delivery obligations have been met, fees are
fixed or determinable and collection is probable. Fees from licenses sold
together with consulting services and support arrangements (multi-element
F-9
<PAGE> 82
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
arrangements) are generally recognized upon installation provided that the above
criteria have been met and payment of the license fees is not dependent upon the
performance of the consulting. The total contract price in a multi-element
arrangement is allocated to each element (e.g., maintenance) based on guidance
provided by SOP No. 97-2.
Consulting. The Company provides consulting and education services to its
customers. Revenue from such services is generally recognized over the period
during which the applicable service is to be performed or on a
services-performed basis. If certain multi-element arrangements are not able to
be allocated, the entire arrangement is deferred and revenue is recognized over
the period of the last undelivered element of the arrangement.
Maintenance. Maintenance agreements generally call for the Company to
provide technical support and software updates, on a when and if available
basis, to customers. Revenue on technical support and software update rights is
recognized ratably over the term of the support agreement.
PRODUCT DEVELOPMENT COSTS
Research and development expenditures are generally charged to operations
as incurred. Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed, requires the capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon the completion of a working model. Through December 31, 1999, capitalizable
costs incurred after achieving technological feasibility have not been
significant for any development project. Accordingly, the Company has charged
all costs to product development expense in the periods they were incurred.
The Company adopted SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, during 1999, which requires
capitalization of certain costs incurred during the development of internal use
software. Through December 31, 1999 capitalizable costs incurred have not been
significant for any development project. Accordingly, the Company has charged
all costs to research and development expense in the periods they were incurred.
INCOME TAXES
During 1997 and 1998, the Company had in place a valid election to be taxed
under Subchapter S of the Internal Revenue Code and the respective state codes.
As an S corporation, the Company's shareholders were responsible for any federal
and state income taxes resulting from the Company's taxable income. Accordingly,
the financial statements for the years ended December 31, 1997 and 1998 do not
include a provision for federal or state income taxes.
As a result of the Company's acquisition of nth degree software on October
29, 1999, the Company's S election automatically terminated. Subsequent to the
termination, the Company is responsible for income taxes from October 29, 1999.
This change in tax status did not result in the Company recording a tax benefit
for deferred taxes since a full valuation allowance was recorded on the net
deferred tax asset at the time of conversion.
The Company follows the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between
F-10
<PAGE> 83
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax laws and rates applicable to the periods in which the
differences are expected to reverse. The Company provides for a valuation
allowance to reduce deferred tax assets to their estimated realizable value.
EARNINGS (LOSS) PER SHARE
In accordance with SFAS No. 128, basic and dilutive earnings (loss) per
share have been computed using the weighted average number of shares of common
stock outstanding during the period. Basic and diluted earnings per share are on
a historical basis and are computed using the weighted average number of shares
of common stock outstanding. Potential common shares from conversion of
convertible preferred stock and exercise of stock options are excluded from
historical diluted net loss per share because they would be antidilutive. The
total number of shares excluded from diluted net loss per share relating to
these securities was -0- shares, -0- shares, and 12,697,870 shares for 1997,
1998 and 1999, respectively.
CONCENTRATION OF CREDIT RISK
For the years ended December 31, 1997 and 1998, three customers represented
approximately 80% and 52%, respectively, of the Company's revenues. For the year
ended December 31, 1999, one customer represented approximately 33% of the
Company's revenues. Amounts due from these customers totaled $475,662, $696,584
and $337,624 as of December 31, 1997, 1998 and 1999, respectively.
For the years ended December 31, 1997, 1998, and 1999, revenues from
foreign customers approximated 2.7%, 11.7% and 5.1%, respectively, of the
Company's total revenues.
The Company does not require collateral from its customers. Credit losses
related to such customers historically have been minimal and within management's
expectations.
ADVERTISING
Advertising and promotion costs are expensed as incurred and totaled
approximately $91,674, $39,675 and $285,107 for the years ended December 31,
1997, 1998 and 1999, respectively.
FINANCIAL INSTRUMENTS
For certain financial instruments including cash and cash equivalents,
accounts receivable, accounts payable, and accrued liabilities, recorded amounts
approximate fair value due to the relative short maturity period. The fair value
of the notes receivable from common shareholders approximates $1,130,000 and was
determined using discounted cash flow analyses. A discount rate of 8.5% was
utilized. The carrying amount of the line of credit approximates market value
because it has an interest rate that varies with market interest rates. The fair
values of the obligations under capital lease and long-term debt are estimated
based on current interest rates available to the Company for debt instruments
with similar terms, degrees of risk and remaining maturities. The carrying
values of these obligations approximate their respective fair values. The
estimated fair values may not be representative of actual values of the
financial instruments that could have been realized as of the period end or that
will be realized in the future.
F-11
<PAGE> 84
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 permits the Company to continue
accounting for stock-based compensation as set forth in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB Opinion
No. 25), provided the Company discloses the pro forma effect on net income and
earnings per share of adopting the full provisions of SFAS No. 123. Accordingly,
the Company continues to account for stock-based compensation under APB Opinion
No. 25 and has provided the required pro forma disclosures. See Note 11 of Notes
to Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, which is effective, as
amended, for all quarters in fiscal years beginning after June 15, 2000,
establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. As the Company does not currently engage in derivative
or hedging activities, the adoption of this standard is not expected to have a
significant impact on the Company's financial statements.
3. ACQUISITION
On October 29, 1999, the Company acquired all of the outstanding common and
preferred stock of nth degree software, inc., which develops, markets and sells
cross-platform, enterprise-wide publishing applications. The acquisition has
been accounted for under the purchase method of accounting, and the results of
operations of nth degree software, inc. have been included in the Company's
financial statements since the date of acquisition. The aggregate purchase price
of $8,915,199 (including transaction costs of $330,000) consists of 876,897
shares of common stock, 2,455,798 shares of Series A preferred stock and notes
payable of $920,000 at a 9% interest rate. The common stock was converted
one-for-one into shares of Series A-1 preferred stock on November 1, 1999. Both
the common and preferred stock issued in this transaction were valued at $2.30
per share.
This value was determined based upon agreement between the two parties as
to the combined value of the companies. The excess of the purchase price over
the fair market value of the assets acquired of $9,375,474 has been allocated to
goodwill and will be amortized over three years using the straight line method.
The estimated fair value of the assets acquired and liabilities assumed of nth
degree software, inc. is as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Current assets.............................................. $ 148,579
Property and equipment...................................... 266,666
Goodwill.................................................... 9,375,474
Current liabilities......................................... 229,953
Obligations under capital lease............................. 222,837
Long-term debt.............................................. 422,730
</TABLE>
F-12
<PAGE> 85
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following summarizes the unaudited pro forma results of operations for
1998 and 1999 as if the Company's acquisition of nth degree software, inc. and
the merger of all entities under common control occurred as of January 1, 1998
and 1999, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1998 1999
<S> <C> <C>
Revenues.................................................... $ 6,396,913 $ 5,325,082
Operating loss.............................................. (4,924,139) (13,935,371)
Net loss.................................................... (5,181,360) (14,230,975)
Pro forma loss per share:
Basic and diluted......................................... $ (.60) $ (1.87)
Shares used to compute basic and diluted.................. 8,591,272 7,621,999
</TABLE>
The unaudited pro forma results are not necessarily indicative of the
results of operations which would actually have been reported had the
acquisition occurred prior to the beginning of the periods presented. In
addition, they are not intended to be indicative of future results.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Buildings................................................... $ 29,005 $ 51,717
Equipment and fixtures...................................... 766,389 1,045,102
Leasehold improvements...................................... 39,702 105,239
--------- ----------
835,096 1,202,058
Less accumulated depreciation............................... (515,518) (699,833)
--------- ----------
$ 319,578 $ 502,225
========= ==========
</TABLE>
Depreciation expense was $146,306, $198,669 and $231,571 for the years
ended December 31, 1997, 1998, and 1999, respectively.
5. LINE OF CREDIT
The Company's line of credit agreement has a maximum borrowing capacity of
$500,000. The line of credit accrues interest at prime (8.5% at December 31,
1999) plus 0.25%, which is due monthly and the principal balance is due on
demand. The line of credit is collateralized by substantially all of the
Company's assets. The line of credit agreement contains various restrictive
covenants which, among other things, require the Company to maintain a certain
debt service coverage ratio.
F-13
<PAGE> 86
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Note payable to bank, payable in monthly installments of
$18,086 through July 2004 including interest at 7.62%,
collateralized by substantially all of the Company's
assets.................................................... $ -- $ 837,042
Note payable to bank with interest due in monthly payments
through July 1, 2000 at prime (8.5% at December 31, 1999)
plus 0.25%, principal payments of $7,430 plus interest due
monthly beginning August 1, 2000 through July 1, 2004,
collateralized by substantially all of the Company's
assets.................................................... -- 300,000
Note payable to bank due March 1, 2000 plus interest at
prime (8.5% at December 31, 1999) plus 2%, collateralized
by substantially all of the Company's assets.............. -- 422,730
Notes payable to shareholders in connection with the
acquisition of nth degree software, inc., due upon the
earlier of the sale of substantially all of the assets of
the Company or consummation of a debt or equity financing
in which the Company receives cash proceeds sufficient to
repay the notes in full, plus interest at 9%.............. -- 920,000
Note payable to bank, due in monthly installments of $2,500
plus interest at prime plus 1%............................ 97,500 --
Miscellaneous notes payable at interest rates ranging from
8.0% to 8.5%.............................................. 100,000 10,983
-------- ----------
197,500 2,490,755
Less current portion........................................ 130,000 1,537,943
-------- ----------
$ 67,500 $ 952,812
======== ==========
</TABLE>
The agreements for the first two notes payable to bank include various
restrictive covenants which, among other things, require the Company to maintain
a certain debt service coverage ratio.
Future minimum debt payments at December 31, 1999 are as follows:
2000 -- $1,537,943; 2001 -- $238,353; 2002 -- $258,183; 2003 -- $279,670 and
2004 -- $176,606.
7. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital leases. These capital leases
expire in various years through 2002 and may be renewed for periods ranging from
one to five years. Amortization of leased assets is included in depreciation and
amortization expense.
F-14
<PAGE> 87
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum payments under capital leases with initial terms of one year
or more consisted of the following at December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL
LEASES
<S> <C>
2000........................................................ $123,243
2001........................................................ 82,532
2002........................................................ 22,138
--------
Total minimum lease payments................................ 227,913
Amounts representing interest............................... 33,350
--------
Present value of net minimum lease payments (including
current portion of $101,601).............................. $194,563
========
</TABLE>
The net book value of the equipment under capital leases is $98,565 at
December 31, 1999.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office equipment, vehicles, and office facilities in
various locations. Rental expense under these operating leases was $165,200,
$197,094 and $225,074 for the years ended December 31, 1997, 1998 and 1999,
respectively. At December 31, 1999, future commitments under all noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
2000........................................................ $275,550
2001........................................................ 249,424
2002........................................................ 232,801
2003........................................................ 218,615
2004........................................................ 218,685
Thereafter.................................................. 400,922
</TABLE>
9. INCOME TAXES
The reconciliation of the effective income tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1998 1999
<S> <C> <C> <C>
Federal income tax statutory rate........................... 34.0% 34.0% 34.0%
Increases (decreases):
Nondeductible items....................................... -- -- (30.0)
State income taxes, net of federal benefit................ 6.0 6.0 6.0
Deferred taxes attributable to conversion from S
corporation............................................ -- -- --
Taxes absorbed by the shareholders of the Company prior to
conversion from S corporation.......................... (40.0) (40.0) (3.0)
Change in valuation allowance............................. -- -- (7.0)
----- ----- -----
Total income tax expense.......................... 00.0% 00.0% 00.0%
===== ===== =====
</TABLE>
F-15
<PAGE> 88
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows at December 31, 1999.
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 2,246,000
Deferred revenue.......................................... 797,000
Bad debt expense.......................................... 100,000
Depreciation.............................................. 59,000
Accrued expenses.......................................... 34,000
-----------
3,236,000
Deferred tax liabilities:
Tax accounting change to be taken into taxable income over
the next four years.................................... 287,000
-----------
2,949,000
Valuation allowance......................................... 3,949,000
-----------
Net deferred tax assets (liabilities)....................... $ --
===========
</TABLE>
A full valuation allowance has been recorded at December 31, 1999 on
management's determination that the recognition criteria for realization of the
net deferred tax assets has not been met.
At December 31, 1999, the Company had accumulated net operating loss
carryforwards for tax purposes of approximately $6.4 million which will expire
beginning in 2017 through 2019. Utilization of certain net operating loss
carryforwards is subject to limitations under Section 382 of the Internal
Revenue Code.
10. SHAREHOLDERS' EQUITY
PREFERRED STOCK
At December 31, 1999, the Company was authorized to issue 5,000,000 shares
of Series A preferred stock and 15,000,000 shares of Series A-1 preferred stock.
Each holder of preferred stock is entitled to receive, when and as declared
by the board of directors, dividends pro rata with the common stock based on the
number of shares of common stock into which the preferred stock could then
convert. These dividends are noncumulative. No dividends have been declared as
of December 31, 1999.
In the event of liquidation, the holders of preferred stock are entitled to
receive, prior and in preference to any distribution of any assets of the
Company to the holders of the common stock, $2.30 per share for each share of
Series A preferred stock and $2.06 per share for each share Series A-1 preferred
stock. The aggregate liquidation preference is $5,648,335 for the Series A
preferred stock and $20,033,698 for the Series A-1 preferred stock. In addition,
each holder of preferred stock is entitled to all declared but unpaid dividends
for each outstanding share of stock. Any remaining assets will be distributed on
a pro rata basis among the holders of the common stock.
Each share of preferred stock is convertible into common stock on a
one-for-one basis, subject to adjustment as described in the certificate of
incorporation. Conversion is automatic upon the closing of an initial public
offering of common stock in which the aggregate gross proceeds to the Company
are at least $10,000,000 with a minimum offering price of at least $3.00 per
share.
F-16
<PAGE> 89
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Each holder of preferred stock is entitled to the number of votes equal to
the number of shares of common stock into which the preferred stock is
convertible.
COMMON STOCK
On November 8, 1999 and December 22, 1999, the Company sold a total of
3,907,968 shares of common stock to certain officers and third parties of the
Company at purchase prices of $0.23 and $1.03 per share. Promissory notes in the
amount of $1,714,014 were issued in conjunction with these sales. The notes bear
interest at 6% and are due on November 8, 2004. In the event the value of the
stock is insufficient to pay the full amount due under the notes, the Company
may seek reimbursement from the borrower for any deficiency up to 30% and 100%
of the original balance of $670,420 and $1,050,205 of the notes plus accrued
interest. At December 31, 1999, the notes receivable are included in
shareholders' equity on the accompanying balance sheet. Stock-based compensation
expense totaling $7,274,312 has been recorded for these transactions.
11. STOCK OPTION PLAN
During 1999, the Company adopted a stock incentive compensation plan (the
Plan), which provides for the issuance of stock options for officers, directors,
employees, and consultants. As of December 31, 1999, the Company had reserved a
total of 1,000,000 shares of Series A-1 preferred stock for issuance pursuant to
the Plan. Options under the Plan will generally expire ten years from the date
of grant. Options granted under the plan vest over five years and become
immediately vested and exercisable upon the change of control.
The options were granted with an exercise price equal to the estimated
grant date fair value as determined by an independent valuation. Option activity
for the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
<S> <C> <C>
Options outstanding, December 31, 1998...................... --
Granted..................................................... 525,822 $1.20
Canceled.................................................... 8,846 $1.20
-------
Options outstanding, December 31, 1999...................... 516,976 $1.20
=======
Options exercisable at December 31, 1999.................... --
=======
</TABLE>
Pro forma information regarding net loss as required by SFAS No. 123 has
been determined as if the Company had accounted for its employee stock options
under the Black-Scholes pricing model.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
<S> <C>
Net loss:
As reported............................................... $(10,918,825)
Pro forma................................................. $(11,384,103)
Loss per share:
Basic and diluted:
As reported............................................ $ (1.43)
Pro forma.............................................. $ (1.49)
</TABLE>
F-17
<PAGE> 90
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following weighted average assumptions were used in the determination
of pro forma information as required by SFAS No. 123.
<TABLE>
<S> <C>
Risk free interest rate..................................... 6.63%
Expected volatility......................................... 1.58
Expected lives.............................................. 2.0 years
Expected dividends.......................................... None
Weighted average remaining contractual life................. 9.5 years
</TABLE>
12. DEFINED CONTRIBUTION PLAN
The Company has a 401(k) Retirement Plan which covers substantially all
eligible employees. The Plan is a defined contribution profit sharing plan in
which all eligible participants may elect to have a percentage of their
compensation contributed to the Plan, subject to certain guidelines issued by
the Internal Revenue Service. The Company may contribute to the Plan at the
discretion of the board of directors. The Plan holds 45,250 shares of the
Company's common stock which were acquired during 1999. To date, the Company has
not made any contributions to the Plan.
13. SUBSEQUENT EVENTS
In March 2000, the board of directors authorized the Company to file a
registration statement with the Securities and Exchange Commission to permit the
Company to proceed with an initial public offering.
In March 2000, the Company amended and restated its certificate of
incorporation to increase the number of authorized shares of common stock and
preferred stock to 150,000,000 shares and 46,940,082 shares, respectively. The
common and preferred stock is designated as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES SHARES RESERVED
AUTHORIZED FOR FUTURE ISSUANCE
---------------- -------------------
<S> <C> <C>
Common stock:
Class A............................................ 118,750,000 59,920,076
Class B............................................ 31,250,000 31,186,312
Class C nonvoting.................................. 1,150,000 --
Preferred stock:
Series A........................................... 2,500,000 --
Series A-1......................................... 10,250,000 516,976
Series B........................................... 31,250,000 --
Series C........................................... 2,015,082 150,000
Series C-1 nonvoting............................... 150,000 --
Series D........................................... 550,000 225,000
Series D-1 nonvoting............................... 225,000 --
</TABLE>
The rights, privileges, and restrictions on the common stock and Series A
and Series A-1 preferred stock remained substantially unchanged except where
discussed below.
Each holder of Series B preferred stock, Series C and C-1 preferred stock
and Series D and D-1 preferred stock is entitled to receive, when and as
declared by the board of directors, dividends at the annual rate of $0.064,
$0.464 and $0.70 per share respectively, prior and in preference to dividends on
F-18
<PAGE> 91
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the common stock and Series A and Series A-1 preferred stock. Dividends are
noncumulative. If, after the annual dividend rate on the Series B preferred
stock, Series C and C-1 preferred stock and Series D and Series D-1 preferred
stock has been paid in full, the common stock and preferred stock shall
participate in any additional dividends on a pro rata basis.
In the event of liquidation, the holders of the Series B preferred stock,
Series C and C-1 preferred stock and Series D and D-1 preferred stock are
entitled to receive, prior and in preference to any distribution of any assets
of the Company to the holders of the common stock, Series A preferred stock and
Series A-1 preferred stock, $0.802 per share for each share of Series B
preferred stock, $5.80 per share for each share Series C and C-1 preferred stock
and $8.83 per share for each share of Series D and Series D-1 preferred stock
plus declared and unpaid dividends. Upon payment of the full preferential
amounts on the Series B preferred stock, Series C and C-1 preferred stock and
Series D and Series D-1 preferred stock, the holders of Series A preferred stock
have a preference equal to $2.30 per share plus declared and unpaid dividends
over the Series A-1 and common stockholders. After payment of the preferential
amounts to Series B, Series C and C-1, Series D and D-1 and Series A preferred
stock, Series A-1 has the right to receive $2.06 per share plus declared and
unpaid dividends.
After all other preferential payments have been made, all remaining assets
of the Corporation shall be distributed ratably among the holders of Class A,
Class B and Class C common stock, provided however, that the holders of the
Class B common stock shall only be entitled to participate in the distribution
of such remaining assets until such holders shall have received an aggregate of
$0.802 per share of Class B common stock.
If a Qualifying IPO (as defined below) has not occurred on or before
February 9, 2005, holders of Series B preferred stock, Series C and C-1
preferred stock and Series D and D-1 preferred stock have the right to request
the Company to redeem all of the shares. The redemption price with respect to
the Series B preferred stock is the liquidation preference of a share of Series
B preferred stock plus unpaid dividends declared. The redemption price with
respect to the Series C and C-1 preferred stock and Series D and D-1 preferred
stock is the higher of (i) the liquidation preference of a share of such series
of preferred stock plus unpaid dividends declared, and (ii) the fair market
value of a share of preferred stock as determined by an independent appraiser
plus unpaid dividends declared.
Each share of Series A and Series A-1 preferred stock is convertible into
Class A common stock on a one-for-one basis, subject to adjustment as described
in the certificate of incorporation. Conversion is automatic upon the earlier of
(i) the closing of an initial public offering of common stock in which the
aggregate gross proceeds to the Company are at least $30,000,000 with a minimum
offering price of at least $11.60 per share (a "Qualifying IPO") or, (ii) a
majority of the vote of the outstanding shares of the Series A and Series A-1
preferred stock.
Each share of Series B preferred stock is convertible into Class B common
stock (or Class A common stock if the holder has fully exercised the Series B
preferred stock voting conversion right as described below) on a one-for-one
basis subject to adjustment as described in the Certificate of Incorporation.
Conversion is automatic upon the earlier of (i) the closing of the sale of the
Company's Class A common stock pursuant to a Qualifying IPO, or (ii) a majority
vote of the holders of the outstanding shares of Series B preferred stock. Each
share of Series C and Series C-1 preferred stock and Series D and Series D-1
preferred stock is convertible to Class A common stock on a one-for-one basis
subject to adjustment as described in the Certificate of Incorporation.
Conversion is automatic for Series C and Series C-1 preferred stock upon the
earlier of (i) the closing of the sale of the Company's Class A common stock
pursuant to a Qualifying IPO or (ii) a
F-19
<PAGE> 92
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
majority vote of the then outstanding shares of Series C and C-1 preferred
stock. Conversion is automatic for Series D and D-1 preferred stock upon the
earlier of (i) the closing of the sale of the Company's Class A common stock
pursuant to a Qualifying IPO or (ii) a majority vote of the then outstanding
shares of Series D and D-1 preferred stock.
If the Company has obtained all necessary governmental consents, each share
of Class C common stock shall be convertible, at the option of the holder
thereof, at any time after the earlier to occur of September 8, 2000 or 30 days
after the closing of a Qualifying IPO into one share of Class A common stock.
Each share of Series A and Series C preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which the
preferred stock is convertible. Each holder of Series B preferred stock is
entitled to the number of votes equal to the number of shares of common stock
into which the preferred stock is convertible multiplied by 37.6%, subject to
adjustment as described in the Certificate of Incorporation. At any time after
the issuance of the Series B preferred stock, the voting percentage can be
increased upon payment of a voting conversion price up to $52 million, depending
upon the fair value of the Company and the percentage of voting rights acquired.
Series C-1 and Series D-1 preferred stock and Class C common stock are
nonvoting.
On January 3, 2000, 382,215 options to purchase common stock were granted
under the 1999 stock incentive compensation plan. The exercise price was $1.15
per share. Options vest at 12.5% after six months and 1/48 for each month
thereafter. On February 5, 2000, a change of control, as defined by the Plan,
occurred. As a result, all 899,191 options outstanding under the Plan vested
immediately.
On February 9, 2000, the Company entered into a strategic alliance
agreement with Creo Products, Inc. (Creo). As a part of the alliance, the
Company issued 31,186,312 shares of Series B preferred stock, obtained a
reciprocal non-compete agreement, signed a comprehensive services agreement
providing the Company with use of Creo's global employee base and obtained an
exclusive license to all of the technology related to their Internet business
for consideration of $25,011,422.
On February 9, 2000, the Company acquired the outstanding stock of
Programmed Solutions, Inc. (PSI). PSI is a provider of business management
software designed specifically for the printing and graphic arts industry. The
acquisition will be accounted for using the purchase method. The aggregate
purchase price of approximately $25.5 million (including $500,000 of estimated
costs to complete the transition) is payable in 1,724,138 shares of the
Company's common stock and cash of $15.0 million. The aggregate purchase price
will be allocated to the net assets acquired, based upon their respective fair
market values. The excess of the purchase price over the fair market value of
the assets acquired has been allocated to goodwill and will be amortized over
three years using the straight line method.
On February 10, 2000, the Company adopted the 2000 stock incentive plan.
The plan provides for the discretionary grant of incentive stock options to
employees including officers and employee directors and for the discretionary
grant of nonstatutory stock options, stock appreciation rights, stock units and
stock purchase rights to employees, directors and consultants. If the board
decides to implement this feature, the 2000 incentive plan also provides for the
periodic automatic grant to non-employee directors of nonstatutory stock
options. Options to purchase 1,156,169 shares of common stock have been granted
subsequent to December 31, 1999 at exercise prices ranging from $3.00 to $8.83
per share. Options granted under the plan vest over periods up to four years.
F-20
<PAGE> 93
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On February 11, 2000 all amounts due under the Company's line of credit
agreement (Note 5) and two notes payable totalling $722,730 (Note 6) were repaid
with the proceeds from the Series B financing.
On February 15, 2000, the Company issued 1,765,082 and 150,000 shares of
Series C and Series C-1 preferred stock, respectively, for consideration of
$11,107,476.
On March 8, 2000, 190,948 shares of Series A-1 convertible preferred stock
were repurchased at $5.80 per share.
On March 8, 2000, the Company acquired the outstanding stock of A.H.P.
Systems, Inc. (AHP). AHP is a provider of printing software and global
scheduling optimization solutions. The acquisition will be accounted for using
the purchase method. The aggregate purchase price of $4,300,000 consists of
396,552 shares of the Company's common stock and cash of $800,000. The aggregate
purchase price will be allocated to the net assets acquired, based upon their
respective fair market values. The excess of the purchase price over the fair
market value of the assets acquired has been allocated to goodwill and will be
amortized over three years using the straight line method.
On March 9, 2000, the Company acquired the outstanding stock of Hagen
Systems, Inc. (Hagen). Hagen is a provider of information technology solutions
for the graphics arts industry. The acquisition will be accounted for using the
purchase method. The aggregate purchase price of $40.9 million (including
$500,000 of estimated costs to complete the transaction) consists of 2,310,305
shares of the Company's common stock, notes payable of $12.0 million, and cash
of $8.0 million. The aggregate purchase price will be allocated to the net
assets acquired, based upon their respective fair market values. The excess of
the purchase price over the fair market value of the assets acquired has been
allocated to goodwill and will be amortized over three years using the straight
line method.
On March 10, 2000, the Company issued 58,125 and 225,000 shares of Series D
and Series D-1 preferred stock, respectively, for consideration of $2,500,000.
On March 10, 2000, the Company issued 225,926 and 1,132,502 shares of Class
A and Class C common stock, respectively, at $8.83 per share.
On March 10, 2000, the Company acquired the outstanding stock of Logic
Associates, Inc. (Logic). Logic is in the business of developing and marketing
computer programming, and also selling, leasing and servicing computer hardware
to customers in the printing industry. The aggregate purchase price of $55.0
million (including $500,000 estimated costs to complete the transaction)
consists of 652,727 shares of the Company's common stock and notes payable of
$46.7 million. The aggregate purchase price will be allocated to net assets
acquired based upon their respective fair market values. The excess of the
purchase price over the fair market value of the assets acquired has been
allocated to goodwill and will be amortized over three years using the straight
line method.
On March 10, 2000, the Company acquired the outstanding stock of M Data,
Inc. dba PrintSmith. PrintSmith is a provider of production and enterprise
resource planning software products for commercial printing. The aggregate
purchase price of $10.5 million consists of 170,212 shares of the Company's
Class A common stock, $2.0 million in cash, and notes payable of $7.0 million.
The aggregate purchase price will be allocated to the net assets acquired based
upon their respective fair market values. The excess of the purchase price over
the fair market value of the assets acquired has been allocated to goodwill and
will be amortized over three years using the straight line method.
F-21
<PAGE> 94
PRINTCAFE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In March 2000, the Company issued warrants to purchase 2,505,072 shares of
the Company's Class A common stock to certain strategic alliance partners and
service providers as follows:
- 731,159 warrants which are exercisable immediately at exercise prices
ranging from $5.80 per share to $15 per share;
- 250,000 warrants which are exercisable monthly over three years at $15
per share subject to the execution of a Private Label Site Agreement. The
value of these warrants will be expensed over a three year period
subsequent to execution of the agreement; and
- 1,523,913 warrants which are exercisable at prices ranging from $5.80 to
$8.89 based upon the grantee's ability to promote usage of the printCafe
solution. An expense will be recorded for these warrants if and when the
specified conditions are achieved.
In March 2000, the Company issued 66,666 shares of Class A common stock for
advertising.
In March 2000, the Company entered into a perpetual licensing agreement for
certain technologies. Terms of the agreement provide for periodic payments over
two years.
The Company's 2000 employee stock purchase plan was approved by the board
of directors in March 2000. A total of 2,500,000 Class A common shares is
reserved for issuance under the plan.
F-22
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Programmed Solutions, Inc.
We have audited the accompanying balance sheets of Programmed Solutions,
Inc. as of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Programmed Solutions, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the financial statements, the Company changed
its method for revenue recognition in 1998.
Dylewsky & Goldberg CPAs, LLC
Stamford, CT
February 22, 2000
F-23
<PAGE> 96
PROGRAMMED SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
<S> <C> <C>
ASSETS
- ------------------------------------------------------------
Current Assets:
Cash and equivalents...................................... $ 13,806 $ 13,387
Accounts receivable, net of allowance for doubtful
accounts of $75,000 in 1999 and $22,726 in 1998........ 1,628,872 1,154,232
Income taxes receivable................................... 4,560 12,473
Prepaid expenses.......................................... 244,736 176,133
Employee receivable....................................... 30,244 36,602
---------- ----------
Total Current Assets.............................. 1,922,218 1,392,827
---------- ----------
Property and Equipment, net of accumulated depreciation of
$584,806 in 1999 and $579,684 in 1998..................... 633,976 529,061
---------- ----------
Other Assets
Investment.................................................. 381,826 232,179
Security deposits........................................... 87,348 80,343
---------- ----------
Total Other Assets................................ 469,174 312,522
---------- ----------
$3,025,368 $2,234,410
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------
Current Liabilities:
Accounts payable.......................................... $ 496,460 $ 89,271
Accrued compensation and related taxes.................... 355,402 221,294
Accrued liabilities....................................... 132,988 136,345
Corporate taxes payable................................... 0 5,410
Deferred taxes payable.................................... 5,000 7,910
Deferred revenue.......................................... 437,512 563,525
---------- ----------
Total Current Liabilities......................... 1,427,362 1,023,755
---------- ----------
Stockholders' Equity
Common stock, no par value: 2,000 shares authorized; issued
and outstanding: 1,000 shares in 1999 and 930 shares in
1998...................................................... 80,279 27,779
Retained earnings........................................... 1,517,727 1,182,876
---------- ----------
Total Stockholders' Equity........................ 1,598,006 1,210,655
---------- ----------
$3,025,368 $2,234,410
========== ==========
</TABLE>
See auditors' report and notes to financial statements.
F-24
<PAGE> 97
PROGRAMMED SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
<S> <C> <C>
Revenue..................................................... $11,619,958 $ 9,439,751
Cost of Sales............................................... 3,936,615 3,198,845
----------- -----------
Gross Profit................................................ 7,683,343 6,240,906
----------- -----------
Expenses:
General and administration................................ 3,283,422 1,979,944
Sales and marketing....................................... 2,647,273 2,601,801
Development............................................... 1,486,603 1,263,753
----------- -----------
Total Expenses.................................... 7,417,298 5,845,498
----------- -----------
Income From Operations...................................... 266,045 395,408
----------- -----------
Interest and dividend income.............................. 76,175 20,107
Other income (expense).................................... 0 5,361
----------- -----------
Total Other Income................................ 76,175 25,468
----------- -----------
Income Before Provision for Income Taxes.................... 342,220 420,876
Provision (Benefit) for Income Taxes...................... 7,369 (14,910)
----------- -----------
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE...................................... 334,851 435,786
Cumulative effect on prior years of accounting change (less
applicable income taxes benefit of $39,359)............... 0 (1,325,417)
----------- -----------
Net Income (Loss)........................................... $ 334,851 $ (889,631)
=========== ===========
</TABLE>
See auditors' report and notes to financial statements.
F-25
<PAGE> 98
PROGRAMMED SOLUTIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED TOTAL STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
<S> <C> <C> <C> <C>
BALANCE -- January 1, 1998............ 930 $27,779 $2,072,507 $2,100,286
Net loss.............................. 0 0 (889,631) (889,631)
BALANCE -- December 31, 1998.......... 930 27,779 1,182,876 1,210,655
Net income............................ 0 0 334,851 334,851
Shares issued......................... 70 52,500 0 52,500
----- ------- ---------- ----------
BALANCE -- December 31, 1999.......... 1,000 $80,279 $1,517,727 $1,598,006
===== ======= ========== ==========
</TABLE>
See auditors' report and notes to financial statements.
F-26
<PAGE> 99
PROGRAMMED SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/(Loss)......................................... $ 334,851 $ (889,631)
--------- ----------
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Cumulative effect of change in accounting principle.... -- 1,945,349
Depreciation........................................... 283,569 208,474
Adjustments to Operating Assets and Liabilities:
Accounts receivable.................................. (474,640) (1,127,442)
Income taxes receivable.............................. 7,913 23,327
Prepaid expenses..................................... (68,603) 7,028
Employee receivables................................. 6,358 (13,228)
Security deposits.................................... (7,005) (66,502)
Accounts payable..................................... 407,189 62,725
Accrued expenses..................................... (3,357) 437,302
Income taxes payable................................. (5,410) 3,872
Deferred taxes payable............................... (2,910) (91,743)
Accrued compensated absences......................... 134,108 (103,373)
Deferred revenue..................................... (126,013) 70,725
--------- ----------
Total Adjustments................................. 151,199 1,356,514
--------- ----------
Net Cash Provided by Operating Activities................... 486,050 466,883
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment.................................... (149,647) (125,895)
Cash payments for purchase of property and equipment...... (388,484) (369,579)
--------- ----------
Net Cash Used by Investing Activities..................... (538,131) (495,474)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................................. 52,500 0
--------- ----------
Net cash provided from financing activities............... 52,500 0
--------- ----------
Net increase (decrease) in cash and equivalents............. 419 (28,591)
Cash and equivalents -- beginning of year................. 13,387 41,978
--------- ----------
Cash and equivalents -- end of year....................... $ 13,806 $ 13,387
========= ==========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Income taxes........................................... $ 7,776 $ (29,084)
</TABLE>
See auditors' report and notes to financial statements.
F-27
<PAGE> 100
PROGRAMMED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BUSINESS ACTIVITY
Since its establishment in 1986, Programmed Solutions, Inc. has steadily
grown to become one of the leading providers of business management application
software for the printing and graphic arts industry. The Company operates in a
single industry, and its product is sold primarily to businesses throughout the
United States and Canada.
REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition, which superseded SOP No. 91-1. The Company adopted SOP No. 97-2 in
the year beginning January 1, 1998. SOP No. 97-2 provides guidance on applying
generally accepted accounting principles for software revenue recognition
transactions. The Company generates several types of revenue including the
following:
License Fees: The Company's standard end-user license agreement for the
Company's products provides for an initial fee to use the product in perpetuity.
The Company also enters into other license agreements typically with major
end-user customers, which allow for the use of the Company's products and are
usually restricted by the number of employees, the number of users, or terms of
the license. Fees from licenses are recognized as revenue upon contract
execution, provided all delivery obligations have been met, fees are fixed or
determinable, and collection is probable. Fees from licenses sold together with
installation services and support arrangements (multi-element arrangements) are
generally recognized upon installation provided that the above criteria have
been met and payment of the license fees is not dependent upon the performance
of the consultation. The total contract price in a multi-element arrangement is
allocated to each element (e.g., support) based on guidance provided by SOP
97-2, as amended.
Support Agreements: Support agreements generally call for the Company to
provide technical support and software updates, on a "when and if available"
basis, to customers. Revenue on technical support and software update rights is
recognized ratably over the term of the support agreement and is included in
revenue in the accompanying statements of operations.
Training and Education Services: The Company provides training and
education services to its customers. Revenue from such services is generally
recognized over the period during which the applicable service is to be
performed or on a services-performed basis. If certain multi-element
arrangements are not able to be allocated, the entire arrangement is deferred
and revenue is recognized over the period of the last undelivered element of the
arrangement.
PRODUCT DEVELOPMENT COSTS
Research and development expenditures are generally charged to operations
as incurred. Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed, requires the capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon the completion of a working model. Through December 31, 1999, capitalizable
costs incurred after achieving
F-28
<PAGE> 101
PROGRAMMED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
technological feasibility have not been significant for any development project.
Accordingly, the Company has charged all costs to research and development
expense in the periods they were incurred.
The Company adopted SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, during 1999, which requires
capitalization of certain costs incurred during the development of internal use
software. Through December 31, 1999 capitalizable costs incurred have not been
significant for any development project. Accordingly, the Company has charged
all costs to research and development expense in the periods they were incurred.
LONG-LIVED ASSETS
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives. Minor repairs and
maintenance, which do not improve or extend the lives of property and equipment,
are expensed as incurred. Major renewals are capitalized. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is recognized in operations.
BAD DEBTS
The Company provides an allowance for uncollectible accounts based upon
prior experience and management's assessment of the collectibility of existing
specific accounts.
CASH AND EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents. Cash equivalents are stated at cost, which approximates
market value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
INCOME TAXES
During 1999 and 1998, the Company had in place a valid election to be taxed
under Subchapter S of the Internal Revenue Code. As an S corporation, the
Company's stockholders are responsible for any federal and state income taxes,
where applicable, resulting from the Company's taxable income. Accordingly, the
financial statements for the years ended December 31, 1999 and 1998 do not
include a provision for federal income taxes or state income taxes for those
states where stockholders are responsible for taxes. The Company files tax
returns and is liable for income taxes in various states.
The Company follows the liability method of accounting for state income
taxes pursuant to Statement of Financial Accounting Standards No. 109 (SFAS No.
109), "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences
F-29
<PAGE> 102
PROGRAMMED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax laws and rates applicable to the periods in which
the differences are expected to reverse. The Company provides for a valuation
allowance, if necessary, to reduce deferred tax assets to their estimated
realizable value.
FINANCIAL INSTRUMENTS
For certain financial instruments including cash and equivalents, accounts
receivable, accounts payable, and accrued liabilities, recorded amounts
approximate fair value due to the relative short maturity period. The estimated
fair values may not be representative of actual values of the financial
instruments that could have been realized as of the period end or that will be
realized in the future.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements in order to conform to the current year's presentation.
NOTE 2 -- CONCENTRATION OF CREDIT RISK AND ECONOMIC DEPENDENCY
The Company maintains its cash in bank deposit accounts at high credit
quality financial institutions. The balances, at times, may exceed federally
insured limits.
Purchases from one of the Company's suppliers comprised approximately 21%
of the Company's 1999 cost of goods sold. Management believes it could replace
these purchases through an alternate supplier with minimal disruption to the
Company's operations.
NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accounts receivable -- trade................................ $1,703,872 $1,176,958
Less: Allowance for doubtful accounts..................... (75,000) (22,726)
---------- ----------
Total............................................. $1,628,872 $1,154,232
========== ==========
</TABLE>
F-30
<PAGE> 103
PROGRAMMED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment and their estimated useful lives are as follows at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIVES 1999 1998
<S> <C> <C> <C>
Computer equipment........................ 3 years $ 803,038 $ 662,338
Furniture, fixtures and office
equipment............................... 3 to 5 years 260,948 302,687
Trade show equipment...................... 3 to 5 years 69,952 58,876
Other equipment........................... 5 years 84,844 84,844
---------- ----------
1,218,782 1,108,745
Less: accumulated depreciation............ (584,806) (579,684)
---------- ----------
Total Property and Equipment.... $ 633,976 $ 529,061
========== ==========
</TABLE>
NOTE 5 -- INVESTMENT
The investment is a life insurance contract on a stockholder held at
year-end.
NOTE 6 -- INCOME TAXES
The provision for state income taxes (primarily from Connecticut) for the
years ended December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current income taxes (benefit).............................. $10,279 $ (1,885)
Deferred income taxes (benefit)............................. (2,910) (13,025)
------- --------
Total Income Taxes (Benefit)...................... $ 7,369 $(14,910)
======= ========
</TABLE>
Deferred taxes arose primarily from the Company's use of the cash basis of
accounting for income tax purposes.
NOTE 7 -- PENSION PLAN
The Company maintains a 401(k) plan covering all employees. The plan
provides for contributions by the Company to match 50% of the first 6% of each
employee's contributions. The expense charged to operations for the plan was
$100,502 in 1999 and $86,957 in 1998.
NOTE 8 -- LINE OF CREDIT
The Company has a line of credit with a bank totaling $425,000. This line
is guaranteed by the stockholders. The line bears interest at .25% over the
bank's prime rate and expires on May 31, 2000. There were no borrowings under
the line during the year, and, subsequent to year end, the Company elected to
terminate the line.
F-31
<PAGE> 104
PROGRAMMED SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LEASE
Effective August 1998, the Company entered into a new operating lease in
Norwalk, Connecticut. During 1999 the Company acquired additional space and a
new operating lease was issued. The lease currently requires monthly payments of
$24,776 through July 2003 plus payments for increases in operating costs as
defined in the lease. The Company also leases office space in Roseville,
California. Rent expense under all operating leases was $350,741 in 1999 and
$174,752 in 1998, respectively. Minimum future payments under the leases and in
the aggregate are as follows:
<TABLE>
<S> <C>
2000........................................ $ 365,982
2001........................................ 381,484
2002........................................ 396,968
2003........................................ 268,516
2004........................................ 31,524
----------
Total..................................... $1,444,474
==========
</TABLE>
NOTE 10 -- CONTINGENT LIABILITIES
The Company is engaged in various legal actions arising in the normal
course of business. In the opinion of management, the ultimate resolutions of
these matters will not have a material adverse effect upon the financial
position of the Company.
NOTE 11 -- CUMULATIVE CHANGE IN ACCOUNTING PRINCIPAL
Effective January 1, 1998, Programmed Solutions, Inc. adopted Statement of
Position 97-2 "Software Revenue Recognition", issued by the American Institute
of Certified Public Accounts. As a result, the Company is required to recognize
revenue when substantial delivery of goods and services occurs. Previously, the
Company recognized revenue on software sales and installation when customer
contracts were signed. The cumulative effect of this change has been presented
on the Statements of Operations.
NOTE 12 -- SUBSEQUENT EVENTS -- SALE OF COMPANY
On February 9, 2000 the Company's stockholders consummated the sale of the
Company to printCafe, Inc.
F-32
<PAGE> 105
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hagen Systems, Inc.
Eden Prairie, Minnesota
We have audited the accompanying balance sheets of Hagen Systems, Inc. as
of December 31, 1998 and 1999, and the related statements of income and
comprehensive income, shareholders' equity, and cash flows for the years ended
December 31, 1998 and 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 from
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 Hagen Systems, Inc at December 31, 1998 and
1999, and the results of their operations and their cash flows for each of the
years ended December 31, 1998 and 1999 in conformity with generally accepted
accounting principles.
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
February 11, 2000, except for Note 10
as to which the date is March 8, 2000
F-33
<PAGE> 106
HAGEN SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $1,496,066 $1,135,348
Marketable Securities..................................... 765,743 633,198
Accounts Receivable -- Trade (Net of Allowance for
Doubtful Accounts of $50,000 in 1998 and 1999)......... 1,990,931 1,223,651
Lease Contracts Receivable................................ 95,254 123,526
Notes Receivable -- Related Parties....................... 111,950 94,251
Shareholder Advances...................................... -- 200,000
Other Current Assets...................................... 179,978 293,066
---------- ----------
Total Current Assets.............................. $4,639,922 $3,703,040
---------- ----------
Property and Equipment -- Net............................... $ 340,937 $ 451,470
---------- ----------
Other Assets
Software Development Costs (Net of Accumulated Amortization
of $205,000 and $425,000, Respectively)................... $1,795,000 $1,575,000
---------- ----------
Total Assets...................................... $6,775,859 $5,729,510
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable.......................................... $ 455,827 $ 359,466
Accrued Compensation and Related Taxes.................... 522,992 829,535
Accrued Liabilities....................................... 72,000 70,000
Deferred Revenue.......................................... 1,104,412 1,427,449
Current Portion of Long-Term Debt......................... 49,365 296,380
Accrued Distributions -- Shareholders..................... 240,000 --
Customer Deposits......................................... 423,459 328,583
---------- ----------
Total Current Liabilities......................... $2,868,055 $3,311,413
Long-Term Debt (Net of Current Portion Shown Above)......... 296,380 --
---------- ----------
Total Liabilities................................. $3,164,435 $3,311,413
---------- ----------
Commitments and Contingencies
Shareholders' Equity
Common Stock -- Class A -- Voting, $.01 Par Value per
Share; 1,250,000 Shares Authorized; 111,175 Shares
Issued and Outstanding at December 31, 1999 and 1998... $ 1,112 $ 1,112
Common Stock -- Class B -- Non-Voting, $.01 Par Value per
Share; 1,250,000 Shares Authorized; 120,000 Shares
Issued and Outstanding at December 31, 1999 and 1998... 1,200 1,200
Retained Earnings......................................... 3,641,437 2,273,816
Accumulated Other Comprehensive Income (Loss)............. (32,325) 141,969
---------- ----------
Total Shareholders' Equity........................ $3,611,424 $2,418,097
---------- ----------
Total Liabilities and Shareholders' Equity........ $6,775,859 $5,729,510
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-34
<PAGE> 107
HAGEN SYSTEMS, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1999
<S> <C> <C>
Revenue..................................................... $12,353,265 $15,217,945
Cost of Sales............................................... 4,834,398 6,156,324
----------- -----------
Gross Profit................................................ $ 7,518,867 $ 9,061,621
----------- -----------
Expenses:
General and Administration................................ $ 2,932,969 $ 3,981,271
Product Development....................................... 1,360,925 2,306,173
Sales and Marketing....................................... 1,829,893 2,124,493
Depreciation and Amortization............................. 470,037 549,154
----------- -----------
Total Operating Expenses.......................... $ 6,593,824 $ 8,961,091
----------- -----------
Income From Operations...................................... $ 925,043 $ 100,530
----------- -----------
Other Income (Expense)
Interest and Dividend Income -- Net....................... $ 42,523 $ 84,564
Gain (Loss) on Sale of Investment......................... (11,191) 62,471
----------- -----------
Total Other Income................................ $ 31,332 $ 147,035
----------- -----------
Net Income.................................................. $ 956,375 $ 247,565
Other Comprehensive Income (Loss)
Unrealized Gain (Loss) on Marketable Securities........... (32,325) 174,294
----------- -----------
Comprehensive Income........................................ $ 924,050 $ 421,859
=========== ===========
</TABLE>
F-35
<PAGE> 108
HAGEN SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
----------------- COMPREHENSIVE RETAINED SHAREHOLDERS'
CLASS A CLASS B LOSS EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997......... $1,112 $1,200 $ -- $ 3,160,149 $ 3,162,461
Net Income -- 1998................. -- -- -- 956,375 956,375
Unrealized Loss on Marketable
Securities....................... -- -- (32,325) -- (32,325)
Distributions to Shareholders...... -- -- -- (475,087) (475,087)
------ ------ -------- ----------- -----------
BALANCE, DECEMBER 31, 1998......... $1,112 $1,200 $(32,325) $ 3,641,437 $ 3,611,424
Net Income -- 1999................. -- -- -- 247,565 247,565
Unrealized Gain on Marketable
Securities....................... -- -- 174,294 -- 174,294
Distributions to Shareholders...... -- -- -- (1,615,186) (1,615,186)
------ ------ -------- ----------- -----------
BALANCE, DECEMBER 31, 1999......... $1,112 $1,200 $141,969 $ 2,273,816 $ 2,418,097
====== ====== ======== =========== ===========
</TABLE>
F-36
<PAGE> 109
HAGEN SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers.............................. $11,912,207 $ 15,956,953
Cash Paid to Suppliers and Employees...................... (9,540,409) (14,442,964)
Interest Paid............................................. (28,578) (23,810)
Interest Received......................................... 57,674 74,222
Dividends Received........................................ 13,427 34,152
----------- ------------
Net Cash Provided by Operating Activities................... $ 2,414,321 $ 1,598,553
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment........................ $ (348,652) $ (440,130)
Principal Collections from Related Party.................. 54,300 16,100
Proceeds from Sale of Property and Equipment.............. 600 --
Capitalization of Software................................ (250,000) --
Purchase of Marketable Securities......................... (831,370) (694,997)
Proceeds from Sale of Marketable Securities............... 22,111 1,064,307
----------- ------------
Net Cash Used by Investing Activities....................... $(1,353,011) $ (54,720)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-Term Debt.............................. $ 4,514 $ --
Payments on Long-Term Debt................................ (65,707) (49,365)
Distributions Paid to Shareholders........................ (305,087) (1,855,186)
----------- ------------
Net Cash Used by Financing Activities....................... $ (366,280) $ (1,904,551)
----------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents........ $ 695,030 $ (360,718)
Cash and Cash Equivalents -- Beginning...................... 801,036 1,496,066
----------- ------------
Cash and Cash Equivalents -- Ending......................... $ 1,496,066 $ 1,135,348
=========== ============
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
Net Income................................................ $ 1,026,375 $ 247,565
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization.......................... 470,037 549,154
Gain (Loss) on Sale of Marketable Securities........... 11,191 (62,471)
Loss on Disposal of Property and Equipment............. 7,250 443
Increase (Decrease) in Accounts Receivable -- Trade.... (607,712) 767,280
Increase (Decrease) in Lease Contracts Receivable...... 166,654 (28,272)
Increase in Other Current Assets....................... (81,404) (298,053)
Increase in Payables and Accrued Expenses.............. 1,421,930 422,907
----------- ------------
Net Cash Provided by Operating Activities................... $ 2,414,321 $ 1,598,553
=========== ============
Summary of Noncash Transactions
Accrued Distributions to Shareholders..................... $ 240,000 $ --
=========== ============
</TABLE>
See accompanying Notes to Financial Statements.
F-37
<PAGE> 110
HAGEN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 NATURE OF BUSINESS
Hagen Systems, Inc. (the Company) develops and markets business management
computer systems for the graphic arts industry nationwide. Founded in 1965,
Hagen Systems, Inc. was incorporated in 1970.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.
LONG-LIVED ASSETS
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives. Minor repairs and
maintenance, which do not improve or extend the lives of assets, are expensed as
incurred. Major renewals are capitalized. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is recognized in operations. Amortization of
assets recorded under capital leases is included with depreciation expense.
Estimated useful lives of the assets are as follows:
<TABLE>
<CAPTION>
ASSET CLASS USEFUL LIVES
<S> <C>
Computer Equipment.......................................... 3 Years
Equipment and Fixtures...................................... 5 Years
Leasehold Improvements...................................... 5 Years
</TABLE>
VALUATION OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, based on
factors such as current market value, future asset utilization, business climate
and future undiscounted cash flows expected to result from the use of the
related assets. The Company's policy is to record an impairment loss in the
period when it is determined that the carrying amount of the asset may not be
recoverable. The impairment loss is calculated as the amount by which the
carrying amount of the asset exceeds the undiscounted estimate of future cash
flows from the assets. As of December 31, 1998 and 1999, no impairment losses
have been recorded.
F-38
<PAGE> 111
HAGEN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 97-2, Software Revenue Recognition, which superseded
SOP No. 91-1. SOP No. 97-2 was adopted by the Company in the year beginning
January 1, 1999. SOP No. 97-2 provides guidance on applying generally accepted
accounting principles for software revenue recognition transactions. Based on
the Company's interpretation of the requirements of SOP No. 97-2, as amended,
application of this statement has not materially impacted the Company's
revenues, results of operations or financial position. The Company generates
several types of revenue including the following:
LICENSE FEES
The Company's standard end user license agreement for the Company's
products provides for an initial fee to use the product in perpetuity. The
Company also enters into other license agreement types, typically with major end
user customers, which allow for the use of the Company's products, usually
restricted by the number of employees, the number of users, or the license term.
Fees from licenses are recognized as revenue upon contract execution, provided
all delivery obligations have been met, fees are fixed or determinable, and
collection is probable. Fees from licenses sold together with consulting
services and support arrangements (multi-element arrangements) are generally
recognized upon installation provided that the above criteria have been met and
payment of the license fees is not dependent upon the performance of the
consulting. The total contract price in a multi-element arrangement is allocated
to each element (e.g., support) based on guidance provided by SOP 97-2, as
amended.
SUPPORT AGREEMENTS
Support agreements generally call for the Company to provide technical
support and software updates, on a "when and if available" basis, to customers.
Revenue on technical support and software update rights is recognized as revenue
ratably over the term of the support agreement.
CONSULTING AND EDUCATION SERVICES
The Company provides consulting and education services to its customers.
Revenue from such services is generally recognized over the period during which
the applicable service is to be performed or on a services-performed basis. If
certain multi-element arrangements are not able to be allocated, the entire
arrangement is deferred and revenue is recognized over the period of the last
undelivered element of the arrangement.
PRODUCT DEVELOPMENT COSTS
Research and development expenditures are generally charged to operations
as incurred. Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, requires the capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon the completion of a working model. For the year ended December 31, 1999,
capitalizable costs incurred after achieving technological feasibility were not
significant for any development project. Accordingly, the
F-39
<PAGE> 112
HAGEN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Company has charged all costs to research and development expense in 1999. The
Company capitalized $250,000 of software development costs in 1998.
Software development costs incurred for the enhancement of existing
programs and research and development which are required to be expensed totaled
approximately $1,000,000 and $1,927,000 in 1998 and 1999, respectively.
Amortization of software development costs is determined based on the
larger of the amounts computed using (a) the ratio that current gross revenues
for each product bears to the total of current and anticipated future gross
revenues for that product or (b) the straight-line method over the remaining
estimated economic life of the product. Amortization expense for software
development costs was $205,000 and $220,000 in 1998 and 1999, respectively.
The Company adopted SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, during 1999, which requires
capitalization of certain costs incurred during the development of internal use
software. Through December 31, 1999, capitalizable costs incurred have not been
significant for any development project. Accordingly, the Company has charged
all costs to research and development expense in the periods they were incurred.
INCOME TAXES
Effective January 1, 1997, the Company elected to be taxed under Subchapter
S of the Internal Revenue Code and the respective state codes. As an S
corporation, the Company's shareholders are responsible for any federal and
state income taxes resulting from the Company's taxable income. Accordingly, the
financial statements for the years ended December 31, 1998 and 1999 do not
include a provision for federal or state income taxes.
CONCENTRATION OF CREDIT RISK
For the year ended December 31, 1998 and 1999, the Company had no
individual customers which represented greater than 10% of the Company's annual
revenues. For 1998 and 1999, there was one major customer each year with an
accounts receivable balance representing 16% and 19% of accounts receivable,
respectively.
The Company does not require collateral from its customers. Credit losses
related to such customers historically have been minimal and within management's
expectations.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
Estimated uncollectible receivables are charged off using the reserve
method.
ADVERTISING
Advertising and promotion costs are expensed as incurred and totaled
approximately $196,000 and $372,000 for the years ended December 31, 1998 and
1999, respectively.
F-40
<PAGE> 113
HAGEN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS
For certain financial instruments including cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, and accrued
liabilities, recorded amounts approximate fair value due to the relative short
maturity period. The estimated fair values may not be representative of actual
values of the financial instruments that could have been realized as of the
period end or that will be realized in the future.
MARKETABLE SECURITIES
The Company invests in certain publicly-traded corporate stocks and bonds
through an investment brokerage account. All marketable securities are highly
liquid and considered to be available for sale as needed by the Company. The
Company records marketable securities at their published fair market value. At
December 31, 1999, approximately 50% of marketable securities consisted of
common stock of one company.
DISTRIBUTIONS TO STOCKHOLDERS
Distributions to shareholders represent amounts paid to shareholders for
income taxes resulting from the Company's S corporation status and other amounts
for personal use.
COMPREHENSIVE LOSS
The Company adopted SFAS No. 130 Reporting Comprehensive Income effective
January 1, 1998. Comprehensive income or loss and its components are required to
be presented for each year an income statement is presented. The only component
included in comprehensive income or loss for the Company is the unrealized gains
and losses on marketable securities.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, which is effective, as
amended, for all quarters in fiscal years beginning after June 15, 2000,
establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. As the Company does not currently engage in derivative
or hedging activities, the adoption of this standard is not expected to have a
significant impact on the Company's financial statements.
F-41
<PAGE> 114
HAGEN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Computer equipment....................................... $1,110,844 $1,150,669
Furniture and fixtures................................... 280,551 388,909
Leasehold improvements................................... 148,853 165,332
---------- ----------
Total.......................................... $1,540,248 $1,704,910
Less: Accumulated Depreciation........................... 1,199,311 1,253,440
---------- ----------
Total Property and Equipment (at Depreciated
Cost)....................................... $ 340,937 $ 451,470
========== ==========
</TABLE>
NOTE 4 LINE OF CREDIT -- BANK
The Company has a credit agreement with Anchor Bank N.A. of Wayzata. The
credit agreement is subject to annual renewal and provides for a $750,000
revolving line of credit with interest payable at a rate equal to the bank's
commercial reference rate. There were no advances outstanding under this
agreement at December 31, 1998 and 1999.
All borrowings under the credit agreement are due on demand and are secured
by the Company's accounts receivable, inventories, and equipment and have been
personally guaranteed by the shareholders of the Company.
There was no interest expense on bank borrowings for the years ended
December 31, 1998 and 1999.
NOTE 5 LONG-TERM DEBT
In 1995, the Company purchased all of the outstanding shares of Al Hagen
and Jean Hagen, consisting of 117,653 shares of Class A common stock and 70,000
shares of Class B common stock, at a price of $3.30 per share, totaling
$619,256. The Company financed the stock redemption with the former shareholders
and is required to make monthly payments of $6,000, including interest at 7%,
through November 1, 2004 when all remaining outstanding principal and accrued
interest is payable in full. Interest expense on this note totaled approximately
$29,000 and $24,000 for the years ended December 31, 1998 and 1999,
respectively.
The remaining balance on the note at December 31, 1999 of $296,380 was paid
in full in January 2000 and, therefore, has been classified as a current
liability at December 31, 1999.
NOTE 6 EMPLOYEE BENEFIT PLAN
The Company has a salary reduction plan qualifying under Section 401(k) of
the Internal Revenue Code. The Plan provides for employees to elect to have a
portion of their annual salary deferred and contributed to the Plan. To the
extent that employees elect to defer a portion of their annual salary, the
Company has the option to make a matching contribution to the Plan not to exceed
5% of the participating employees' annual salary. The Company made contributions
to the Plan of $72,000 and $70,000 for the years ended December 31, 1998 and
1999, respectively.
F-42
<PAGE> 115
HAGEN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 OPERATING LEASE COMMITMENTS
The Company leases its primary office in Eden Prairie, Minnesota from a
partnership consisting of two of its shareholders. Effective February 1, 2000,
the Company agreed to a new five-year lease which provides for initial base
rents of $24,839 per month plus operating costs, real estate taxes and
insurance. The terms of the lease also provide for rent escalations in 2002 and
2004, lease extension options at fair market rental rates and other terms to be
agreed upon at the time of extension.
Effective May 12, 1999, the Company leased additional office space in Eden
Prairie, Minnesota for a 3 1/2 year term. The lease provides for monthly base
rent and operating costs of $8,067 per month through June 30, 2002. The lease
also provides the option for two, one year renewal periods at the existing fair
market value at that time.
The Company is also obligated under various lease agreements for vehicles
and equipment. Rental expense under these leases was approximately $36,000 and
$83,000 for the years ended December 31, 1998 and 1999, respectively.
Future annual minimum rental payments for these operating leases
approximate the following at December 31:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
2000........................................................ $ 422,000
2001........................................................ 430,000
2002........................................................ 376,000
2003........................................................ 311,000
2004........................................................ 323,000
Thereafter.................................................. 27,000
----------
Total............................................. $1,889,000
==========
</TABLE>
NOTE 8 NOTES RECEIVABLE -- RELATED PARTIES
The Company had previously made cash advances to a related partnership
which had a remaining balance of $16,100 at December 31, 1998. The note was
repaid in its entirety during 1999. Interest on the advances was charged monthly
at 1% over the prime rate. Total interest earned by the Company on these
advances was approximately $3,500 and $400 for the years ended December 31, 1998
and 1999, respectively.
The Company advanced $95,000 to the child of one of its shareholders. The
note provides for monthly interest payments beginning November 1, 1998 at 6.50%.
Management intends to collect the entire principal and accrued interest in 2000
and has, therefore, classified the entire outstanding balance, including accrued
interest, as a current asset.
NOTE 9 COMMITMENTS AND CONTINGENCIES
In 1994, the Company entered into a ten-year agreement with the founder and
former shareholder of the Company for business consulting services. The
agreement provides for a $40,000 annual consulting fee through 2003.
F-43
<PAGE> 116
HAGEN SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 SUBSEQUENT EVENT -- MERGER AGREEMENT
On March 8, 2000, the shareholders signed an agreement to sell all of their
stock and ownership in Hagen Systems, Inc. to printCafe, Inc.
F-44
<PAGE> 117
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Logic Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Logic
Associates, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Logic
Associates, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note 2, the Company merged with Constellation Software,
Inc. (a Canadian corporation) on October 1, 1999. As a result of the merger, the
Company is a majority-owned subsidiary of Constellation Software, Inc.
As discussed in Note 14, on February 7, 2000, Constellation Software, Inc.
signed an "Acquisition of Logic Associates, Inc. by printCafe, Inc. Letter of
Intent." If completed as expected in March, 2000, the parties will sign an
agreement resulting in the Company becoming a 100%-owned subsidiary of
printCafe, Inc.
VT. License #92-0000273
Lebanon, New Hampshire
February 4, 2000
(except for Note 14, as to
which the date is February 7, 2000)
F-45
<PAGE> 118
LOGIC ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 691,655 $ 186,483
Certificates of deposit................................... -- 75,465
Accounts and notes receivable, less allowance for doubtful
accounts of $288,000 and $296,000 as of December 31,
1999 and 1998 (Notes 3 and 4).......................... 2,458,828 2,356,273
Inventory (Notes 1, 3 and 4).............................. 305,304 310,986
Prepaid income taxes (Note 7)............................. 456,287 --
Prepaid expenses and other current assets................. 191,062 148,707
---------- ----------
Total current assets.............................. 4,103,136 3,077,914
---------- ----------
Equipment and Leasehold Improvements, at cost (Notes 1, 3, 4
and 5):
Furniture and fixtures.................................... 414,211 402,091
Computer hardware and peripheral equipment................ 1,690,351 1,705,080
Automobiles............................................... 17,834 64,238
Purchased software........................................ 233,005 148,168
Equipment under capital lease obligations................. 213,103 213,103
Leasehold improvements.................................... 684,735 87,841
---------- ----------
3,253,239 2,620,521
Less-Accumulated depreciation............................. 1,916,115 1,732,589
---------- ----------
1,337,124 887,932
---------- ----------
Other Assets:
Cash -- Health insurance (Note 10)........................ 4,917 4,748
Capitalized software, net of accumulated amortization
(Note 1)............................................... 671,365 555,392
Deferred tax asset (Note 7)............................... 1,030,000 1,130,000
Notes receivable-stockholders (Note 12)................... -- 213,568
Cash surrender value of life insurance.................... -- 1,509
Existing technology, net of accumulated amortization (Note
1)..................................................... -- 84,166
Goodwill, net of accumulated amortization (Note 1)........ -- 298,685
---------- ----------
1,706,282 2,288,068
---------- ----------
$7,146,542 $6,253,914
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-46
<PAGE> 119
LOGIC ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable -- bank (Note 3)............................ $ 500,341 $ 785,843
Accounts payable.......................................... 889,269 580,811
Payroll and payroll taxes payable......................... 234,460 178,500
Due to parent (Note 2).................................... 43,558 --
Other current liabilities................................. 145,737 206,767
Income taxes payable (Note 7)............................. -- 17,000
Deferred revenue and customer deposits (Note 1)........... 1,057,158 1,276,759
Current portion of long-term debt (Note 4)................ 176,000 129,800
Current portion of notes payable-stockholders (Note 8).... 189,809 --
Current portion of capital lease obligations (Note 5)..... 32,000 37,000
----------- -----------
Total current liabilities......................... 3,268,332 3,212,480
----------- -----------
Long-Term Debt:
Long-term debt, less current portion shown above (Note
4)..................................................... 343,197 255,863
Notes payable -- stockholders, less current portion shown
above (Note 8)......................................... -- 189,809
----------- -----------
343,197 445,672
----------- -----------
Capital lease obligations, less current portion shown above
(Note 5).................................................. 38,491 70,082
Commitments (Notes 5 and 10)
Stockholders' Equity (Notes 2, 9 and 11):
Class A preferred stock -- par value $1,000, issued and
outstanding 0 and 1,000 shares at December 31, 1999 and
1998, respectively, authorized 1,000,000 shares........ -- 1,000,000
Common stock -- no par value, issued and outstanding
12,932.124 and 2,730 shares, authorized 1,000,000 and
9,000 shares at December 31, 1999 and 1998,
respectively........................................... 4,104,614 4,104,614
Additional paid-in capital................................ 2,198,228 903,633
Retained earnings (deficit)............................... (2,806,320) (3,482,567)
----------- -----------
3,496,522 2,525,680
----------- -----------
$ 7,146,542 $ 6,253,914
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-47
<PAGE> 120
LOGIC ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
<S> <C> <C>
Net Sales................................................... $18,427,552 $16,390,548
Cost of Sales............................................... 3,577,766 2,995,900
----------- -----------
Gross profit...................................... 14,849,786 13,394,648
----------- -----------
Operating Expenses:
Sales and marketing....................................... 3,578,778 3,375,312
Customer service.......................................... 3,799,017 3,813,309
Programming............................................... 1,976,775 1,706,712
General and administrative................................ 2,755,948 2,073,675
Buildings and grounds..................................... 1,167,389 693,231
Amortization of acquired intangibles...................... 382,851 392,452
----------- -----------
13,660,758 12,054,691
----------- -----------
Income from operations............................ 1,189,028 1,339,957
----------- -----------
Other Income (Expense):
Interest income........................................... 18,725 39,300
Interest expense.......................................... (104,538) (166,888)
Loss on sale of equipment................................. (12,373) (4,704)
----------- -----------
(98,186) (132,292)
----------- -----------
Income Before Provision for Income Taxes.................... 1,090,842 1,207,665
----------- -----------
Provision for Income Taxes:
Current................................................... 20,000 50,000
Deferred.................................................. 100,000 60,000
----------- -----------
120,000 110,000
----------- -----------
Net Income.................................................. $ 970,842 $ 1,097,665
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-48
<PAGE> 121
LOGIC ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
CLASS A ADDITIONAL RETAINED STOCK-
PREFERRED COMMON PAID-IN EARNINGS HOLDERS'
STOCK STOCK CAPITAL (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997.... $ 1,000,000 $4,162,918 $ 903,633 $(4,580,232) $1,486,319
Purchase and retirement of
fractional shares pursuant
to reverse stock split (Note
9).......................... -- (58,304) -- -- (58,304)
Net income for the year ended
December 31, 1998........... -- -- -- 1,097,665 1,097,665
----------- ---------- ---------- ----------- ----------
BALANCE, DECEMBER 31, 1998.... 1,000,000 4,104,614 903,633 (3,482,567) 2,525,680
Cumulative preferred dividend
(Notes 2 and 11)............ -- -- 295,595 (295,595) --
Purchase and retirement of
preferred stock (Note 2).... (1,000,000) -- 999,000 1,000 --
Net income for the year ended
December 31, 1999........... -- -- -- 970,842 970,842
----------- ---------- ---------- ----------- ----------
BALANCE, DECEMBER 31, 1999.... $ -- $4,104,614 $2,198,228 $(2,806,320) $3,496,522
=========== ========== ========== =========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-49
<PAGE> 122
LOGIC ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 970,842 $1,097,665
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 965,507 792,809
Loss on sale of equipment.............................. 12,373 4,704
Deferred income taxes.................................. 100,000 60,000
Change in assets and liabilities:
(Increase) decrease in accounts and notes
receivable.......................................... (102,555) 135,730
Decrease in inventory................................ 5,682 7,317
(Increase) decrease in prepaid expenses.............. (42,355) 20,192
(Increase) in prepaid income taxes................... (456,287) --
(Increase) in cash-health insurance plan............. (169) (157)
Accrued interest on notes receivable-stockholder..... -- 43,999
Increase in due to parent............................ 43,558 --
Increase (decrease) in accounts payable.............. 308,458 (279,367)
Increase (decrease) in payroll and payroll taxes
payable............................................. 55,960 (35,002)
Increase (decrease) in other current liabilities..... (61,030) 119,670
(Decrease) in deferred revenue and customer
deposits............................................ (219,601) (769,463)
(Decrease) in income taxes payable................... (17,000) (5,541)
---------- ----------
Net cash provided by operating activities......... 1,563,383 1,192,556
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment........................... 39,900 2,295
Purchases of equipment and leasehold improvements......... (892,753) (164,080)
Capitalized software expenditures......................... (307,342) (258,824)
Redemption of (investment in) certificates of deposit..... 75,465 (6,851)
Collection of notes receivable -- stockholders............ 213,568 212,500
Decrease in cash surrender value of officers' life
insurance.............................................. 1,509 --
---------- ----------
Net cash used in investing activities............. (869,653) (214,960)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable-bank........................... (285,502) (611,989)
Proceeds from long-term debt.............................. 286,841 90,000
Repayment of long-term debt and capital lease
obligations............................................ (189,897) (341,319)
Contribution of additional paid-in capital................ 1,294,595 --
Payment of cumulative preferred dividend.................. (295,595) --
Purchase and retirement of preferred stock................ (999,000) --
Purchase and retirement of common stock................... -- (58,304)
Net cash used in financing activities............. (188,558) (921,612)
Net Increase in Cash........................................ 505,172 55,984
Cash, beginning of year..................................... 186,483 130,499
---------- ----------
Cash, end of year........................................... $ 691,655 $ 186,483
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest.................................................. $ 104,538 $ 166,888
Income taxes.............................................. 493,287 55,541
Supplemental Schedule of Non-Cash Investing and Financing
Activities
Equipment purchased under capital lease obligations....... -- 110,940
Goodwill adjusted to recognize deferred tax assets
acquired (Note 6)...................................... -- 1,110,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-50
<PAGE> 123
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Logic Associates, Inc. (the Company) is in the business of developing and
marketing computer programming, and also selling, leasing, and servicing
computer hardware, to customers in the printing industry.
MERGER WITH CONSTELLATION SOFTWARE, INC.
As discussed in Note 2, on October 1, 1999, the Company was acquired by
Constellation Software, Inc. (CSI). As a result, the Company is a majority-owned
subsidiary of CSI. These financial statements only reflect the accounts of the
Company.
ACQUISITION OF COVALENT CORPORATION
In 1996, the Company acquired the assets and assumed certain liabilities of
Covalent Corporation and its wholly-owned subsidiaries. The acquisition was
recorded using the purchase method of accounting. The purchase price was
allocated to assets acquired and liabilities assumed based on their estimated
fair market values at the date of the acquisition. The cost of certain in-
process technology acquired was determined to have no alternative future use and
was expensed at acquisition. The remaining acquired intangibles are being
amortized over one to seven years. At December 31, 1999, these intangibles had
been fully amortized.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its
wholly-owned subsidiaries, Logic Covalent Corporation and Covalent Systems Ltd.
All significant intercompany balances and transactions are eliminated.
REVENUE RECOGNITION
Effective for the year ended December 31, 1998, the Company implemented the
provisions of Statement of Position (SOP) 97-2 "Software Revenue Recognition."
In accordance with the SOP, the Company recognizes revenue on delivery of its
products. However, where the sales arrangement contains multiple elements, the
fee is allocated to the various elements. The portion of the fee allocated to an
undelivered element is deferred until the delivery of that element occurs. No
portion of a sale is recognized if the sale is subject to forfeiture, refund, or
other concession if any of the undelivered elements are not delivered. The SOP
requires prospective application of its provisions, therefore the impact of
adoption on prior periods and the cumulative effect of the change in accounting
principle have not been determined. The effect of applying SOP 97-2 on 1998 was
to reduce net income before provision for income taxes by approximately
$160,000. Revenue from postcontract customer support is recognized on a
straight-line basis over the term of the agreement. Revenue from software
services are recognized as the services are performed.
F-51
<PAGE> 124
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEPRECIATION
The Company follows the policy of charging to costs and expenses annual
amounts of depreciation which allocate the cost of equipment and software over
its estimated useful life. The Company employs straight-line and accelerated
methods for determining the annual charges. The estimated useful lives are as
follows:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Furniture and fixtures...................................... 5 - 10
Computer hardware and peripheral equipment.................. 3 - 5
Automobiles................................................. 5
Purchased software.......................................... 3 - 5
Equipment under capital lease obligations................... 5
Leasehold improvements...................................... 1 - 5
</TABLE>
Depreciation expense charged to costs and expenses amounted to $391,287 and
$311,540 for the years ended December 31, 1999 and 1998, respectively.
INVENTORY
Inventory at December 31, 1999 and 1998 consisted of computer hardware,
software and supplies stated at the lower of cost (first-in, first-out method)
or market.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with
Financial Accounting Standards Board Statement 86. Software development costs
not qualifying for capitalization are expensed as research and development costs
which totaled $1,136,820 and $560,981 during the years ended December 31, 1999
and 1998, respectively. Capitalized costs are amortized on a product-by-product
basis using straight-line amortization over the useful life of the product.
During 1999 and 1998, the Company capitalized $307,342 and $258,824 of software
development costs and recognized amortization expense of $191,369 and $88,817 in
1999 and 1998, respectively. The Company evaluates the estimated net realizable
value of each software product at each balance sheet date and records writedowns
for any products for which the net book value is in excess of net realizable
value. No writedowns of software products were recorded for the years ended
December 31, 1999 or 1998.
INCOME TAXES
Deferred income taxes are reported using the asset and liability method.
Deferred tax assets are recognized for future deductible temporary differences
and deferred tax liabilities are recognized for future taxable differences.
Temporary differences consist primarily of differences between the reported
amounts of assets and liabilities and their tax bases and the tax effect of net
operating loss carryforwards.
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
F-52
<PAGE> 125
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statement of cash flows, cash
includes all short-term highly liquid investments with maturities of three
months or less at the date of their acquisition.
NOTE 2. MERGER WITH CONSTELLATION SOFTWARE, INC.:
On October 1, 1999, a majority of Logic Associates, Inc. (Logic) stock was
acquired by Constellation Software, Inc. (CSI), a Canadian company. As a result,
CSI, through its wholly-owned subsidiary, Constellation Software of New
Hampshire, Inc. (CSINH), owns 77.5% of the Company.
In order to effect the acquisition, CSINH received 10,202.124 shares of
Logic common stock, representing 78.9% of the then outstanding common stock of
Logic. Cash payments were made by CSINH to Logic common stock and option holders
to reflect their reduced ownership percentage of Logic. For purposes of this
transaction, option holders were treated as though they owned an equivalent
amount of common stock. On a fully diluted basis, CSINH owns 77.5% of Logic.
As part of the overall merger transaction, a portion of the purchase price
was contributed as additional paid in capital to Logic in an amount sufficient
to pay out a cumulative preferred dividend of $295,595 and to purchase and
retire 100% of the preferred stock of Logic (Note 11).
Under "put" agreements in place, the old (non-CSI) Logic common
stockholders may sell their common shares to CSINH, at the stockholders' option,
over a period of five years. Holders of options to acquire Logic common stock
entered into similar agreements.
There is a management agreement in place whereby CSI receives 1% of the
gross profit on Logic sales. Management fees earned for the period from October
1, 1999 to December 31, 1999 were approximately $33,000. In addition, Logic pays
CSI travel and other expenses related to the management services. As a result of
these related party transactions, at December 31, 1999, there is an amount due
to parent (CSI) of $43,558.
There are five-year non-compete agreements in place with certain Logic
stockholders.
NOTE 3. NOTES PAYABLE -- BANK:
The Company has a $1,000,000 bank line of credit. Interest is payable
monthly at 1/2% over the Wall Street Journal Prime Rate (currently 9.0%)
adjusted daily and is secured by substantially all of the assets of the Company.
The outstanding balance on the line of credit was $341 and $285,843 at December
31, 1999 and 1998, respectively.
In addition, at December 31, 1999 and 1998, the Company has a $500,000 bank
note payable maturing in September, 2000. Interest is payable at 1/2% over the
Wall Street Journal Prime Rate (currently 9.0%) adjusted daily and the note is
secured by substantially all the assets of the Company.
F-53
<PAGE> 126
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1999, loan covenants were established replacing personal guarantees by
stockholders, on all of the Company's bank debt. The covenants are:
A minimum net worth of $2 million
A maximum debt to net worth ratio of 1.5:1
A minimum debt service coverage ratio of 2:1
At December 31, 1999, the Company is in compliance with the covenants.
NOTE 4. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable to bank at $10,505 per month, including
interest at 9.0%, adjusted semi-annually to 1/2% over the
Wall Street Journal Prime rate, secured by substantially
all assets of the Company. Matures October, 2001.......... $211,595 $313,564
Note payable to bank at $2,860 per month, including interest
at 9.0%, adjusted semi-annually to 1/2% over the Wall
Street Journal Prime rate, secured by substantially all
assets of the Company. Matures April, 2001................ 45,451 72,099
Construction loan payable to bank (see below), interest only
during the construction period at 9%. Installment note
payments start April, 2000 at $18,686 per month, including
interest at 9%, adjusted semi-annually beginning
September, 2000 to 1/2% over the Wall Street Journal Prime
rate, secured by substantially all assets of the Company
Matures March, 2005....................................... 262,151 --
-------- --------
519,197 385,663
Less -- Current portion..................................... 176,000 129,800
-------- --------
$343,197 $255,863
======== ========
</TABLE>
Maturities on long-term debt require the following principal reductions for
the years ended December 31:
<TABLE>
<S> <C>
2000........................................................ $176,000
2001........................................................ 161,000
2002........................................................ 51,000
2003........................................................ 56,000
2004........................................................ 61,000
Years subsequent to 2004.................................... 14,197
--------
$519,197
========
</TABLE>
In connection with the move to its new facility in January, 2000 (Note 5),
the Company has a bank loan to finance leasehold improvements, furniture and
moving costs. The maximum borrowing on the loan is $900,000. Proceeds on the
loan are disbursed by the bank as requisitions and invoices are received for
construction of leasehold improvements, purchase of furniture and moving
expenses.
F-54
<PAGE> 127
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the construction period, interest only will be paid on the outstanding
balance of the note. The note will convert to an installment note in April,
2000.
In connection with the acquisition by Constellation Software, Inc. (Note
2), on September 23, 1999, the bank agreed to release the personal guarantees of
the majority stockholders on all bank debt subject to the addition of certain
loan covenants (see Note 3).
NOTE 5. LEASES:
The Company leases its facilities under noncancelable operating leases.
Certain leases provide for adjustments of rent based upon the consumer price
index and have renewal options at the end of the initial lease term. Certain
leases also provide for the Company to pay real estate taxes, utilities,
liability insurance and maintenance expenses.
In January 2000, the Company moved its main office to a new location and
has entered into a lease agreement for that building, 30% of which is owned by
stockholders of the Company. The lease commenced September, 1999 and ends June,
2007. There is an option to renew for an additional seven years. The monthly
rent is $23,976 for the first year of the term and increases by 2.5% each year
thereafter. The Company is also responsible for real estate taxes, utilities,
assessments, insurance and other costs of occupancy. The future minimum annual
operating lease payment schedule below includes these lease payments. The
stockholders have guaranteed up to $150,000 each ($300,000 total), of the
obligations of the Company under the lease. There is an assignment of this lease
to the bank holding a mortgage on the building.
The building in which the Company operated its main facility until January
2000 is owned by and rented from stockholders of the Company. The remaining
lease term on that building runs through March, 2001 at $8,800 per month. The
stockholders are trying to sell the building. If sold before the end of the
lease term, the Company will be relieved of its remaining lease obligation.
In addition to its main offices discussed above, the Company rents office
and training facilities at several other locations. The Company also leases
certain long-term assets under capital leases. Future minimum annual lease
payments, together with the present value of the capital lease payments, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
2000.............................................. $36,000 $ 600,000
2001.............................................. 29,000 453,000
2002.............................................. 10,000 405,000
2003.............................................. 1,571 365,000
2004.............................................. -- 343,000
Years beyond 2004................................. -- 838,000
------- ----------
Total minimum annual lease payment................ 76,571 $3,004,000
==========
Less amount representing interest................. 6,080
-------
Present value of minimum capital lease payments... 70,491
Current portion................................... (32,000)
-------
Long-term capital lease obligations............... $38,491
=======
</TABLE>
F-55
<PAGE> 128
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's rent expense for operating leases was approximately $607,000
and $478,000 for the years ended December 31, 1999 and 1998, respectively.
NOTE 6. PROFIT SHARING PLAN:
The Company has a 401(k) salary reduction plan in which all employees are
eligible to participate. The plan provides for employees to elect to contribute
a portion of their annual compensation to the plan. The Company contributes an
amount equal to one-half of the employee's contribution up to a maximum of two
percent of the employee's annual compensation. In addition, the plan has a
provision for the Company to make discretionary contributions.
The Company made contributions to the plan of $107,971 and $84,767 for the
years ended December 31, 1999 and 1998, respectively.
NOTE 7. INCOME TAXES:
The balance of prepaid income taxes consists of the portion of the
Company's federal and state estimated income tax payments which exceed the taxes
due as of December 31, 1999. In January, 2000, the Company received a refund of
federal tax of approximately $345,000.
The Company files on a consolidated basis for federal income tax purposes.
Total tax expense amounted to $120,000 and $110,000 for the years ended December
31, 1999 and 1998, respectively, totals different than the amounts of $370,886
and $410,606 computed by applying the U.S. federal rate of 34% to income before
tax. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Income tax at applicable rates............................ $370,886 $410,606
State income tax, net of federal tax effect............... 13,000 20,000
Tax effect of:
Amortization of Covalent intangibles.................... 130,000 133,000
Stock options........................................... (400,000) --
Net operating loss...................................... -- (490,000)
Miscellaneous other items................................. 6,114 36,394
-------- --------
$120,000 $110,000
======== ========
</TABLE>
As of December 31, 1999, the Company has net operating loss carryforwards
totaling approximately $3,000,000 available to reduce future federal taxable
income. All of these loss carryforwards are losses incurred by Covalent
Corporation prior to acquisition (Note 1). The extent to which these losses can
be utilized by Logic will be subject to annual and maximum limitations. These
carryforwards expire in 2005 through 2011.
F-56
<PAGE> 129
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's deferred tax assets relate principally to the net operating
loss carryforwards, allowance accounts and non-deductible accrued expenses. A
summary of the composition of the deferred tax assets at December 31 follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Tax effect of:
Net operating losses................................. $1,030,000 $1,110,000
Valuation allowances................................. 250,000 230,000
Capitalized software................................. (250,000) (210,000)
---------- ----------
Deferred tax asset..................................... 1,030,000 1,130,000
Asset valuation allowance.............................. -- --
---------- ----------
Net deferred tax asset................................. $1,030,000 $1,130,000
========== ==========
</TABLE>
NOTE 8. NOTES PAYABLE -- STOCKHOLDERS:
At December 31, 1999, notes payable -- stockholders consisted of 9%
unsecured notes payable, due September, 2000 with interest payable monthly.
Repayment of these notes is subordinated to any claim the Vermont Economic
Development Authority (VEDA) makes on the Company pursuant to its guaranty of
VEDA's loan to the stockholders (Note 10).
NOTE 9. COMMON STOCK AND OPTIONS FOR COMMON STOCK:
In 1998, the Company approved a reverse split of its common stock. A ratio
of 1 new share for 1,000 old shares was used. Also approved was a share price of
$2,000 per new share to be paid to holders of fractional shares. The total paid
to holders of fractional shares was $58,304. The fractional shares were retired.
After the reverse split and purchase and retirement of the fractional shares,
there were 2,730 shares outstanding at December 31, 1998.
As part of the merger with Constellation Software, Inc. (Note 2), the
Company issued 10,202.124 shares of common stock to Constellation Software of
New Hampshire, Inc. (CSINH). CSINH made cash payments to the existing common
stockholders which effectively paid them for 77.5% of their ownership of the
Company.
As of December 31, 1999 and 1998, options for 231.907 shares of common
stock (adjusted for reverse split described above) were outstanding. These
options became exercisable in September, 1999 and entitle the holders to
purchase one share of common stock for $10 per share. The option holders were
paid an amount equivalent to 77.5% of their share of the value of the Company on
a fully diluted basis. In effect, option holders were treated as though they
were owners of an equivalent amount of Logic common stock.
NOTE 10. COMMITMENTS:
In connection with its new office (Note 5), the Company has commitments for
the construction of leasehold improvements and the purchase of furnishings and
telephone equipment as well as for moving expenses. The total estimated cost of
the project is $927,000. Through December 31, 1999, approximately $546,000 is
reflected as leasehold improvements and the total remaining commitment on the
project is approximately $381,000. Of the $546,000 incurred through December 31,
1999,
F-57
<PAGE> 130
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
approximately $56,000 was paid in cash, $262,151 was financed by the bank under
a construction loan (see Note 4) and approximately $227,000 was included in
accounts payable. In January, 2000, an additional $192,000 was financed through
the bank loan. No depreciation has been recorded on these new improvements in
1999.
The Company has a partially self-insured health insurance plan. Under this
plan, the Company self-insures for small claims. The plan contains provisions
which limit the Company's exposure for claims on both an individual and an
aggregate basis. Large claims are covered by an insurance company, for which the
Company pays premiums currently. The insurance company handles the
administration of all claims. The Company maintains a separate cash account to
fund the self-insurance premiums and claims. Claims payable and pending to be
paid by the Company have been accrued.
The majority stockholders of the Company have a mortgage with the Vermont
Economic Development Authority (VEDA) which has a remaining principal balance at
December 31, 1999 of approximately $73,000 with interest at 4% per annum. The
mortgage is secured by the building in which the Company formerly operated (Note
5). Logic Associates, Inc. has guaranteed the loan from VEDA to the
stockholders. In January, 2000, the Company moved to new office space. As a
result, VEDA will require repayment of its mortgage in 2000. In addition to the
VEDA mortgage, the bank also has a mortgage on the same building which is
guaranteed by the Company. The outstanding balance on the bank's mortgage is
approximately $188,000. Management expects that the stockholders will repay both
of these mortgages and there will be no effect on the Company.
In connection with the merger with CSI (Note 2), the principal employee
stockholders of Logic signed five-year employment agreements through September,
2004. Their total annual compensation is approximately $414,000 and will be
adjusted for inflation.
NOTE 11. PREFERRED STOCK:
The holders of Class A Preferred Shares were entitled to receive
distributions at a rate of 10% of the par value per share (equivalent to $100
per Class A Preferred Share per year). Distributions on Class A Preferred Shares
were cumulative from the issue date. As part of the acquisition by CSI (Note 2),
cumulative unpaid dividends from October 21, 1996 through September 30, 1999 of
$295,595 were paid to the preferred stockholders. In addition, 100% of the
preferred shares were purchased and retired.
NOTE 12. NOTES RECEIVABLE-STOCKHOLDERS:
The notes receivable-stockholders had an effective date of September 24,
1996 with interest at 6.44% and principal payable September, 2001. Early
repayments of principal were allowed and the stockholders repaid $213,568 and
$212,500 in 1999 and 1998, respectively. At December 31, 1999, the notes were
fully repaid.
NOTE 13. RECLASSIFICATIONS:
Certain reclassifications have been made to the 1998 financial statements
to conform to the 1999 presentation. Such reclassifications had no impact on the
Company's net income or stockholders' equity.
F-58
<PAGE> 131
LOGIC ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. SUBSEQUENT EVENT -- PRINTCAFE, INC. TO PURCHASE LOGIC:
On March 9, 2000, Constellation Software, Inc. (CSI) sold the Company to
printCafe, Inc. (PC).
CSI and a group of minority stockholders received notes in exchange for all
of their shares of Logic stock. The notes are payable from the proceeds of
public offerings of PC stock, the sale of PC to a third party or in cash on
specified dates.
Holders of approximately 13% of Logic stock will receive shares of PC stock
in exchange for their Logic stock.
F-59
<PAGE> 132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
nth degree software, inc.:
We have audited the accompanying consolidated balance sheet of nth degree
software, inc. (a Delaware corporation) and subsidiary as of December 31, 1998,
and the related consolidated statements of operations and comprehensive loss,
stockholders' deficit and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of nth degree software, inc.
and subsidiary as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Seattle, Washington
July 28, 1999
(except with respect to the matter
discussed in Note 10, as to which
the date is October 29, 1999)
F-60
<PAGE> 133
NTH DEGREE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 480,037 $ 91,289
Accounts receivable, net of allowance for doubtful
accounts of $32,630.................................... 211,410 131,389
Prepaid expenses and other current assets................. 7,617 59,707
----------- -----------
Total current assets.............................. 699,064 282,385
Property and Equipment, net................................. 359,124 237,318
Other Assets................................................ 27,180 27,180
----------- -----------
Total assets...................................... $ 1,085,368 $ 546,883
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank loan................................................. $ 493,686 $ 422,730
Accounts payable.......................................... 141,566 124,588
Accrued liabilities....................................... 55,062 110,883
Current portion of capital lease obligations.............. 134,775 115,907
Deferred revenue.......................................... 134,402 121,147
Note payable to related party............................. -- 250,000
----------- -----------
Total current liabilities......................... 959,491 1,145,255
Capital Lease Obligations, net of current portion........... 216,904 117,803
----------- -----------
Total liabilities................................. 1,176,395 1,263,058
----------- -----------
Commitments (Note 6)
Stockholders' Deficit:
Convertible preferred stock --
Series A, $.0001 par value, authorized 3,058,017
shares; 3,058,017, issued and outstanding,
liquidation preference of $3,058,017................. 306 306
Series A-1, $.0001 par value, authorized 1,488,331
shares; 1,488,331, issued and outstanding,
liquidation preference of $1,488,331................. 149 149
Series B, $.0001 par value, authorized 1,760,206
shares; 1,760,206, issued and outstanding,
liquidation preference of $651,276................... 176 176
Series C, $.0001 par value, authorized 1,943,250
shares; 1,943,250 issued and outstanding, liquidation
preference of $777,300............................... 194 194
Common stock, $.0001 par value, authorized 16,750,196
shares; 5,304,371 issued and outstanding............... 530 530
Additional paid-in capital................................ 5,918,114 5,918,114
Cumulative translation adjustment......................... (2,171) (310)
Accumulated deficit....................................... (6,008,325) (6,635,334)
----------- -----------
Total stockholders' deficit....................... (91,027) (716,175)
----------- -----------
Total liabilities and stockholders' deficit....... $ 1,085,368 $ 546,883
=========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-61
<PAGE> 134
NTH DEGREE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ------------------------------
DECEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
License...................................... $ 666,835 $ 508,468 $ 393,460
Service...................................... 303,969 177,974 369,314
----------- ----------- ----------
Total revenues....................... 970,804 686,442 762,774
Operating Expenses:
Cost of license revenues..................... 30,444 17,378 30,634
Customer service............................. 260,566 212,115 215,831
Research and development..................... 440,438 357,364 101,557
Sales and marketing.......................... 1,183,798 903,128 681,526
General and administrative................... 555,200 397,400 316,903
----------- ----------- ----------
Total operating expenses............. 2,470,446 1,887,385 1,346,451
----------- ----------- ----------
Loss from operations................. (1,499,642) (1,200,943) (583,677)
Other Income (Expense):
Equity in loss of affiliate.................. (58,663) (58,663) --
Interest income.............................. 13,398 9,320 2,694
Interest expense............................. (106,691) (85,131) (46,026)
----------- ----------- ----------
Total other expense, net............. (151,956) (134,474) (43,332)
----------- ----------- ----------
Net loss............................. (1,651,598) (1,335,417) (627,009)
----------- ----------- ----------
Foreign Currency Translation Adjustment........ (1,364) -- 1,861
----------- ----------- ----------
Comprehensive loss................... $(1,652,962) $(1,335,417) $ (625,148)
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-62
<PAGE> 135
NTH DEGREE SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SERIES A SERIES A-1 SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------ ------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998..... 3,058,017 $306 1,488,331 $149 1,760,206 $176 -- $ --
Sale of Series C convertible
preferred stock, net of
offering costs of
$7,205.................... -- -- -- -- -- -- 1,943,250 194
Common shares repurchased... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
Foreign currency translation
adjustment................ -- -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- --------- ----
BALANCE, December 31, 1998... 3,058,017 306 1,488,331 149 1,760,206 176 1,943,250 194
Net loss.................... -- -- -- -- -- -- -- --
Foreign currency translation
adjustment................ -- -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- --------- ----
BALANCE, September 30, 1999
(unaudited).................. 3,058,017 $306 1,488,331 $149 1,760,206 $176 1,943,250 $194
========= ==== ========= ==== ========= ==== ========= ====
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------ PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998..... 5,357,500 $536 $5,149,270 $ (807) $(4,356,727) $ 792,903
Sale of Series C convertible
preferred stock, net of
offering costs of
$7,205.................... -- -- 769,901 -- -- 770,095
Common shares repurchased... (53,129) (6) (1,057) -- -- (1,063)
Net loss.................... -- -- -- -- (1,651,598) (1,651,598)
Foreign currency translation
adjustment................ -- -- -- (1,364) -- (1,364)
--------- ---- ---------- ------- ----------- -----------
BALANCE, December 31, 1998... 5,304,371 530 5,918,114 (2,171) (6,008,325) (91,027)
Net loss.................... -- -- -- -- (627,009) (627,009)
Foreign currency translation
adjustment................ -- -- -- 1,861 -- 1,861
--------- ---- ---------- ------- ----------- -----------
BALANCE, September 30, 1999
(unaudited).................. 5,304,371 $530 $5,918,114 $ (310) $(6,635,334) $ (716,175)
========= ==== ========== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-63
<PAGE> 136
NTH DEGREE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -----------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................... $(1,651,598) $(1,335,417) $(627,009)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization................. 279,387 223,026 101,779
Equity in loss of affiliate................... 58,663 58,663 --
Changes in assets and liabilities:
Accounts receivable......................... 33,377 148,926 66,691
Prepaid expenses and other current assets... 19,460 27,930 (38,759)
Accounts payable............................ 527 (78,365) 15,232
Accrued liabilities......................... (100,588) 16,220 23,612
Deferred revenue............................ 71,548 23,643 (13,255)
Other assets................................ (2,283) (2,283) --
----------- ----------- ---------
Net cash used in operating activities......... (1,291,507) (917,657) (471,709)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Disposition of property and equipment............ 4,362 (35,641) 20,026
Investment in equity method affiliate............ (35,128) (35,128) --
----------- ----------- ---------
Net cash used in investing activities......... (30,766) (70,769) 20,026
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank loans........................... (206,211) (172,303) (70,956)
Payments on capital lease obligations............ (136,434) (81,109) (117,968)
Sale of preferred stock, net of issuance costs... 770,095 771,103 --
Repurchase of common stock....................... (1,063) (2,845) 1,861
Borrowings under related party notes payable..... -- -- 250,000
----------- ----------- ---------
Net cash provided by financing activities..... 426,387 514,846 62,937
----------- ----------- ---------
Net decrease in cash and cash equivalents..... (895,886) (473,580) (388,746)
Cash and Cash Equivalents, beginning of period..... 1,375,923 1,375,923 480,037
----------- ----------- ---------
Cash and Cash Equivalents, end of period........... $ 480,037 $ 902,343 $ 91,291
=========== =========== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest........................... $ 111,904 $ 90,344 $ 46,026
=========== =========== =========
Non-Cash Investing and Financing Activities:
Property and equipment financed with capital
lease obligations............................. $ 29,608 $ 515,036 $ --
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-64
<PAGE> 137
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION OF THE COMPANY:
nth degree software, inc. (the Company) develops, markets and sells
cross-platform enterprise-wide publishing applications. The Company's products
are sold primarily in the United States, the United Kingdom and Canada. The
Company also provides training services in support of customers' use of the
products.
Although the Company is no longer in the development stage, the Company
continues to be subject to the risks and challenges associated with companies in
a comparable stage of development, including: dependence on key individuals and
key customers; competition from substitute products and from larger companies;
successful marketing of its products and acceptance of its technology;
successful development of product enhancements on a continuing basis; and the
need for adequate financing to support future growth.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations, has negative working capital and a net stockholders'
deficit.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned foreign subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
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 period.
Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of September 30, 1999 and for
each of the nine-month periods ended September 30, 1999 and 1998 have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F-65
<PAGE> 138
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
CONCENTRATIONS OF CREDIT RISK
Management believes concentration of credit risk with respect to accounts
receivable is limited due to the nature of customers comprising the Company's
customer base and their geographic distribution. The Company also performs
credit reviews on customers and may require prepayment. Reserves are maintained
for potential credit losses. One customer accounted for 20% of total revenues
for the year ended December 31, 1998. Another customer accounted for 27% of
accounts receivable at December 31, 1998.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
of property and equipment is provided using the straight-line method over their
estimated useful lives ranging from three to five years. Leasehold improvements
are amortized over the lease term. Additions and improvements that increase the
value or extend the life of an asset are capitalized. Maintenance and repairs
necessary to maintain equipment in operating condition are expensed as incurred.
Disposals are removed at cost less accumulated depreciation and any gain or loss
from disposition is reflected in the consolidated statement of operations.
INVESTMENT IN AFFILIATE
The Company has an investment in a 50% owned affiliate, nth degree Canada,
which is accounted for on the equity method. The Company's share of the
affiliate's loss in the amount of $58,663 was included in the consolidated
statement of operations and comprehensive loss. This investment is valued at $0
at December 31, 1998.
INCOME TAXES
Deferred tax assets and liabilities are recorded for differences between
the financial statement and tax bases of the assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is recorded for the amount of income tax payable or refundable for the
period increased or decreased by the change in deferred tax assets and
liabilities during the period.
FOREIGN CURRENCY TRANSLATION
Financial statements of the foreign subsidiary use the British Pound as the
functional currency. The financial statements are translated to U.S. dollars at
year-end exchange rates for assets and liabilities and at a weighted average
exchange rate for the results of operations. The resulting translation
adjustments have been recorded as a separate component of stockholders' deficit
as "Cumulative Translation Adjustments." Foreign currency transaction gains and
losses are included in the consolidated statement of operations as they occur.
F-66
<PAGE> 139
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
SOFTWARE DEVELOPMENT COSTS
Software development costs are accounted for as set forth in Statement of
Financial Accounting Standard (SFAS) No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed." Capitalization of
software development costs begin upon the establishment of technological
feasibility of the product. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future growth product revenues, estimated economic
life and changes in software and hardware technology. Amounts that could have
been capitalized under this statement after consideration of the above factors
were immaterial and, therefore, no software development costs have been
capitalized by the Company to date.
REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) No. 97-2, "Software Revenue
Recognition." SOP No. 97-2 was effective in the current year and provides
guidance on applying generally accepted accounting principles for software
revenue recognition transactions.
License revenues are earned and are recognized when delivery has occurred
and evidence of an arrangement exists, collection of the receivable is probable
and there are no significant post-delivery obligations remaining.
Revenue is deferred in cases where the license arrangement calls for the
delivery of products that have not yet been delivered or are not yet available.
Service revenues consist of consulting services, maintenance, updates and
technical support. Consulting service revenues are recognized as services are
performed. Maintenance, updates and technical support are recognized ratably
over the term of the agreement. In instances where software license agreements
include a combination of consulting services, training, maintenance or support,
these separate elements are unbundled from the arrangement based on the
element's relative fair value.
EXPORT SALES
Export sales consist of sales to customers in foreign countries. During the
year ended December 31, 1998, export sales were 39% of total revenues.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective
for financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company does not anticipate that implementation
of SOP 98-1 will have a material impact on the Company's financial position or
results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities." SOP 98-5, which is
F-67
<PAGE> 140
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
effective for fiscal years beginning after December 15, 1998, provides guidance
on the financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as incurred.
The Company does not anticipate that implementation of SOP 98-5 will have a
material impact on the Company's financial position or results of operations.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. For the years ended
December 31, 1998, the Company incurred advertising and direct marketing
expenses of approximately $89,000.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Computer equipment.......................................... $ 487,568
Office equipment............................................ 148,976
Furniture and fixtures...................................... 312,327
Leasehold improvements...................................... 65,539
----------
1,014,410
Less -- Accumulated depreciation and amortization........... (655,286)
----------
$ 359,124
==========
</TABLE>
Assets under capital lease are pledged as collateral for the underlying
lease agreements.
4. BANK LOAN:
During 1998, the Company allowed their line of credit with a Bank to
expire. The line of credit bore interest at the bank's prime rate plus 2% (which
amounted to 9.75% at December 31, 1998). The line of credit allowed for both
equipment draws and other draws. The equipment draws were payable in 24 monthly
principal payments from December 1997 through December 1999. Other draws on the
line of credit after November 1997 were due in November 1998 and aggregated
$290,444 at December 31, 1998. These draws are collateralized by substantially
all of the assets of the Company.
The Company's bank loan consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
Equipment draws............................................. $203,242
Other draws................................................. 290,444
--------
$493,686
========
</TABLE>
Subsequent to year-end, the Company renegotiated its term loan and line of
credit into a new single term loan, as the other draws were past due. The terms
of the single term loan are 11% interest rate, due November 1999.
Additionally, in connection with the single term loan, the Company issued
warrants to purchase 178,774 shares of Series C preferred stock, with an
exercise price of $.40 per share.
F-68
<PAGE> 141
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
5. CAPITAL LEASE OBLIGATIONS:
Certain equipment is leased under capital leases expiring on various dates
through 2002. Included in property and equipment are assets held under capital
leases with a cost of $519,747 at December 31, 1998. Accumulated amortization on
leased assets was $212,417 as of December 31, 1998.
Future minimum lease payments, together with the present value of the net
minimum lease payments is as follows at December 31, 1998 and for the years
ending December 31:
<TABLE>
<S> <C>
1999........................................................ $180,338
2000........................................................ 138,155
2001........................................................ 89,073
2002........................................................ 30,125
--------
Total minimum lease payments................................ 437,691
Less -- Amount representing interest (11% - 17%)............ 86,012
--------
Present value of net minimum lease payments................. 351,679
Less -- Current portion..................................... 134,775
--------
Long-term portion........................................... $216,904
========
</TABLE>
6. COMMITMENTS:
The Company leases its facility in Bellevue, Washington under a lease that
expired on March 31, 1998. No new lease agreement on the facility has been
signed, however, the Company continues to rent the facility on a month-to-month
basis. The Company also leases facilities in Parsippany, New Jersey under a
lease expiring in November 2000 and in London, The United Kingdom, under a lease
that expired in November 1998. The Company pays taxes, insurance, normal
maintenance and certain other operating expenses.
At December 31, 1998, the minimum future lease payments due under these
leases for the remainder of the lease term were as follows:
<TABLE>
<S> <C>
1999........................................... $16,000
2000........................................... 15,000
-------
$31,000
=======
</TABLE>
Total rent expense incurred under operating leases for the year ended
December 31, 1998 was approximately $120,000.
7. INCOME TAXES:
Due to net losses incurred from inception through December 31, 1998, the
Company did not record any federal income tax expense or benefit. The Company
has a net operating loss carryforward for income tax purposes of approximately
$4,935,000 which expires at various dates through 2018. At December 31, 1998,
the total gross deferred tax asset was approximately $1,720,000. The Company has
established a valuation allowance equal to this net deferred tax asset. The
deferred tax asset results primarily from the net operating loss carryforward.
Under current tax law, net operating loss
F-69
<PAGE> 142
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
carryforwards available to offset future operating income in any given year may
be limited upon the occurrence of certain events, including significant changes
in ownership interests.
8. STOCKHOLDERS' DEFICIT:
COMMON STOCK
The Company is authorized to issue 16,750,196 shares of voting common
stock, $.0001 par value. Upon liquidation, holders of common stock would be paid
only after convertible preferred stock preferences have been satisfied. In
January 1997, the Company converted from an "S" corporation to a "C"
corporation.
CONVERTIBLE PREFERRED STOCK
During 1997, the Company authorized 4,546,348 shares and issued 3,058,017
shares of Series A convertible preferred stock, and 1,488,331 shares of Series
A-1 convertible preferred stock, both with $.0001 par value and for
consideration of $1.00 per share. The Company also authorized and issued
1,760,206 shares of Series B convertible preferred stock, $.0001 par value, for
consideration of $.37 per share. During 1998, the Company authorized and issued
1,943,250 shares of Series C convertible preferred stock, $.0001 par value, for
consideration of $.40 per share. The holder of each share of convertible
preferred stock has the right to one vote for each share of common stock into
which such convertible preferred stock can be converted. Convertible preferred
stockholders have the same voting rights and powers as common stockholders.
The holders of convertible preferred stock are entitled to receive
dividends prior to and in preference to any declaration or payment of any
dividend on the common stock of the Company at the rate of $.08 per share per
annum on Series A and A-1 convertible preferred stock, $.0296 per share per
annum on Series B convertible preferred stock, and $.032 per share per annum on
Series C convertible preferred stock payable quarterly. Dividends are not
cumulative and are payable when and if declared by the Board of Directors.
Each share of Series A, A-1, B and C convertible preferred stock is
convertible on a one-for-one basis to common stock at the option of the holder.
Automatic conversion will occur upon a firm commitment underwritten public
offering pursuant to a registration statement of the Company's stock under the
Securities Act of 1933, as amended, where the total proceeds exceed $10 million
and the price per share exceeds $3.00, adjusted to reflect subsequent stock
dividends, stock splits or recapitalization, or upon the written consent or
agreement of the holders of at least two thirds of the then outstanding shares
of Series A, A-1, B, and C convertible preferred stock voting together as a
class. The conversion prices of Series A, A-1, B, and C convertible preferred
stock is $1.00, $1.00, $.37, and $.40 per share, respectively, based upon the
original issuance price of each. The conversion prices are subject to
adjustments for certain dilutive issuances, splits and combinations.
In the event of liquidation, the holders of Series C convertible preferred
stock will receive a liquidation preference of up to $.40 per share over the
holders of Series B convertible preferred stockholders, who will receive a
liquidation preference of up to $.37 per share plus declared but unpaid
dividends over the holders of common, Series A convertible preferred and Series
A-1 convertible preferred stock adjusted for declared but unpaid dividends. Upon
satisfaction of the Series C and Series B convertible preferred stock
liquidation preference, distributions will be made to
F-70
<PAGE> 143
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
Series A-1 stockholders in an amount equal to $1.00 per share plus declared but
unpaid dividends, adjusted for declared but unpaid dividends. Upon satisfaction
of the Series C, B and A-1 convertible preferred stock liquidation preferences,
distributions will be made to Series A stockholders in the amount equal to $1.00
per share plus declared but unpaid dividends, adjusted for declared but unpaid
dividends. Upon completion of the preference distributions to Series C, B, A-1
and A stockholders, any remaining amounts will be distributed among the holders
of the common stockholders.
On June 15, 1999, a group of preferred stockholders loaned the Company
$250,000 at a 4.98% interest rate. The loan is convertible into Series C
preferred stock at the holders option. Additionally, the Company issued warrants
to purchase 62,500 share of Series C preferred stock with an exercise price of
$.40 per share. The loan is due no later than December 15, 1999.
9. STOCK OPTIONS:
The Company has adopted an employee stock option plan (the Plan), which
provides for nonqualified and incentive stock options (ISO) for officers,
directors, employees and consultants, and reserved a total of 1,382,500 shares
of common stock for issuance pursuant to the Plan. Options under the Plan will
generally expire 10 years from the date of grant or five years in the case of an
optionee owning more than 10% of the voting power of all classes of stock.
Generally, options vest over four years.
The exercise price for the stock options may not be less than the estimated
fair market value (as determined by the board of directors) and the aggregate
fair market value of shares issuable upon exercise of the ISOs for the first
time in any calendar year may not exceed $100,000. In the case of options
granted to holders of more than 10% of the voting power of the Company, the
exercise price may not be less than 110% of the estimated fair market value of
the common stock at the time of grant. The stock option plans are administered
by the Company's board of directors.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the fair value of the Company's
stock at the date of the grant over the exercise price to be paid to acquire the
stock.
No compensation expense has been recorded for options granted in 1998
because the exercise price of the options granted was equal to the fair value of
the related shares of the Company's common stock at the date of grant as
determined by the Company.
F-71
<PAGE> 144
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
Option activity for the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED
AVAILABLE AVERAGE
FOR EXERCISE
GRANT SHARES PRICE
<S> <C> <C> <C>
Balance, January 1, 1998................... 176,893 705,607 $.12
Authorized............................... 500,000 --
Granted.................................. (455,500) 455,500 .05
Exercised................................ -- -- --
Canceled................................. 330,683 (330,683) .12
-------- -------- ----
552,076 830,424 $.08
======== ======== ====
</TABLE>
Subsequent to year-end, the Company granted 107,500 stock options to
employees and a consultant at an exercise price of $.05 per share.
The following table summarizes information about options outstanding and
exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE --------------------
WEIGHTED REMAINING WEIGHTED
AVERAGE CONTRACTUAL AVERAGE
EXERCISE NUMBER OF LIFE NUMBER OF EXERCISE
PRICE OPTIONS (IN YEARS) OPTIONS PRICE
<S> <C> <C> <C> <C>
$0.05 441,834 9.3 18,263 $0.05
$0.10 373,590 8.6 129,411 $0.10
$0.20 15,000 8.0 7,490 $0.20
</TABLE>
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options granted after December 31, 1996 under the fair value method of that
statement. The fair value of options granted in 1998 was estimated at the date
of grant using the minimum value option pricing model assuming no volatility and
no expected dividends and the following weighted-average assumptions: risk-free
interest rate of 5.5% and expected life of six years. The weighted average fair
value of options granted in 1998, as calculated using the minimum value option
pricing model, was $0.04 per option.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the options' vesting periods. The following table
presents pro forma net loss for the year ended December 31, 1998 as if the
Company accounted for compensation expense related to stock options under the
fair value method prescribed by SFAS No. 123:
<TABLE>
<S> <C>
Net loss -- as reported..................................... $1,651,598
==========
Net loss -- pro forma....................................... $1,662,224
==========
</TABLE>
F-72
<PAGE> 145
NTH DEGREE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE-MONTH PERIODS
ENDING SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
10. SUBSEQUENT EVENTS:
On October 15, 1999, the shareholders of the Company entered into a
definitive agreement to merge the Company with Prograph Systems, Inc.
("Prograph")in exchange for an aggregate of 3,333,333 shares of Prograph common
and preferred stock and promissory notes of approximately $750,000. The merger
was consummated on October 29, 1999.
F-73
<PAGE> 146
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
nth degree software, inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
nth degree software, inc. and its subsidiaries at December 31, 1997, and the
results of their operations and their cash flows for the year ended December 31,
1997 in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards, which 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,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As described in Note 1 to the financial statements, the Company has
generated negative cash flows from operating activities that will require the
Company to raise additional capital or change its operations. Management's plans
in regard to these matters are described in Note 1.
Seattle, Washington
December 28, 1998
F-74
<PAGE> 147
NTH DEGREE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,375,923
Accounts receivable, net of allowance for doubtful
accounts of $15,037.................................... 244,787
Prepaid expenses.......................................... 27,077
-----------
Total current assets.............................. 1,647,787
Property and equipment, net................................. 614,629
Investments in affiliates................................... 59,208
Other assets................................................ 24,897
-----------
Total assets...................................... $ 2,346,521
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan, current portion................................ $ 203,444
Capital lease obligations, current portion................ 131,982
Accounts payable.......................................... 141,039
Accrued liabilities....................................... 155,650
Due to affiliate.......................................... 35,673
Unearned revenue.......................................... 62,854
-----------
Total current liabilities......................... 730,642
Bank loan, net of current portion........................... 496,453
Capital lease obligations, net of current portion........... 326,523
-----------
Total liabilities................................. 1,553,618
===========
Commitments and contingencies
Shareholders' equity
Preferred stock
Series A, $.0001 par value, authorized 4,546,348
shares; 3,058,017, issued and outstanding, liquidation
preference of $3,058,017.............................. 306
Series A-1, $.0001 par value, authorized 1,488,331
shares; 1,488,331, issued and outstanding, liquidation
preference of $1,488,331.............................. 149
Series B, $.0001 par value, authorized 1,760,206
shares; 1,760,206, issued and outstanding, liquidation
preference of $651,276................................ 176
Common stock, $.0001 par value, authorized 17,205,115
shares; 5,357,500, issued and outstanding.............. 536
Additional paid-in capital................................ 5,149,270
Cumulative foreign currency translation adjustments....... (807)
Accumulated deficit....................................... (4,356,727)
-----------
Total stockholders' equity........................ 792,903
-----------
Total liabilities and stockholders' equity........ $ 2,346,521
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 148
NTH DEGREE SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
<S> <C>
Revenue:
Software.................................................. $ 313,332
Service................................................... 121,892
-----------
Total revenue..................................... 435,224
-----------
Operating expenses:
Cost of license revenues.................................. 33,648
Sales..................................................... 569,367
Marketing................................................. 506,007
Customer support.......................................... 356,249
General and administrative................................ 1,103,154
Research and development.................................. 1,049,105
-----------
Total operating expenses.......................... 3,617,530
-----------
Loss from operations........................................ (3,182,306)
-----------
Other income (expense)
Equity in loss of affiliate............................... (13,522)
Interest income........................................... 35,896
Interest expense.......................................... (153,373)
-----------
(130,999)
-----------
Net loss.......................................... $(3,313,305)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 149
NTH DEGREE SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES A-1 SERIES B
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK ADDITIONAL
------------------ ------------------- ------------------ ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1996...................... $ 1,000
Issuance of common
stock................... 5,357,500 $536 6,624
Sale of Series A preferred
stock, net of offering
cost of $26,475......... 4,546,348 $455 4,519,418
Sale of Series B preferred
stock, net of offering
cost of $28,872......... 1,760,206 $176 622,228
Exchange of Series A
preferred stock for
Series A-1 preferred
stock................... (1,488,331) (149) 1,488,331 $149
Net loss..................
Foreign currency
translation
adjustment..............
--------- ---- ---------- ---- --------- ---- --------- ---- ----------
BALANCE, DECEMBER 31,
1997.................... 5,357,500 $536 3,058,017 $306 1,488,331 $149 1,760,206 $176 $5,149,270
========= ==== ========== ==== ========= ==== ========= ==== ==========
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY
TRANSLATION ACCUMULATED
ADJUSTMENTS DEFICIT TOTAL
<S> <C> <C> <C>
BALANCE, DECEMBER 31,
1996...................... $(1,043,422) $(1,042,422)
Issuance of common
stock................... 7,160
Sale of Series A preferred
stock, net of offering
cost of $26,475......... 4,519,873
Sale of Series B preferred
stock, net of offering
cost of $28,872......... 622,404
Exchange of Series A
preferred stock for
Series A-1 preferred
stock................... --
Net loss.................. (3,313,305) (3,313,305)
Foreign currency
translation
adjustment.............. (807) (807)
----- ----------- -----------
BALANCE, DECEMBER 31,
1997.................... $(807) $(4,356,727) $ 792,903
===== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 150
NTH DEGREE SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(3,313,305)
Adjustments to reconcile net loss to cash used in operating
activities
Depreciation and amortization............................. 222,878
Provision for doubtful accounts........................... 15,037
Changes in assets and liabilities
Accounts receivable....................................... (259,824)
Prepaid expenses.......................................... (19,077)
Other assets.............................................. (24,897)
Accounts payable.......................................... (279,841)
Accrued liabilities....................................... 152,275
Unearned revenue.......................................... 57,388
-----------
Net cash used in operating activities....................... (3,449,366)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.......................... (145,782)
Investment in equity method investee, net................... (23,535)
-----------
Net cash used in investing activities.................. (169,317)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan................................... 699,897
Payments on note payable to shareholder................... (816,787)
Payments on capital lease obligations..................... (61,733)
Preferred stock issuance.................................. 5,142,277
Common stock issuance..................................... 7,160
-----------
Net cash provided by financing activities................... 4,970,814
-----------
Net increase in cash and cash equivalents................... 1,352,131
Cash and cash equivalents
Beginning of year......................................... 23,792
-----------
End of year............................................... $ 1,375,923
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Purchase of equipment and furniture financed with capital
leases.................................................... $ 488,489
===========
Interest paid............................................... $ 93,283
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 151
NTH DEGREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
nth degree software, inc. (the "Company") develops, markets and sells
cross-platform, enterprise-wide publishing applications. The Company's products
are sold primarily in the United States, the United Kingdom and Canada. The
Company also provides training services in support of customers' use of the
products.
During 1997, the Company opened an office in London, The United Kingdom for
sales and product support in Europe.
GOING CONCERN CONSIDERATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered negative cash
flows from operations and losses from operations.
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow from operations and its ability to obtain
additional financing, including equity capital. Management's current operating
plan indicates that the Company will be able to generate sufficient cash flow
from operations in 1999 to accomplish its objectives.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned foreign subsidiary. All significant intercompany amounts
and transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid securities purchased with original
maturities of three months or less to be cash equivalents.
INVESTMENT IN AFFILIATE
The investment in the 50% owned affiliate, nth degree Canada, is accounted
for on the equity method. The Company's share of the affiliate's loss in the
amount of $13,522 was included in the consolidated statement of operations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
of property and equipment is provided using the straight-line method over their
estimated useful lives ranging from 3 to 5 years. Leasehold improvements are
amortized over the lease term. Additions and improvements that increase the
value or extend the life of an asset are capitalized. Maintenance and repairs
necessary to maintain equipment in operating condition are expensed as incurred.
Disposals are removed at cost less accumulated depreciation and any gain or loss
from disposition is reflected in the consolidated statement of operations.
F-79
<PAGE> 152
NTH DEGREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred in conjunction with product development
are charged to expense until technological feasibility is established.
Thereafter, all software development costs are capitalized and reported at the
lower of unamortized cost or net realizable value. The establishment of
technological feasibility and the on-going assessment of the recoverability of
costs require considerable judgment by the Company with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenues, estimated economic life and changes in software and hardware
technology. At December 31, 1997, the Company has not capitalized any software
development costs as these development costs did not meet the criteria for
capitalization in accordance with Statement of Financial Accounting Standards
No. 86.
FOREIGN CURRENCY TRANSLATION
Financial statements of the foreign subsidiary use the British Pound as the
functional currency. The financial statements are translated to U.S. dollars at
year-end exchange rates for assets and liabilities and at a weighted average
exchange rate for the results of operations. The resulting translation
adjustments have been recorded as a separate component of stockholders' equity
as "Cumulative Foreign Currency Translation Adjustments". Foreign currency
transaction gains and losses are included in the consolidated statement of
operations as they occur.
REVENUE RECOGNITION
Revenue from sale of software products is recognized upon shipment. Revenue
on maintenance contracts is recognized ratably over the term of the agreement.
Revenue from training is recognized as the service is performed.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense was
approximately $269,000 for the year ended December 31, 1997.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
USE OF ESTIMATES
The preparation of financial statements in accordance 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 period.
Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Management believes concentration of credit risk with respect to trade
receivable are limited due to the nature of customers comprising the Company's
customer base and their geographic distribution. The Company performs credit
reviews on customers and may require prepayment. Reserves are maintained for
potential credit losses.
F-80
<PAGE> 153
NTH DEGREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are recorded for differences between
the financial statement and tax bases of the assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is recorded for the amount of income tax payable or refundable for the
period increased or decreased by the change in deferred tax assets and
liabilities during the period.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
Computer equipment.......................................... $ 251,208
Computer equipment under capital lease...................... 224,452
Office equipment............................................ 20,568
Office equipment under capital lease........................ 135,685
Furniture and fixtures...................................... 117,595
Furniture and fixtures under capital lease.................. 162,155
Leasehold improvements...................................... 65,539
---------
977,202
Less: Accumulated depreciation and amortization ($80,849
related to capital leases)................................ (362,573)
---------
$ 614,629
=========
</TABLE>
Assets under capital lease are pledged as collateral for the underlying
lease agreements.
3. BANK LOAN
At December 31, 1997, the Company has available a $750,000 credit line with
Silicon Valley Bank which bears interest at prime (8.5% at December 31, 1997)
plus 2%. Amounts drawn on the credit line from May 19, 1997 through November 19,
1997 were termed equipment draws and totaled $406,888. These draws are payable
in 24 monthly principal payments from December 1997 through December 1999. Other
draws on the credit line after November 1997 are due in November 1998 and
aggregated $293,009 at December 31, 1997. These draws are collateralized by
substantially all of the assets of the Company.
<TABLE>
<S> <C>
Equipment draws............................................. $ 406,888
Other draws................................................. 293,009
---------
699,897
Less: Current portion....................................... (203,444)
---------
$ 496,453
=========
</TABLE>
Future bank loan payments are as follows for the years ending December 31:
<TABLE>
<S> <C>
1998........................................................ $203,444
1999........................................................ 496,453
--------
$699,897
========
</TABLE>
F-81
<PAGE> 154
NTH DEGREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments, together with the present value of the net
minimum lease payments is as follows at December 31, 1997 and for the years
ending December 31:
<TABLE>
<S> <C>
1998........................................................ $197,410
1999........................................................ 168,519
2000........................................................ 123,896
2001........................................................ 82,189
2002........................................................ 29,699
--------
Total minimum lease payments...................... 601,713
Less: Amount representing interest.......................... (143,208)
========
Present value of net minimum lease payments................. 458,505
Less: Current portion....................................... (131,982)
--------
$326,523
========
</TABLE>
NOTE 5. INCOME TAXES
Due to the net loss incurred from inception through December 31, 1997, the
Company did not record any Federal income tax expense or benefit. The Company
has a net operating loss carryforward for income tax purposes of approximately
$3,283,000, which expires beginning in 2012. The following is a reconciliation
of the income tax benefit to the amount based upon the statutory federal rate:
<TABLE>
<S> <C>
Federal income tax benefit of statutory rate................ (35.0)%
Change in valuation allowance............................... 35.0%
-----
0.0%
=====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities were as follows:
<TABLE>
<S> <C>
Deferred income tax assets:
Tax loss carryforwards.................................... $1,148,910
Provision for doubtful accounts........................... 5,263
Depreciation.............................................. 3,925
Other..................................................... (1,941)
----------
1,156,157
Valuation allowance......................................... (1,156,157)
==========
$ --
==========
</TABLE>
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 17,205,115 shares of voting common
stock, $0.0001 par value. Upon liquidation, holders of common stock will be paid
only after preferred stock preferences have been satisfied. In January 1997, the
Company converted from an "S" Corporation to a "C" Corporation and subsequently
issued 5,357,500 shares of common stock.
F-82
<PAGE> 155
NTH DEGREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Board of Directors authorized a 50,000-to-1 common stock split
effective as of March 7, 1997. This common stock split was effected in the form
of 50,000 shares of common stock issued for every one share of common stock
outstanding at the date of declaration. All common share presentations have been
adjusted to reflect the stock split on a retroactive basis.
PREFERRED STOCK
During 1997, the Company authorized and issued 4,546,348 shares of Series A
preferred stock. Subsequent to original issuance, the Company exchanged
1,488,331 shares of Series A preferred stock with Series A-1 preferred stock
which have greater rights in liquidation. Both Series A and Series A-1 preferred
stock have a $0.0001 par value and were issued for consideration of $1.00 per
share. The Company also authorized and issued 1,760,206 shares of Series B
preferred stock, $0.0001 par value, for consideration of $0.37 per share.
The holder of each share of preferred stock has the right to one vote for
each share of common stock into which such preferred stock can be converted.
Preferred stockholders have the same voting rights and powers as common
stockholders.
The holders of preferred stock are entitled to receive dividends prior to
and in preference to any declaration or payment of any dividend on the common
stock of the Company at the rate of $0.08 per share per annum on Series A and
A-1 preferred stock and $0.0296 per share per annum on Series B preferred stock
payable quarterly. Dividends are not cumulative and are payable when and if
declared by the board of directors.
Each share of Series A, A-1 and B preferred stock is convertible on a
one-for-one basis to common stock at the option of the holder. Automatic
conversion will occur upon registration of the Company's stock pursuant to a
public offering under the Securities Act of 1933, as amended, where the total
proceeds exceed $10 million and the price per share exceeds $3.00, adjusted to
reflect subsequent stock dividends, stock splits or recapitalization, or upon
the written consent or agreement of the holders of at least two thirds of the
then outstanding shares of Series A, A-1 and B preferred stock voting together
as a class. The conversion prices of Series A, A-1 and B preferred stock is
$1.00, $1.00 and $0.37 per share, respectively, based upon the original issuance
price of each. The conversion prices are subject to adjustments for certain
dilutive issuances, splits and combinations.
In the event of liquidation, the holders of Series B preferred stock will
receive a liquidation preference of up to $0.37 per share over the holders of
common, Series A preferred and Series A-1 preferred stock adjusted for declared
but unpaid dividends. Upon satisfaction of the Series B preferred stock
liquidation preference, distributions will be made to Series A-1 stockholders in
an amount equal to $1.00 per share, adjusted for declared but unpaid dividends.
Upon satisfaction of the Series B and A-1 preferred stock liquidation
preferences, distributions will be made to Series A stockholders in the amount
equal to $1.00 per share, adjusted for declared but unpaid dividends. Upon
completion of the preference distributions to Series B, A-1 and A stockholders,
any remaining amounts will be distributed among the holders of the common
stockholders.
NOTE 7. STOCK OPTIONS
The Company has adopted an employee stock option plan (the Plan), which
provides for nonqualified and incentive stock options for officers, directors,
employees, and consultants, and reserved a total of 882,500 shares of common
stock for issuance pursuant to the Plan. Options under the Plan will generally
expire 10 years from the date of grant, or 5 years in the case of an optionee
F-83
<PAGE> 156
NTH DEGREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
owning more than 10% of the voting power of all classes of stock. Generally,
options vest over four years. As of December 31, 1997, options to purchase
approximately 177,000 shares are available for issue.
The exercise price for the stock options may not be less than the estimated
fair market value (as determined by the Company at the quarter end nearest the
date of grant) and the aggregate fair market value of shares issuable upon
exercise of the ISOs for the first time in any calendar year may not exceed
$100,000. In the case of options granted to holders of more than 10% of the
voting power of the Company, the exercise price may not be less than 110% of the
estimated fair market value of the common stock at the time of grant. The stock
option plans are administered by the Company's board of directors.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation". The Company has chosen to account for stock based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the exercise price to be paid to acquire the stock.
No compensation expense has been recorded for options granted in 1997
because the exercise price of the options granted was equal to the fair value of
the related shares of the Company's common stock at the date of grant as
determined by the Company.
Option activity for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Balance, January 1, 1997
Granted................................................. 837,607 $0.12
Exercised...............................................
Canceled................................................ (132,000) 0.15
-------- -----
Balance, December 31, 1997.............................. 705,607 $0.12
======== =====
</TABLE>
No options were exercisable as of December 31, 1997. The following table
summarizes information about options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------
WEIGHED OPTIONS EXERCISABLE
AVERAGE ---------------------------
WEIGHTED REMAINING WEIGHTED
AVERAGE NUMBER OF CONTRACTUAL LIFE NUMBER OF AVERAGE
EXERCISE PRICES OPTIONS (IN YEARS) OPTIONS EXERCISE PRICES
<S> <C> <C> <C> <C> <C>
Exercise price = $0.05....... $0.05 87,017 9.8 $ --
$0.10..... 0.10 453,590 9.7
$0.20..... 0.20 165,000 9.3
</TABLE>
During the year, the exercise prices of the stock options ranged from $0.05
to $0.20.
F-84
<PAGE> 157
NTH DEGREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options granted after December 31, 1996 under the fair value method of that
statement. The fair value of options granted in 1997 was estimated at the date
of grant using the minimum value option pricing model assuming no volatility and
no expected dividends and the following weighted-average assumptions: risk-free
interest rates of 5.85% to 6.65% and expected life of 6 years. The weighted
average fair value of options granted in 1997, as calculated using the minimum
value option pricing model, was $0.08 per option.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the options' vesting periods. The following table
presents pro forma net loss for the year ended December 31, 1997 as if the
Company accounted for compensation expense related to stock options under the
fair value method prescribed by SFAS 123:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
<S> <C>
Pro forma net loss.......................................... $(3,316,640)
===========
</TABLE>
NOTE 8. OPERATING LEASES
The Company leases its facility in Bellevue, Washington under a lease
expiring March 31, 1998. No new lease agreement on the facility has been signed
and the Company will continue to rent the facility on a month-to-month basis.
The Company also leases facilities in Parsippany, New Jersey under a lease
expiring in November 2000 and in London, United Kingdom under a lease expiring
in November 1998. The Company pays taxes, insurance, normal maintenance and
certain other operating expenses. At December 31, 1997, the approximate future
rental payments due under these leases for the remainder of the lease term were
as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998...................................................... $27,000
1999...................................................... 16,000
2000...................................................... 15,000
-------
$58,000
=======
</TABLE>
Total rent expense incurred under operating leases for the year ended
December 31, 1997 was approximately $98,000.
NOTE 9. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) profit sharing plan covering all eligible
United States employees. Participating employees may elect to defer and
contribute a stated percentage of their compensation to the plan, not to exceed
the dollar limit set by law. The Company does not match contributions.
NOTE 10. RELATED PARTY TRANSACTION
During 1996, the majority shareholder advanced monies to the Company in the
amount of $816,787. These advances were uncollateralized, non-interest bearing
and have no fixed repayment terms. These shareholder advances were repaid in
full during 1997.
F-85
<PAGE> 158
NTH DEGREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. SUBSEQUENT EVENT
In September 1998, the Company issued 1,943,250 shares of Series C
preferred stock and received proceeds of $777,300. The Company plans to use the
proceeds to finance its operations and to supplement working capital.
F-86
<PAGE> 159
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[PrintCafe LOGO]
SHARES OF CLASS A COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SG COWEN
THOMAS WEISEL PARTNERS LLC
MCDONALD INVESTMENTS INC.
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of printCafe,
Inc. have not changed since the date hereof.
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of Class A common stock may be
required to deliver a prospectus. This 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> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by printCafe, Inc. in connection
with the sale of Class A common stock being registered. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
<S> <C>
SEC registration fee........................................ $37,950
NASD filing fee............................................. 14,875
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky qualification fees and expenses.................... *
Transfer Agent and Registrar fees........................... *
Miscellaneous fees and expenses............................. *
-------
Total............................................. *
=======
</TABLE>
- -------------------------
* to be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's board of directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article XIII of our certificate of
incorporation (Exhibit 3.2 hereto) and Article VI of our bylaws (Exhibit 3.3
hereto) provide for indemnification of our directors, officers, employees and
other agents to the maximum extent permitted by Delaware Law. In addition, we
have entered into Indemnification Agreements (Exhibit 10.3 hereto) with our
officers and directors. The Underwriting Agreement (Exhibit 1.0) also provides
for cross-indemnification among us and the Underwriters with respect to certain
matters, including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 1997, we have sold and issued the following securities:
(1) On March 11, 1999, we issued an aggregate of 87,300 shares of
common stock to our four founders at $0.80 per share for an aggregate
purchase price of $69,840.
(2) On September 9, 1999, we issued 45,260 shares of common stock to
our 401(k) plan at $1.20 per share for an aggregate purchase price of
$54,312.
II-1
<PAGE> 161
(3) On October 2, 1999, we issued an aggregate of 8,802,939 shares of
common stock to our four founders at $1.20 per share for an aggregate
purchase price of $10.6 million.
(4) On November 1, 1999, we issued an aggregate of 333,333 shares of
Class A common stock and 543,564 shares of Series A preferred stock to the
former shareholders of nth degree software in connection with the merger of
nth degree software with and into Prograph Systems. The aggregate value of
these shares was estimated by us to be $1.8 million, or $2.06 per share of
Class A common stock and $2.30 per share of Series A preferred stock.
(5) On November 8, 1999, we issued an aggregate of 3,144,240 shares of
common stock to five employees and one consultant at $0.23 per share for an
aggregate purchase price of $0.7 million.
(6) On December 22, 1999, we issued 1,018,278 shares of common stock
to Joseph J. Whang at $1.03 per share for a purchase price of $1.0 million.
(7) On February 9, 2000, we entered into a strategic alliance with
Creo Products and, as part of the alliance, Creo SRL received 31,186,312
shares of our Series B preferred stock and Creo Products, Inc. contributed
$25.0 million in cash, signed a comprehensive services agreement providing
us use of its global employee base, granted us an exclusive license to all
of the technology related to the print management services business of Creo
and signed a reciprocal non-compete agreement.
(8) On February 9, 2000, we issued an aggregate of 1,724,138 shares of
Class A common stock to five shareholders of Programmed Solutions, Inc. in
connection with our acquisition of Programmed Solutions. The aggregate
value of these shares was estimated by us to be $10.0 million, or $5.80 per
share.
(9) On February 15, 2000, we issued an aggregate of 1,765,080 shares
of Series C preferred stock to ten accredited investors at $5.80 per share,
for an aggregate purchase price of $10.2 million.
(10) On February 15, 2000, we issued 150,000 shares of Series C-1
preferred stock to Mellon Ventures II, L.P. at $5.80 per share, for an
aggregate purchase price of $0.9 million.
(11) Since February 25, 2000, we have granted stock options to
purchase 1,156,169 shares of our common stock to employees, consultants and
directors at exercise prices ranging from $3.00 to $8.83 pursuant to our
2000 stock incentive plan. Of these stock options, all shares remain
outstanding.
(12) On March 8, 2000, we issued 396,552 shares of our Class A common
stock to the sole shareholder of A.H.P. Systems, Inc. The aggregate value
of these shares was estimated by us to be $3.5 million, or $8.83 per share.
(13) On March 9, 2000, we issued an aggregate of 225,926 shares of
Class A common stock at $8.83 per share to 17 accredited investors.
(14) On March 9, 2000, we issued 66,666 shares of Class A common stock
to Primedia, Inc. in return for up to $500,000 of future advertising in
each of the next two years.
(15) On March 9, 2000, we issued 2,310,305 shares to the three
shareholders of Hagen Systems, Inc. The aggregated value of these shares
was estimated by us to be $20.4 million, or $8.83 per share.
II-2
<PAGE> 162
(16) On March 10, 2000, we issued 1,312,502 shares of Class C common
stock to Creo SRL Products, Inc. for an aggregate purchase price of $11.6
million, or $8.83 per share.
(17) On March 10, 2000, we issued 170,212 shares of our Class A common
stock to the two shareholders of M Data, Inc., dba PrintSmith. The
aggregate value of these shares was estimated by us to be $2.0 million, or
$11.75 per share.
(18) On March 10, 2000, we issued 58,125 shares of Series D preferred
stock to Mellon Ventures II, L.P. at $8.83 per share, for an aggregate
purchase price of $0.5 million.
(19) On March 10, 2000, we issued 225,000 shares of Series D-1
preferred stock to Mellon Ventures II, L.P. at $8.83 per share, for an
aggregate purchase price of $2.0 million.
(20) Between March 11, 1999 and January 3, 2000, we granted stock
options to purchase 908,037 shares of our common stock to employees,
consultants and directors at exercise prices ranging from $1.15 to $1.20
per share pursuant to our 1999 stock incentive plan.
(21) Between January 1, 2000 and March 10, 2000, we granted warrants
to Time Warner, Andersen Consulting, The Sheridan Group, Orrick, Herrington
& Sutcliffe LLP, Transcontinental, and Primedia, Inc. to purchase an
aggregate of 2,505,072 shares of our Class A common stock. Four warrants
for an aggregate of 2,171,739 shares are exerciseable at an exercise price
of $5.80 per share and two warrants for an aggregate of 333,333 shares are
exerciseable at an exercise price of $15.00 per share.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) or Regulation
D, or other applicable exemptions of the Securities Act as transactions by an
issuer not involving any public offering. In addition, the issuances described
in clauses 20 and 21 above were deemed exempt from registration under the
Securities Act in reliance upon Rule 701 promulgated under the Securities Act.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such transactions.
All recipients had adequate access, through their relationships with us, to
information about printCafe, Inc.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
1.0 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of
printCafe, Inc. to be in effect after the closing of the
offering made under this Registration Statement.*
3.2 Amended and Restated Bylaws of printCafe.
4.1 Specimen Stock Certificate.*
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP regarding the
legality of the Class A common stock being registered.*
10.1 Strategic Alliance Agreement, dated January 25, 2000,
between printCafe and Creo Products, Inc.*/**
10.2 Series B Preferred Stock Purchase Agreement, dated February
9, 2000, between printCafe, Inc. and Creo SRL.
</TABLE>
II-3
<PAGE> 163
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
10.3 Form of Indemnification Agreement between printCafe, Inc.
and each of its officers and directors.
10.4 1999 Revised Stock Option Plan.*
10.5 2000 Incentive Stock Option Plan.
10.6 2000 Employee Stock Purchase Plan.*
10.7 Second Amended and Restated Investors' Rights Agreement
dated March 8, 2000, among printCafe, Inc. and the investors
listed on the exhibits thereto.*
10.8 Series C Preferred Stock Purchase Agreement, dated February
15, 2000, among printCafe, Inc. and the purchasers listed on
Exhibit A thereto.
10.9 Series D Preferred Stock Purchase Agreement, dated March 8,
2000, among printCafe, Inc. and the purchasers listed on
Exhibit A thereto.*
10.10 Strategic Alliance Agreement, dated March 6, 2000, between
printCafe, Inc. and Time Warner, Inc.*/**
10.11 Marketing Alliance Agreement, dated March 6, 2000, between
printCafe, Inc. and Andersen Consulting.*/**
10.12 Stock Purchase Agreement, dated January 13, 2000, between
printCafe, Programmed Solutions, Inc. and the shareholders
of Programmed Solutions, Inc. listed in Exhibit A thereto.*
10.13 Amendment No. 1 to Amended and Restated Stock Purchase
Agreement, dated February 9, 2000, between printCafe, Inc.,
Programmed Solutions, Inc. and the shareholders of
Programmed Solutions, Inc. listed in Exhibit A thereto.*
10.14 Agreement and Plan of Merger, dated February 22, 2000,
between printCafe, Inc. and Hagen Systems.
10.15 $1,989,990 Promissory Note, dated March 10, 2000, payable to
Patricia J. Peterson.
10.16 $1,989,990 Promissory Note, dated March 10, 2000, payable to
Steven R. Peterson.
10.17 $3,979,800 Promissory Note, dated March 10, 2000, payable to
Richard T. Hagen.*
10.18 Agreement and Plan of Reorganization, dated March 10, 2000,
among printCafe, Inc., AHP Acquisition, Inc., and the sole
stockholder of A.H.P. Systems, Inc.
10.19 Stock Purchase Agreement, dated March 10, 2000, between
printCafe, Inc., Constellation Software Inc., Constellation
Software of New Hampshire, Inc., Logic Associates, Inc. and
certain shareholders of Logic Associates, Inc.*
10.20 Amended and Restated Employment Agreement dated March 10,
2000, between printCafe, Inc. and William L. Guttman.*
10.21 Stock Purchase Agreement, dated as of November 8, 1999,
between printCafe, Inc. and William L. Guttman.
10.22 Secured Promissory Note, dated as of November 8, 1999,
between printCafe, Inc., as lender, and William L. Guttman,
as borrower.
10.23 Amended and Restated Pledge Agreement, dated as of March ,
2000, between printCafe, Inc. and William L. Guttman.*
10.24 Amended and Restated Employment Agreement, dated as of March
, 2000, between printCafe, Inc. and Marc D. Olin.*
</TABLE>
II-4
<PAGE> 164
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
10.25 Stock Purchase Agreement, dated as of November 8, 1999,
between printCafe, Inc. and Marc D. Olin.*
10.26 Secured Promissory Note, dated as of November 8, 1999,
between printCafe, Inc., as lender, and Marc D. Olin, as
borrower.
10.27 Amended and Restated Pledge Agreement, dated as of March ,
2000, between printCafe, Inc. and Marc D. Olin.*
10.28 Amended and Restated Employment Agreement, dated as of March
, 2000, between printCafe, Inc. and Ronald F. Hyland Sr.*
10.29 Stock Purchase Agreement, dated as of November 8, 1999,
between printCafe, Inc. and Ronald F. Hyland Sr.
10.30 Secured Promissory Note, dated as of November 8, 1999,
between printCafe, Inc., as lender, and Ronald F. Hyland
Sr., as borrower.
10.31 Pledge Agreement, dated as of November 8, 1999, between
printCafe, Inc. and Ronald F. Hyland Sr.*
10.32 Amended and Restated Employment Agreement, dated as of March
, 2000, between printCafe, Inc. and Joseph J. Whang.*
10.33 Stock Purchase Agreement, dated as of December 22, 1999,
between printCafe, Inc. and Joseph J. Whang.
10.34 Secured Promissory Note, dated as of December 22, 1999,
between printCafe, Inc., as lender, and Joseph J. Whang, as
borrower.
10.35 Pledge Agreement, dated as of December 22, 1999, between
printCafe, Inc. and Joseph J. Whang.*
10.36 Employment Agreement, dated March 10, 2000, between
printCafe, Inc. and David Lemaster.*
10.37 License Agreement, effective March 9, 2000, by and between
Henry B. Freedman and printCafe, Inc.*/**
21.1 List of Subsidiaries.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Dylewsky & Goldberg CPAs, LLC.
23.5 Consent of Larson, Allen, Weishair & Co., LLP.
23.6 Consent of Bridgman Valiante & Villard, PC.
23.7 Consent of Orrick, Herrington, & Sutcliffe LLP (included in
Exhibit 5.1).*
24.1 Power of Attorney (included on page II-7).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by Amendment.
** Confidential treatment requested as to certain portions of this Exhibit.
II-5
<PAGE> 165
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements 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 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> 166
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 San Francisco, State of
California on March 9, 2000.
PRINTCAFE, INC.
By: /s/ WILLIAM L. GUTTMAN
------------------------------------
William L. Guttman
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, William L.
Guttman and Joseph J. Whang, and each of them, as his attorney-in-fact, with
full power of substitution, for him in any and all capacities, to sign any and
all amendments to this Registration Statement (including post-effective
amendments), and any and all Registration Statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this Registration Statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said Registration Statement.
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
<S> <C> <C>
/s/ WILLIAM L. GUTTMAN Chief Executive Officer and March 9, 2000
- --------------------------------- Director
William L. Guttman
/s/ MARC D. OLIN President and Director March 9, 2000
- ---------------------------------
Marc D. Olin
/s/ JOSEPH J. WHANG Chief Financial Officer March 9, 2000
- --------------------------------- (Principal Financial and
Joseph J. Whang Accounting Officer)
/s/ AMOS MICHELSON Director March 9, 2000
- ---------------------------------
Amos Michelson
/s/ CHARLES J. BILLERBECK Director March 9, 2000
- ---------------------------------
Charles J. Billerbeck
/s/ PETER RUH Director March 8, 2000
- ---------------------------------
Peter Ruh
</TABLE>
II-7
<PAGE> 167
EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
1.0 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation of
printCafe, Inc. to be in effect after the closing of the
offering made under this Registration Statement.*
3.2 Amended and Restated Bylaws of printCafe.
4.1 Specimen Stock Certificate.*
5.1 Opinion of Orrick, Herrington & Sutcliffe LLP regarding the
legality of the Class A common stock being registered.*
10.1 Strategic Alliance Agreement, dated January 25, 2000,
between printCafe and Creo Products, Inc.*/**
10.2 Series B Preferred Stock Purchase Agreement, dated February
9, 2000, between printCafe, Inc. and Creo SRL.
10.3 Form of Indemnification Agreement between printCafe, Inc.
and each of its officers and directors.
10.4 1999 Revised Stock Option Plan.*
10.5 2000 Incentive Stock Option Plan.
10.6 2000 Employee Stock Purchase Plan.*
10.7 Second Amended and Restated Investors' Rights Agreement
dated March 8, 2000, among printCafe, Inc. and the investors
listed on the exhibits thereto.*
10.8 Series C Preferred Stock Purchase Agreement, dated February
15, 2000, among printCafe, Inc. and the purchasers listed on
Exhibit A thereto.
10.9 Series D Preferred Stock Purchase Agreement, dated March 8,
2000, among printCafe, Inc. and the purchasers listed on
Exhibit A thereto.*
10.10 Strategic Alliance Agreement, dated March 6, 2000, between
printCafe, Inc. and Time Warner, Inc.*/**
10.11 Marketing Alliance Agreement, dated March 6, 2000, between
printCafe, Inc. and Andersen Consulting.*/**
10.12 Stock Purchase Agreement, dated January 13, 2000, between
printCafe, Programmed Solutions, Inc. and the shareholders
of Programmed Solutions, Inc. listed in Exhibit A thereto.*
10.13 Amendment No. 1 to Amended and Restated Stock Purchase
Agreement, dated February 9, 2000, between printCafe, Inc.,
Programmed Solutions, Inc. and the shareholders of
Programmed Solutions, Inc. listed in Exhibit A thereto.*
10.14 Agreement and Plan of Merger, dated February 22, 2000,
between printCafe, Inc. and Hagen Systems.
10.15 $1,989,990 Promissory Note, dated March 10, 2000, payable to
Patricia J. Peterson.
10.16 $1,989,990 Promissory Note, dated March 10, 2000, payable to
Steven R. Peterson.
10.17 $3,979,800 Promissory Note, dated March 10, 2000, payable to
Richard T. Hagen.*
10.18 Agreement and Plan of Reorganization, dated March 10, 2000,
among printCafe, Inc., AHP Acquisition, Inc., and the sole
stockholder of A.H.P. Systems, Inc.
</TABLE>
<PAGE> 168
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
10.19 Stock Purchase Agreement, dated March 10, 2000, between
printCafe, Inc., Constellation Software Inc., Constellation
Software of New Hampshire, Inc., Logic Associates, Inc. and
certain shareholders of Logic Associates, Inc.*
10.20 Amended and Restated Employment Agreement dated March 10,
2000, between printCafe, Inc. and William L. Guttman.*
10.21 Stock Purchase Agreement, dated as of November 8, 1999,
between printCafe, Inc. and William L. Guttman.
10.22 Secured Promissory Note, dated as of November 8, 1999,
between printCafe, Inc., as lender, and William L. Guttman,
as borrower.
10.23 Amended and Restated Pledge Agreement, dated as of March ,
2000, between printCafe, Inc. and William L. Guttman.*
10.24 Amended and Restated Employment Agreement, dated as of March
, 2000, between printCafe, Inc. and Marc D. Olin.*
10.25 Stock Purchase Agreement, dated as of November 8, 1999,
between printCafe, Inc. and Marc D. Olin.*
10.26 Secured Promissory Note, dated as of November 8, 1999,
between printCafe, Inc., as lender, and Marc D. Olin, as
borrower.
10.27 Amended and Restated Pledge Agreement, dated as of March ,
2000, between printCafe, Inc. and Marc D. Olin.*
10.28 Amended and Restated Employment Agreement, dated as of March
, 2000, between printCafe, Inc. and Ronald F. Hyland Sr.*
10.29 Stock Purchase Agreement, dated as of November 8, 1999,
between printCafe, Inc. and Ronald F. Hyland Sr.
10.30 Secured Promissory Note, dated as of November 8, 1999,
between printCafe, Inc., as lender, and Ronald F. Hyland
Sr., as borrower.
10.31 Pledge Agreement, dated as of November 8, 1999, between
printCafe, Inc. and Ronald F. Hyland Sr.*
10.32 Amended and Restated Employment Agreement, dated as of March
, 2000, between printCafe, Inc. and Joseph J. Whang.*
10.33 Stock Purchase Agreement, dated as of December 22, 1999,
between printCafe, Inc. and Joseph J. Whang.
10.34 Secured Promissory Note, dated as of December 22, 1999,
between printCafe, Inc., as lender, and Joseph J. Whang, as
borrower.
10.35 Pledge Agreement, dated as of December 22, 1999, between
printCafe, Inc. and Joseph J. Whang.*
10.36 Employment Agreement, dated March 10, 2000, between
printCafe, Inc. and David Lemaster.*
10.37 License Agreement, effective March 9, 2000, by and between
Henry B. Freedman and printCafe, Inc.*/**
21.1 List of Subsidiaries.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
</TABLE>
<PAGE> 169
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Dylewsky & Goldberg CPAs, LLC.
23.5 Consent of Larson, Allen, Weishair & Co., LLP.
23.6 Consent of Bridgman Valiante & Villard, PC.
23.7 Consent of Orrick, Herrington, & Sutcliffe LLP (included in
Exhibit 5.1).*
24.1 Power of Attorney (included on page II-7).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by Amendment.
** Confidential treatment requested as to certain portions of this Exhibit.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
PRINTCAFE, INC.
(AS AMENDED AND RESTATED EFFECTIVE MARCH 7, 2000)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES................................................................1
1.1 Registered Office...............................................................1
1.2 Other Offices...................................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS........................................................1
2.1 Place of Meetings...............................................................1
2.2 Annual Meeting..................................................................1
2.3 Special Meeting.................................................................2
2.4 Notice of Stockholder's Meetings; Affidavit of Notice...........................2
2.5 Advance Notice of Stockholder Nominees and Other Stockholder Proposals..........3
2.6 Quorum..........................................................................4
2.7 Adjourned Meeting; Notice.......................................................4
2.8 Conduct of Business.............................................................4
2.9 Voting..........................................................................4
2.10 Waiver of Notice................................................................5
2.11 Record Date for Stockholder Notice; Voting......................................5
2.12 Proxies.........................................................................5
ARTICLE III - DIRECTORS......................................................................6
3.1 Powers..........................................................................6
3.2 Number of Directors.............................................................6
3.3 Election, Qualification and Term of Office of Directors.........................6
3.4 Resignation and Vacancies.......................................................7
3.5 Place of Meetings; Meetings by Telephone........................................8
3.6 Regular Meetings................................................................8
3.7 Special Meetings; Notice........................................................8
3.8 Quorum..........................................................................8
3.9 Waiver of Notice................................................................9
3.10 Board Action by Written Consent Without a Meeting...............................9
3.11 Fees and Compensation of Directors..............................................9
3.12 Approval of Loans to Officers...................................................9
3.13 Removal of Directors...........................................................10
3.14 Chairman of the Board of Directors.............................................10
ARTICLE IV - COMMITTEES.....................................................................10
4.1 Committees of Directors........................................................10
4.2 Committee Minutes..............................................................11
4.3 Meetings and Action of Committees..............................................11
ARTICLE V - OFFICERS........................................................................11
5.1 Officers.......................................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.2 Appointment of Officers........................................................12
5.3 Subordinate Officers...........................................................12
5.4 Removal and Resignation of Officers............................................12
5.5 Vacancies in Offices...........................................................12
5.6 Chief Executive Officer........................................................12
5.7 President......................................................................12
5.8 Vice Presidents................................................................13
5.9 Secretary......................................................................13
5.10 Chief Financial Officer........................................................13
5.11 Representation of Shares of Other Corporations.................................14
5.12 Authority and Duties of Officers...............................................14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS............14
6.1 Indemnification of Directors and Officers......................................14
6.2 Indemnification of Others......................................................14
6.3 Payment of Expenses in Advance.................................................15
6.4 Indemnity Not Exclusive........................................................15
6.5 Insurance......................................................................15
6.6 Conflicts......................................................................16
ARTICLE VII - RECORDS AND REPORTS...........................................................16
7.1 Maintenance and Inspection of Records..........................................16
7.2 Inspection by Directors........................................................16
7.3 Annual Statement to Stockholders...............................................17
ARTICLE VIII - GENERAL MATTERS..............................................................17
8.1 Checks.........................................................................17
8.2 Execution of Corporate Contracts And Instruments...............................17
8.3 Stock Certificates; Partly Paid Shares.........................................17
8.4 Special Designation on Certificates............................................18
8.5 Lost Certificates..............................................................18
8.6 Construction; Definitions......................................................18
8.7 Dividends......................................................................19
8.8 Fiscal Year....................................................................19
8.9 Seal...........................................................................19
8.10 Transfer of Stock..............................................................19
8.11 Stock Transfer Agreements......................................................19
8.12 Registered Stockholders........................................................19
ARTICLE IX..................................................................................20
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTARTED
BYLAWS
OF
PRINTCAFE, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The address of the Corporation's registered office in the State
of Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at such address is Incorporating Services, Ltd.
1.2 OTHER OFFICES.
The Board of Directors may at any time establish other offices
at any place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or
outside the State of Delaware, designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
registered office of the Corporation.
2.2 ANNUAL MEETING.
(a) The annual meeting of stockholders shall be held each year
on a date and at a time designated by resolution of the Board of Directors. At
the meeting, directors shall be elected and any other proper business may be
transacted.
(b) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be transacted by
the stockholders may be made at an annual meeting of stockholders (i) pursuant
to the Corporation's notice with respect to such meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the notice
provided for in this Section 2.2, who is entitled to vote at the meeting and who
has complied with the notice procedures set forth in this Section 2.2.
<PAGE> 5
(c) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of paragraph
(b) of this Section 2.2, the stockholder must have given timely notice thereof
in writing to the secretary of the Corporation, as provided in Section 2.5, and
such business must be a proper matter for stockholder action under the General
Corporation Law of Delaware.
(d) Only such business shall be conducted at an annual meeting
of stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in these Bylaws. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) Nothing in this Section 2.2 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
2.3 SPECIAL MEETING.
(a) A special meeting of the stockholders may be called at any
time by the Board of Directors, the chairman of the board, the chief executive
officer, the president or by one or more stockholders holding shares in the
aggregate entitled to cast not less than 66-2/3% of the votes at that meeting.
(b) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders, if such election is
set forth in the notice of such special meeting. Such nominations may be made
either by or at the direction of the Board of Directors, or by any stockholder
of record entitled to vote at such special meeting, provided the stockholder
follows the notice procedures set forth in Section 2.5.
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE.
(a) All notices of meetings of stockholders shall be in writing
and shall be sent or otherwise given in accordance with this Section 2.4 of
these Bylaws not less than 10 nor more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting (or such longer or
shorter time as is required by Section 2.5 of these Bylaws, if applicable). The
notice shall specify the place, date, and hour of the meeting, and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
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<PAGE> 6
(b) If a special meeting is called by stockholders representing
the percentage of the total votes outstanding designated in Section 2.3(a), the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally, or sent by registered mail or by facsimile transmission to the
chairman of the board, the president, any vice president, or the secretary of
the corporation. No business may be transacted at such special meeting otherwise
than specified in such request. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of this Section 2.4, that a meeting will be held at the time
requested by the person or persons calling the meeting, not less than 35 nor
more than 60 days after the receipt of the request. If the notice is not given
within 20 days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this Section
2.4(b) shall be construed as limiting, fixing, or affecting the time when a
meeting of stockholders called by action of the Board of Directors may be held.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND OTHER STOCKHOLDER
PROPOSALS.
Only persons who are nominated in accordance with the procedures
set forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the Corporation. Stockholders may bring other
business before the annual meeting, provided that timely notice is provided to
the secretary of the Corporation in accordance with this section, and provided
further that such business is a proper matter for stockholder action under the
General Corporation Law of Delaware. To be timely, a stockholder's notice shall
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 90 days nor more than 120 days prior to the
anniversary date of the prior year's meeting; provided, however, that in the
event that (i) the date of the annual meeting is more than 30 days prior to or
more than 60 days after such anniversary date, and (ii) less than 60 days notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a directors, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Corporation which are beneficially owned by such person and (iv)
any other information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934 (including, without limitation, such person's written consent to being name
in the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of such business, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner,
3
<PAGE> 7
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the proposal
is made (i) the name and address of the stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned of record by such stockholder and
beneficially by such beneficial owner. At the request of the Board of Directors
any person nominated by the Board of Directors for election as a director shall
furnish to the secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 2.5. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and if he or she should so determine, he or she shall
so declare to the meeting and the defective nomination shall be disregarded.
2.6 QUORUM.
The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless
these Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Corporation may transact any
business that might have been transacted at the original meeting. If the
adjournment is for more than 30 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 stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS.
The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including the manner of
voting and the conduct of business.
2.9 VOTING.
4
<PAGE> 8
(a) The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the Certificate of Incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a 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. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the Certificate of Incorporation or these
Bylaws.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action. If the Board of
Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
2.12 PROXIES.
5
<PAGE> 9
Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, electronic or telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the Certificate of Incorporation or these Bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
3.2 NUMBER OF DIRECTORS.
The number of directors constituting the entire Board of
Directors shall be 7.
Thereafter, this number may be changed by a resolution of the
Board of Directors or of the stockholders, subject to Section 3.4 of these
Bylaws. No reduction of the authorized number of directors shall have the effect
of removing any director before such director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Except as provided in Section 3.4 of these Bylaws, and unless
otherwise provided in the Certificate of Incorporation, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed.
6
<PAGE> 10
Each director, including a director elected to fill a vacancy,
shall hold office until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Unless otherwise specified in the Certificate of Incorporation,
elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the Certificate of Incorporation, and subject to
the rights of the holders of any series of Preferred Stock that may then be
outstanding, a vacancy created by the removal of a director by the vote of the
stockholders or by court order may be filled only by the affirmative vote of a
majority of the shares represented and voting at a duly held meeting at which a
quorum is present (which shares voting affirmatively also constitute a majority
of the quorum. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
Unless otherwise provided in the Certificate of Incorporation or
these Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the Certificate of Incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other
cause, the Corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of the Certificate of Incorporation or these
Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an
election as provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole Board of Directors (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon
7
<PAGE> 11
application of any stockholder or stockholders holding at least 10% of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the provisions
of Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or outside the State of Delaware. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the board of directors for any purpose or
purposes may be called at any time by the chairman of the board, the president,
any vice president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the Corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone, telecopy, telegram, telex or other similar means of
communication, it shall be delivered at least twenty-four (24) hours before the
time of the holding of the meeting, or on such shorter notice as the person or
persons calling such meeting may deem necessary and appropriate in the
circumstances. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose of the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 QUORUM.
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of
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<PAGE> 12
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, then the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the Certificate of Incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a 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. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the Certificate of Incorporation or these Bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the Certificate of Incorporation
or these Bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the Certificate of Incorporation
or these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
The Corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the Corporation or of
its subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
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Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 REMOVAL OF DIRECTORS.
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the Corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of such director's
term of office.
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
The Corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board of Directors who shall not be considered an
officer of the Corporation.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority
of the whole Board of Directors, designate one or more committees, with each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors 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. In the absence or disqualification of a member of a committee,
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 of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors 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 to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and
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any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series),(b) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (c) recommend to the stockholders the sale, lease
or exchange of all or substantially all of the Corporation's property and
assets, (d) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and
held and taken in accordance with, the provisions of Section 3.5 (place of
meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7
(special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of
notice), and Section 3.10 (action without a meeting) of these Bylaws, with such
changes in the context of such provisions as are necessary to substitute the
committee and its members for the Board of Directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the Board of Directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the Board of Directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the Corporation shall be a chief executive
officer, a president, a secretary, and a chief financial officer. The
Corporation may also have, at the discretion of the Board of Directors, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and any such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be held
by the same person.
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5.2 APPOINTMENT OF OFFICERS.
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The Board of Directors may appoint, or empower the chief
executive officer or the president to appoint, such other officers and agents as
the business of the Corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract
of employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to
the attention of the secretary of the Corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
5.6 Chief Executive Officer.
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board, if any, the chief executive
officer of the Corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 PRESIDENT.
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Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board (if any) or the chief
executive officer, the president shall have general supervision, direction, and
control of the business and other officers of the Corporation. He or she shall
have the general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board Of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these Bylaws. He or she shall keep the seal of the Corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
The chief financial officer shall keep and maintain, or cause to
be kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the Corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
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The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the Corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary or
assistant secretary of this Corporation, or any other person authorized by the
Board of Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by the person
having such authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
In addition to the foregoing authority and duties, all officers
of the Corporation shall respectively have such authority and perform such
duties in the management of the business of the Corporation as may be designated
from time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (a) who is or was
a director or officer of the Corporation, (b) who is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS.
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The Corporation shall have the power, to the maximum extent and
in the manner permitted by the General Corporation Law of Delaware, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
Corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
Corporation (other than a director or officer) includes any person (a) who is or
was an employee or agent of the Corporation, (b) who is or was serving at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was an
employee or agent of a corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
Expenses incurred in defending any action or proceeding for
which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the Corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification may
been titled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation.
6.5 INSURANCE.
The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
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6.6 CONFLICTS.
No indemnification or advance shall be made under this Article
VI, except where such indemnification or advance is mandated by law or the
order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Certificate of Incorporation, these Bylaws, a resolution of the stockholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
The Corporation shall, either at its principal executive offices
or at such place or places as designated by the Board of Directors, keep a
record of its stockholders listing their names and addresses and the number and
class of shares held by each stockholder, a copy of these Bylaws as amended to
date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the Corporation's stock ledger, a list of its stockholders, and its other books
and records and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to so
act on behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the Corporation's
stockledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its
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discretion, prescribe any limitations or conditions with reference to the
inspection, or award such other and further relief as the Court may deem just
and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
The Board of Directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS.
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
The Board of Directors, except as otherwise provided in these
Bylaws, may authorize any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of the Corporation shall be represented by
certificates, provided that the Board of Directors of the Corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the chairman or vice-chairman of the Board of Directors, or the chief executive
officer or the president or vice-president, and by the chief financial officer
or an assistant treasurer, or the secretary or an assistant secretary of the
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate
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is issued, it may be issued by the Corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
If the Corporation is authorized to issue more than one class of
stock or more than one series of any class, then the powers, the designations,
the preferences, and the 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 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; provided,
however, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock a statement that the
Corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the 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.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for
shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the Corporation and canceled at the same time. The
Corporation may issue a new certificate of stock or uncertificated shares in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or the owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions,
rules of construction, and definitions in the Delaware General Corporation Law
shall govern the construction of these Bylaws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
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8.7 DIVIDENDS.
The directors of the Corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the Certificate
of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
The directors of the Corporation may set apart out of any of the
funds of the Corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include but
not be limited to equalizing dividends, repairing or maintaining any property of
the Corporation, and meeting contingencies.
8.8 FISCAL YEAR.
The fiscal year of the Corporation shall be fixed by resolution
of the Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
The Corporation may adopt a corporate seal, which may be altered
at pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation 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 in its books.
8.11 STOCK TRANSFER AGREEMENTS.
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, shall be entitled to hold liable for calls
and assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the Corporation may, in
its Certificate of Incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
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CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
PRINTCAFE, INC.
The undersigned hereby certifies that the undersigned is the
duly elected, qualified, and acting Secretary of printCafe, Inc. (the
"Corporation"), and that the foregoing Amended and Restated Bylaws, comprising
____ pages, were adopted the Bylaws of the corporation on ________, by the Board
of Directors of the corporation.
Executed this _____ day of _________________, ___.
------------------------------------
Matthew D'Emilio, Secretary
<PAGE> 1
EXHIBIT 10.2
PRINTCAFE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
FEBRUARY 9, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Purchase and Sale of Preferred Stock..................................................1
1.1 Sale and Issuance of Series B Preferred Stock...................................1
1.2 Closing; Delivery...............................................................1
2. Representations and Warranties of the Company.........................................1
2.1 Organization, Good Standing and Qualification...................................2
2.2 Capitalization..................................................................2
2.3 Rights of Registration and Voting Rights........................................2
2.4 Subsidiaries; Joint Ventures....................................................3
2.5 Authorization...................................................................3
2.6 Valid Issuance of Securities....................................................3
2.7 Governmental Consents...........................................................4
2.8 Litigation......................................................................4
2.9 Intellectual Property...........................................................4
2.10 Confidential Information and Invention Assignment Agreements....................4
2.11 Compliance with Other Instruments...............................................5
2.12 Agreements; Action..............................................................5
2.13 No Conflict of Interest.........................................................6
2.14 Title to Property and Assets....................................................6
2.15 Financial Statements............................................................7
2.16 Changes.........................................................................7
2.17 Distributions...................................................................8
2.18 Tax Returns and Payments........................................................8
2.19 Insurance.......................................................................8
2.20 Employee Benefit Plans..........................................................8
2.21 Labor Agreements and Actions....................................................9
2.22 Compliance with Environmental Requirements......................................9
2.23 Permits.........................................................................9
2.24 Private Offering................................................................9
2.25 Brokers and Finders............................................................10
2.26 Certificate of Incorporation...................................................10
2.27 Bylaws and Minutes.............................................................10
2.28 Disclosure.....................................................................10
2.29 Compliance with Other Laws.....................................................10
2.30 Year 2000 Compliance...........................................................10
3. Interpretation.......................................................................11
4. Representations and Warranties of the Purchasers.....................................11
4.1 Authorization..................................................................11
4.2 Purchase Entirely for Own Account..............................................11
4.3 Disclosure of Information......................................................12
</TABLE>
i
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
4.4 Restricted Securities..........................................................12
4.5 No Public Market...............................................................12
4.6 Legends........................................................................12
4.7 Accredited Investor............................................................13
4.8 Foreign Investors..............................................................13
5. Covenants of the Company.............................................................13
5.1 Compliance.....................................................................13
5.2 Performance....................................................................13
5.3 Books and Records..............................................................13
5.4 Renewals and Good Standing.....................................................13
5.5 Principal Business.............................................................13
5.6 Proprietary Information and Assignment Agreement...............................14
5.7 Stock Options..................................................................14
5.8 Securities Filings.............................................................14
5.9 Survival of Company's Covenants................................................14
6. Conditions of the Purchasers' Obligations at the Closing.............................14
6.1 Representations and Warranties.................................................14
6.2 Performance....................................................................14
6.3 Compliance Certificate.........................................................15
6.4 Qualifications.................................................................15
6.5 Written Consents...............................................................15
6.6 Stock Certificates.............................................................15
6.7 Restated Certificate...........................................................15
6.8 Investors' Rights Agreement....................................................15
6.9 Co-Sale Agreement..............................................................15
6.10 Voting Agreement...............................................................15
6.11 Confidential Information and Invention Assignment Agreement....................15
6.12 No Material Adverse Change.....................................................15
6.13 Due Diligence..................................................................16
6.14 Company Legal Opinions.........................................................16
6.15 Closing of PSI Transaction.....................................................16
6.16 No Litigation..................................................................16
6.17 Proceedings and Documents......................................................16
6.19 Closing Documents..............................................................16
6.20 General........................................................................17
7. Conditions of the Company's Obligations at the Closing...............................17
7.1 Representations and Warranties.................................................17
7.2 Performance....................................................................17
7.3 Qualifications.................................................................17
</TABLE>
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
8. Miscellaneous........................................................................17
8.1 Survival of Warranties.........................................................17
8.2 Entire Agreement...............................................................17
8.3 Transfer; Successors and Assigns...............................................18
8.4 Governing Law..................................................................18
8.5 Counterparts...................................................................18
8.6 Titles and Subtitles...........................................................18
8.7 Notices........................................................................18
8.8 Finder's Fee...................................................................18
8.9 Attorney's Fees................................................................18
8.10 Amendments and Waivers of Agreement............................................19
8.11 Severability...................................................................19
8.12 Delays or Omissions............................................................19
8.13 Confidentiality................................................................19
8.14 Exculpation Among Purchasers...................................................20
8.15 Indemnification................................................................20
</TABLE>
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PRINTCAFE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (this "Agreement") is
made as of February 9, 2000 by and among printCafe, Inc., a Delaware corporation
(the "Company"), and the investors listed on Exhibit A attached hereto (each a
"Purchaser" and together the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of
State of the State of Delaware on or before the Closing (as defined in Section
1.2(a) below) the Amended and Restated Certificate of Incorporation in the form
attached hereto as Exhibit B (the "Restated Certificate").
(b) Subject to the terms and conditions of this Agreement,
each Purchaser agrees to purchase at the Closing, and the Company agrees to sell
and issue to each Purchaser at the Closing, that number of shares of the
Company's Series B Preferred Stock, $0.0001 par value per share ("Series B
Preferred Stock"), set forth opposite each such Purchaser's name on Exhibit A
attached hereto at a purchase price of $0.802 per share. The shares of Series B
Preferred Stock issued to the Purchasers pursuant to this Agreement shall be
hereinafter referred to as the "Stock."
1.2 DELIVERY.
(a) The purchase and sale of the Stock shall take place at
the executive offices of the Company, at 10:00 a.m., on February 9, 2000, or at
such other time and place as the Company and the Purchasers mutually agree upon,
orally or in writing (which time and place are designated as the "Closing").
(b) At the Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased by such Purchaser
against payment of the purchase price therefor by check payable to the Company
or by wire transfer to the Company's bank account.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that (acknowledging that each
Purchaser is relying on the representations and warranties set forth in this
Section 2 in connection with the purchase of Stock by such Purchaser), except as
set forth on the Schedule of Exceptions attached hereto as Exhibit C:
<PAGE> 6
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business. The Company is duly qualified as a foreign
corporation or is otherwise duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would, either
individually or in the aggregate, have a material adverse effect on its business
or properties.
2.2 CAPITALIZATION. Immediately prior to the Closing, the
authorized capital of the Company shall consist of:
(a) 44,000,000 shares of Preferred Stock, of which (i)
2,500,000 shares have been designated Series A Preferred Stock, 2,455,798 of
which will be issued and outstanding immediately prior to the Closing, (ii)
10,250,000 shares have been designated Series A-1 Preferred Stock, 9,725,096 of
which will be issued and outstanding immediately prior to the Closing, and (iii)
31,250,000 have been designated Series B Preferred Stock, none of which will be
issued and outstanding immediately prior to the Closing. The rights, privileges
and preferences of the Preferred Stock are as stated in the Restated
Certificate. All of the outstanding shares of Preferred Stock have been duly
authorized, fully paid and nonassessable and issued in compliance with all
applicable federal and state securities laws.
(b) 150,000,000 shares of Common Stock, of which (i)
118,750,000 have been designated Class A Common Stock, 5,886,656 shares of which
are issued and outstanding immediately prior to the Closing, and (ii) 31,250,000
have been designated Class B Common Stock, no shares of which are issued and
outstanding immediately prior to the Closing. All of the outstanding shares of
Common Stock have been duly authorized, fully paid and are nonassessable and
issued in compliance with all applicable federal and state securities laws.
(c) The Company has reserved 382,215 shares of Common
Stock and 516,976 shares of Series A-1 Preferred Stock (collectively, "Option
Stock") for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Revised Stock Plan duly adopted by the Board of
Directors and approved by the Company's stockholders (the "Stock Plan"). Of such
reserved shares of Option Stock, no shares have been issued pursuant to
restricted stock purchase agreements, options to purchase 382,215 shares of
Common Stock and 516,976 shares of Series A-1 Preferred Stock have been granted
and are currently outstanding, and no shares of Common Stock remain available
for issuance to officers, directors, employees and consultants pursuant to the
Stock Plan.
(d) Except for outstanding options issued pursuant to the
Stock Plan, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock.
2.3 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the Investors' Rights Agreement, in the form attached hereto as
Exhibit D (the "Investors' Rights Agreement"), the Company has not granted or
agreed to grant any registration rights, including
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<PAGE> 7
piggyback registration rights, to any person or entity. To the Company's
knowledge, except as contemplated in the Voting Agreement, in the form attached
hereto as Exhibit E (the "Voting Agreement"), no stockholder of the Company has
entered into any agreements with respect to the voting of capital stock of the
Company. Except as contemplated by the Restated Certificate, the Voting
Agreement and the Right of First Refusal and Co-Sale Agreement, in the form
attached hereto as Exhibit F (the "Co-Sale Agreement"), there are no
stockholders agreements, pledge agreements, buy-sell arrangements, rights of
first refusal or proxies related to any securities of the Company to which the
Company is subject or a party or to which, to the Company's knowledge, any
stockholder, officer, director or affiliate of the Company is a party or
subject.
2.4 SUBSIDIARIES; JOINT VENTURES. The Company does not
currently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity other than the subsidiaries
set forth on Schedule 2.4 of the Schedule of Exceptions (the "Subsidiaries").
The Company is not a participant in any joint venture, partnership or similar
arrangement.
2.5 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Investors' Rights
Agreement, the Voting Agreement and the Co-Sale Agreement (collectively, the
"Transaction Documents"), the performance of all obligations of the Company
hereunder and thereunder and the authorization, issuance and delivery of the
Stock and the Common Stock issuable upon conversion of the Stock (together, the
"Securities") has been taken or will be taken prior to the Closing, and the
Transaction Documents, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws of general application affecting enforcement of
creditors' rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies, or (ii) to
the extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
2.6 VALID ISSUANCE OF SECURITIES. The Stock that is being issued
to the Purchasers hereunder, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and free and clear of all
preemptive rights, rights of first refusal, liens, charges, restrictions, claims
and any other encumbrances imposed by or through the Company other than
restrictions on transfer under this Agreement, the Investors' Rights Agreement,
the Co-Sale Agreement and applicable state and federal securities laws of the
United States and, where applicable, provincial securities laws of Canada. Based
in part upon the representations of the Purchasers in this Agreement and subject
to the provisions of Section 2.7 below, the Stock will be issued in compliance
with all applicable federal and state securities laws. The Common Stock issuable
upon conversion of the Stock has been duly and validly reserved for issuance
and, upon issuance in accordance with the terms of the Restated Certificate,
shall be duly and validly issued, fully paid and nonassessable and free and
clear of all preemptive rights, rights of first refusal, liens, charges,
restrictions, claims and any other encumbrances imposed by or through the
Company
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<PAGE> 8
other than restrictions on transfer under this Agreement, the Investors' Rights
Agreement, the Co-Sale Agreement and applicable federal and state securities
laws and will be issued in compliance with all applicable federal and state
securities laws of the United States and, where applicable, provincial
securities laws of Canada.
2.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority of the United
States, or, where applicable, any federal, provincial or local government
authority of Canada, on the part of the Company is required in connection with
the consummation of the transactions contemplated by this Agreement, except for
filings pursuant to applicable state and, where applicable, provincial
securities laws and Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"). The offer, sale and issuance of the Stock, in accordance with
the terms hereof for the consideration expressed herein, are exempt from the
registration requirements of Section 5 of the Securities Act and from the
qualification requirements of applicable state securities laws.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries, or any basis therefor known to
the Company, that questions the validity of the Transaction Documents or the
right of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse change in the financial condition,
assets, liabilities, operations or financial performance of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company. Neither the Company nor any of its subsidiaries is a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its subsidiaries currently
pending or which the Company or any of its subsidiaries intends to initiate. The
foregoing includes, without limitation, actions pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or technologies allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employees.
2.9 INTELLECTUAL PROPERTY. To the Company's knowledge, (i) the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, tradenames, copyrights, trade secrets, licenses, information and
proprietary rights and processes (collectively, "Intellectual Property")
necessary for its business without any conflict with, or infringement of, the
rights of others; and (ii) no third party is infringing or violating any of the
Company's Intellectual Property. The Company has not received any written
communications alleging that the Company has violated or, by conducting its
business, would violate any of the Intellectual Property of any other person or
entity. There are no outstanding options, licenses or agreements of any kind
related to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other forms.
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<PAGE> 9
2.10 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENTS. Each director, officer, independent contractor, consultant and
employee of the Company (collectively, "Service Providers") have entered into an
agreement with the Company, substantially in the form or forms delivered to the
Purchasers, regarding confidentiality, non-solicitation of employees and
customers and assignment of all Intellectual Property, technical information and
other information developed and/or worked on by such Service Provider while
employed or engaged with the Company (each, a "Confidentiality and Invention
Assignment Agreement"). To the Company's knowledge, (i) no past or present
Service Provider is in violation of any term of any Confidentiality and
Invention Assignment Agreement between the Company and such Service Provider;
and (ii) it is not nor will it be necessary to use any inventions of any of its
Service Providers (or persons it currently intends to hire) made prior to their
employment or engagement by the Company. Each Service Provider hired or engaged
by the Company after the date hereof shall, prior to their employment or
engagement with the Company, enter into a Confidentiality and Invention
Assignment Agreement with the Company.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation in any material respect or default of any provisions of its Restated
Certificate or Bylaws or of any provision, instrument, agreement, commitment,
arrangement, license, judgment, order, writ, decree or contract to which it is a
party or by which it is bound or, to its knowledge, of any provision of federal
or state statute, rule or regulation applicable to the Company, which violation
or default is reasonably likely to result in a material adverse effect on the
financial condition, assets, liabilities, operations or financial performance of
the Company. No event has occurred which with the passage of time or the giving
of notice, or both, would constitute a material breach of or default under any
of the foregoing, which material violation or breach or default is reasonably
likely to result in a material adverse effect on the financial condition,
assets, liabilities, operations or financial performance of the Company. The
execution, delivery and performance of the Transaction Documents and the
consummation of the transactions contemplated thereby will not result in any
such violation or breach or be in conflict with or constitute, with or without
the passage of time and giving of notice, either a default under any such
provision, agreement, commitment, arrangement, license, instrument, judgment,
order, writ, decree or contract or an event which results in the creation of any
lien, charge or encumbrance upon any assets of the Company. Neither the
execution or delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict in any material
respect with or result in a material breach of the terms, conditions, or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of the Company's employees is now obligated.
2.12 AGREEMENTS; ACTION.
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates
or any affiliate thereof.
(b) Except as explicitly contemplated by the Transaction
Documents, there are no agreements, understandings, instruments, contracts or
proposed transactions to
5
<PAGE> 10
which the Company or any of its subsidiaries is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to, the
Company or any of its subsidiaries in excess of $50,000, (ii) the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company or any of its subsidiaries, or (iii) the grant of rights to manufacture,
produce, assemble, license, market, or sell its products to any other person or
affect the Company's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products.
(c) Neither the Company nor any of its subsidiaries has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances to the Company's
employees for business expenses, or (iv) sold, exchanged or otherwise disposed
of any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) Except as disclosed in Section 2.12 of the Schedule of
Exceptions or as set out in the Transaction Documents, the Company has not
entered into any binding letters of intent with any corporation, partnership,
association, other business entity or any individual regarding (i) the
consolidation or merger of the Company with or into any such corporation or
other business entity, (ii) the sale, conveyance or disposition of all or
substantially all of the assets of the Company or a transaction or series of
transactions in which more than 50% of the voting power of the company is
disposed of, or (iii) any other form of acquisition, liquidation, dissolution or
winding-up of the Company.
2.13 NO CONFLICT OF INTEREST. The Company is not indebted,
directly or indirectly, to any of its officers or directors, in any amount
whatsoever, other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or relocation expenses of employees.
To the Company's knowledge, none of the Company's officers or directors are,
directly or indirectly, indebted to the Company (other than in connection with
purchases of the Company's stock) or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company (other than ownership of stock in, but not exceeding
two percent (2%) of the outstanding capital stock of, any publicly traded
company that competes with the Company). To the Company's knowledge, none of the
Company's officers or directors are, directly or indirectly, interested in any
material contract with the Company. The Company is not a guarantor of any
indebtedness of any other person, firm or corporation.
2.14 TITLE TO PROPERTY AND ASSETS. The Company has good and valid
title to all of its properties and assets, both real and personal, and has good
title to all its leasehold interests, in each case free and clear of all
mortgages, liens, pledges, loans, security interests, conditional sales
agreements, encumbrances or charges, except for Permitted Liens (as defined
below). The Company owns or leases all properties and assets reasonably
necessary to the operation of its business as now conducted. With respect to the
property and assets it leases, the
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<PAGE> 11
Company is in compliance with such leases and, to the Company's knowledge, holds
a valid leasehold interest free of any liens, claims or encumbrances, except for
Permitted Liens. For purposes of this Agreement, "Permitted Liens" shall mean
any (a) mechanics', carriers', workers' and other similar liens arising in the
ordinary course of business which are not delinquent and which in the aggregate
are not material in amount, and do not interfere with the present use of the
assets of the Company to which they apply; (b) liens for current taxes and
assessments not yet due and payable; (c) liens and encumbrances that have arisen
in the ordinary course of business and that do not (in any case or in the
aggregate) materially detract from the value of the assets subject thereto or
materially impair the operations of the Company; and (d) with respect to any
asset of the Company which consists of a leasehold or other possessory interest
in real property, all encumbrances, covenants, imperfections in title,
easements, restrictions and other title matters (whether or not the same are
recorded) not known to the Company to which the underlying fee estate in such
real property is subject which were not created by or incurred by the Company.
2.15 FINANCIAL STATEMENTS. Attached hereto as Exhibit G are the
unaudited balance sheet of the Company as of September 30, 1999, together with
an unaudited statement of income and expenses and statement of cash flows for
the nine month period ended September 30, 1999 (collectively, the "Financial
Statements"). The Financial Statements are complete and in accordance with the
books and records of the Company and fairly present the financial position of
the Company on the dates thereof. The Financial Statements fairly set out and
describe the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject to the lack of footnote
disclosures and normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1999, (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, and (iii) performance obligations of the Company under the
Transaction Documents.
2.16 CHANGES. Since September 30, 1999 there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction, loss or other occurrence or
development materially and adversely affecting the business, properties or
financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable
right or any material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, business, properties
or financial condition or operating results of the Company;
7
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(e) any material change or amendment to a material
contract or agreement by which the Company or any of its assets or properties is
bound or subject;
(f) any material change or amendment in any compensation
arrangement or agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any
officer or key employee of the Company; and the Company, is not aware of any
impending resignation or termination of employment of any such officer or key
employee;
(i) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except for Permitted Liens;
(j) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties or financial condition of the Company; or
(m) any arrangement or commitment by the Company to do any
of the things described in this Section 2.16.
2.17 DISTRIBUTIONS. There has been no declaration or payment by
the Company of any dividend, nor any distribution by the Company of any assets
of any kind, to any of its stockholders.
2.18 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns and reports as required by applicable law and such tax returns and
reports are true and correct in all material respects. The Company has paid all
taxes, fees, assessments and other governmental charges upon the Company, or
upon any of its properties, income, or franchises, shown in such returns and on
assessments received by the Company to be due as of the date hereof and no such
taxes or assessments are being contested.
2.19 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
8
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2.20 EMPLOYEE BENEFIT PLANS. The Company has previously provided
to the Purchasers or Purchasers' counsel copies of all currently effective
employment contracts, deferred compensation arrangements, bonus plans, incentive
plans, profit sharing plans, retirement agreements or other employee
compensation agreements, and disclosed the existence of such plans and
agreements in Section 2.20 of the Schedule of Exceptions. The Company does not
have any Employee Benefit Plan as defined in the Employee Retirement Income
Security Act of 1974, as amended.
2.21 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the knowledge of the Company threatened, which could have
a material adverse effect on the financial condition, assets, liabilities,
operations or financial performance of the Company, nor is the Company aware of
any labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company. To
its knowledge, the Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment.
2.22 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. To the
Company's knowledge, it has obtained all material permits, licenses and other
authorizations required under federal, state and local laws relating to
pollution or protection of the environment. The Company has not violated any
applicable Environmental Law, the violation of which is reasonably likely to
result in a material adverse change in the financial condition, assets,
liabilities, operations or financial performance of the Company. To the
knowledge of the Company, there are no present requirements of any applicable
Environmental Law which is due to be imposed upon it which will materially
increase its cost of complying with the Environmental Laws. All past on-site
generation, treatment, storage and disposal of Waste, including Hazardous Waste,
by the Company and, to its knowledge, by its predecessors have been done in
compliance with the currently applicable Environmental Laws, and all past
off-site treatment, storage and disposal of Waste, including Hazardous Waste,
generated by the Company and, to its knowledge, by its predecessors have been
done in compliance with the currently applicable Environmental Laws. As used in
this Agreement, the terms (i) "Environmental Laws" include, but are not limited
to, any federal, state or local law, statute, charter or ordinance, and any
rule, regulation, binding interpretation, binding policy, permit, order, court
order or consent decree issued pursuant to any of the foregoing, which pertains
to, governs or otherwise regulates any of the following activities, including,
without limitation, (a) the emission, discharge, release or spilling of any
substance into the air, surface water, groundwater, soil or substrata; (b) the
manufacturing, processing, sale, generation, treatment, storage, disposal
labeling or other management of any Waste, Hazardous Substance or Hazardous
Waste, and (ii) "Waste," "Hazardous Substance," and "Hazardous Waste" include
any substance defined as such by any applicable Environmental Law.
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2.23 PERMITS. The Company and each of its subsidiaries has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could materially and adversely affect
the business, properties or financial condition of the Company and, to its
knowledge, it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.24 PRIVATE OFFERING. Neither the Company nor anyone acting on
its behalf has offered any of the Stock or similar securities for issuance or
sale to, or solicited any offer to acquire any of the same from, anyone so as to
make the issuance and sale of the Stock subject to registration requirements of
Section 5 of the Securities Act.
2.25 BROKERS AND FINDERS. The Company has not retained any
investment banker, broker, finder or any other third party in connection with
the transactions contemplated by this Agreement, except that the Company has
retained McDonald Investments to act as its agent with respect to certain
placements of the Stock offered hereby.
2.26 CERTIFICATE OF INCORPORATION. At the time of Closing, the
Company's certificate of incorporation on file with the Secretary of the State
of Delaware shall be in the form of the Restated Certificate, and no action
shall have been taken to amend or modify such Restated Certificate.
2.27 BYLAWS. The Bylaws of the Company are in the form attached
hereto as Exhibit H and no action has been taken to amend or modify such Bylaws.
2.28 DISCLOSURE. The Company has provided the Purchasers with
all the information that the Purchasers have requested for deciding whether to
acquire the Stock. This Agreement, including all representations herein by the
Company, and any exhibits hereto and the historical and factual information
contained in the Company's Confidential Information Memorandum dated December,
1999 (the "Memorandum") or any certificate furnished or to be furnished to
Purchasers at the Closing, taken together, do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. The projections set forth in the
Memorandum were prepared by the Company in good faith based upon assumptions
which the Company deemed reasonable.
2.29 COMPLIANCE WITH OTHER LAWS. The Company has complied in
all material respects with all laws, statutes, rules, regulations and orders of,
and, to its knowledge, has secured all necessary permits and authorizations and
licenses issued by, federal, state, local and foreign agencies and authorities,
applicable to its business, properties and operations.
2.30 YEAR 2000 COMPLIANCE. To the Company's knowledge, each item
of software and hardware that has been developed by the Company is Year 2000
Compliant (as defined below). For purposes of this Section 2.30, an item of
software or hardware shall be deemed to be "Year 2000 Compliant" only if
operating on a stand-alone basis without reference
10
<PAGE> 15
to dates supplied by third party software or hardware: (i) the functions,
calculations, and other computing processes of such item of software or hardware
(collectively, "Processes") perform without interruption related to the
processing of date data representing calendar dates before, on or after January
1, 2000; (ii) such item of software or hardware accepts, calculates, compares,
sorts, extracts, sequences and otherwise processes date inputs and date values,
and returns and displays date values, without interruption related to the
processing of date data representing calendar dates before, on or after January
1, 2000; (iii) such item of software or hardware stores and displays date
information without interruption related to the processing of date data
representing calendar dates before, on or after January 1, 2000; and (iv) such
item of software or hardware determines leap years without interruption related
to the processing of date data representing calendar dates before, on or after
January 1, 2000, unless, in each case, such interruption related to the
processing of date data representing calendar dates before, on or after January
1, 2000 is caused by external sources, such as in third party operating systems,
data, or other applications not supplied by the Company, or with respect to
incorrect or two-digit date information provided by the user, third party
operating systems or from any other external product, source or interface.
3. INTERPRETATION.
(a) For the purposes of the representations and warranties
contained in Section 2, whenever "to the Company's knowledge" or "to its
knowledge" is used, it means to the knowledge of the officers and directors of
the Company after making such diligent inquiry as may be reasonable under the
circumstances.
(b) For the purposes of the representations and warranties
contained in Section 2, all references to the "Company" shall be deemed to
include Programmed Solutions, Inc. and the Subsidiaries.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:
4.1 AUTHORIZATION. Such Purchaser has full power and authority
to enter into the Transaction Documents. The Transaction Documents, when
executed and delivered by the Purchaser, will constitute valid and legally
binding obligations of the Purchaser, enforceable in accordance with their
respective terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors' rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief, or other equitable remedies, or (b) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representations to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof in
11
<PAGE> 16
violation of the Securities Act, and that the Purchaser has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the Securities Act. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
4.3 DISCLOSURE OF INFORMATION. The Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Stock with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as any other written
information delivered by the Company to the Purchaser, were intended to describe
the aspects of the Company's business which it believes to be material.
4.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements, including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy except as specifically provided in the Investors' Rights Agreement.
4.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
4.6 LEGENDS. The Purchaser understands that the Securities,
and any securities issued in respect of or exchange for the Securities, may bear
one or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM
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<PAGE> 17
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Transaction
Documents.
(c) Any legend required by the Blue Sky laws of any state
to the extent such laws are applicable to the shares represented by the
certificate so legended.
4.7 ACCREDITED INVESTOR. The Purchaser is an accredited
investor as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
4.8 FOREIGN INVESTORS. If the Purchaser is not a United States
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Securities or any use of this Agreement,
including (i) the legal requirements within its jurisdiction for the purchase of
the Securities, (ii) any foreign exchange restrictions applicable to such
purchase, (iii) any governmental or other consents that may need to be obtained,
and (iv) the income tax and other tax consequences, if any, that may be relevant
to the purchase, holding, redemption, sale, or transfer of the Securities. Such
Purchaser's subscription and payment for and continued beneficial ownership of
the Securities, will not violate any applicable securities or other laws of the
Purchaser's jurisdiction.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
Purchaser that:
5.1 COMPLIANCE. The Company shall comply with all laws, rules,
regulations and orders, the non-compliance with which could materially and
adversely affect the financial condition, assets, liabilities, operations or
financial performance of the Company or its obligations under this Agreement or
any other agreement with each Purchaser.
5.2 PERFORMANCE. The Company shall diligently observe and
perform or cause to be observed and performed all covenants to be observed or
performed under the Transaction Documents and under any other agreement between
the Company and each Purchaser.
5.3 BOOKS AND RECORDS. The Company shall maintain complete and
accurate records and books of account in which entries shall be made in
accordance with generally accepted accounting principles consistently applied,
reflecting all transactions of the Company and its subsidiaries, if any.
5.4 RENEWALS AND GOOD STANDING. The Company shall (a) do all
things necessary to obtain, promptly renew and maintain in good standing from
time to time, all approvals, leases, licenses, permits and consents as are
required to own, develop and operate the business, assets or operations of the
Company and undertaking, except where the failure to obtain, renew or maintain
in good standing such approvals, leases, licenses, permits and consents
13
<PAGE> 18
is not reasonably likely to result in a material adverse change in the Company's
financial condition, assets, liabilities, operations or financial performance
and (b) perform its obligations under this Agreement and all other agreements
between the Company and each Purchaser.
5.5 PRINCIPAL BUSINESS. Prior to the initial public offering of
the Company's Common Stock, the Company shall not change its principal business
or engage in any other business from that which it is engaged on the date of
this Agreement without the written consent of at least two-thirds of the holders
of shares of Stock converted or convertible into Common Stock.
5.6 PROPRIETARY INFORMATION AND ASSIGNMENT AGREEMENT. The
Company shall require all future officers, directors and employees of the
Company and each subsidiary of the Company to execute and deliver a proprietary
information and assignment agreement and shall require all future consultants
and independent contractors to the Company to execute and deliver a consulting
agreement which provides substantially similar protection from misappropriation
to the intellectual property of the Company.
5.7 STOCK OPTIONS. All stock options granted by the Company
shall have a term of ten (10) years and shall be exercisable, over time, based
upon continued employment over a vesting period to be determined by the
Company's Board of Directors. The per share exercise price of all options
granted by the Company will be no less than the fair market value on the date of
grant as determined by the Board of Directors in good faith. Unless otherwise
specifically approved by the Board of Directors, options granted by the Company
will not accelerate upon a change of control of the Company or any subsidiary of
the Company.
5.8 SECURITIES FILINGS. On Closing or within the prescribed
time after Closing, the Company shall file all documents and take all
proceedings required to be taken by it to permit the Stock to be distributed to
each Purchaser in compliance with applicable federal and state securities laws
and the applicable securities legislation in Canada.
5.9 SURVIVAL OF COMPANY'S COVENANTS. The covenants of the
Company set forth in this Section 5 will survive the completion of the
transactions contemplated by this Agreement and will continue in full force and
effect for the benefit of each Purchaser until the earlier to occur of (a) five
(5) years from the Closing, or (b) the consummation of a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement under the Securities Act, the public
offering price of which is not less than $11.50 per share (appropriately
adjusted for any stock split, dividend, combination or other recapitalization)
and which results in aggregate gross cash proceeds to the Company of at least
$30,000,000 (before underwriting discounts and commissions).
6. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT THE CLOSING. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of
14
<PAGE> 19
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing.
6.2 PERFORMANCE. The Company shall have performed and complied
in all material respects with all covenants, agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.
6.3 COMPLIANCE CERTIFICATE. The President or CEO of the
Company shall deliver to the Purchasers at the Closing a certificate certifying
that the conditions specified in Sections 6.1 and 6.2 have been fulfilled.
6.4 QUALIFICATIONS. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required to be obtained prior to the Closing in connection
with the lawful issuance and sale of the Stock pursuant to this Agreement shall
be obtained and effective as of the Closing.
6.5 WRITTEN CONSENTS. The Company shall have obtained and
delivered to the Purchasers any and all written waivers, permits, consents and
approvals required to be obtained prior to the Closing in connection with the
consummation of the transactions contemplated by the Transaction Documents in a
form and content reasonably acceptable to the Purchasers.
6.6 STOCK CERTIFICATES. The Company shall have delivered to
the Purchasers stock certificates in form and content acceptable to the
Purchasers and sufficient to transfer to and vest in each Purchaser good and
valid title to the purchased Stock free of any lien created by or through the
Company.
6.7 RESTATED CERTIFICATE. The Company shall have filed the
Restated Certificate with the Department of State of the State of Delaware on or
prior to the Closing, which shall continue to be in full force and effect as of
the Closing.
6.8 INVESTORS' RIGHTS AGREEMENT. The Company and each
Purchaser shall have executed and delivered the Investors' Rights Agreement in
substantially the form attached as Exhibit D.
6.9 CO-SALE AGREEMENT. The Company, each Purchaser and the
holders of Common Stock, Series A Preferred Stock and Series A-1 Preferred Stock
identified therein shall have executed and delivered the Co-Sale Agreement in
substantially the form attached as Exhibit F
6.10 VOTING AGREEMENT. The Company, each Purchaser and the
holders of Common Stock, Series A Preferred Stock and Series A-1 Preferred Stock
identified therein shall have executed and delivered the Voting Agreement in
substantially the form attached as Exhibit E
15
<PAGE> 20
6.11 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENT. The Company and each of its Service Providers (other than as set
forth on Section 2.10 of the Schedule of Exceptions) shall have entered into a
Confidential Information and Invention Assignment Agreement, in substantially
the form provided to the Purchasers.
6.12 NO MATERIAL ADVERSE CHANGE. Except as set forth on the
Schedule of Exceptions, there shall have been no material adverse change in the
Company's financial condition, assets, liabilities, operations or financial
performance since September 30, 1999 (it being understood that none of the
following shall be deemed, in and of itself, to constitute a material adverse
change in the financial condition, assets, liabilities, operations or financial
performance of the Company since September 30, 1999: (a) a change that results
from conditions generally affecting the U.S. economy or the world economy, (b) a
change that results from conditions generally affecting the Company's industry,
(c) a change that results from the announcement or pendency of the transactions
contemplated hereby and (d) a change that results from the taking of any action
required by this Agreement).
6.13 DUE DILIGENCE. The Purchasers shall have completed and be
satisfied with their due diligence investigation into the Company, in the
Purchasers' reasonable discretion.
6.14 COMPANY LEGAL OPINIONS. Orrick, Herrington & Sutcliffe
LLP, special counsel for the Company, shall have delivered a legal opinion to
the Purchasers in the form attached hereto as Exhibit J, and Mathew D'Emilio,
in-house counsel for the Company, shall have delivered a legal opinion to the
Purchasers in the form attached hereto as Exhibit K.
6.15...CLOSING OF PSI TRANSACTION. The purchase of all of the
issued and outstanding shares of PSI, in accordance with a Stock Purchase
Agreement dated as of January 13, 2000 between the Company and PSI, shall close
simultaneously with the closing of the transactions contemplated hereby.
6.16 NO LITIGATION. There shall be no action, suit or
proceeding or investigation instituted or threatened to set aside the
transactions provided for herein or to enjoin or prevent the consummation of the
transactions contemplated hereby.
6.17 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be in form and
substance satisfactory to each Purchaser and its counsel and each Purchaser
shall have received all such counterpart originals or certified or other copies
of such documents as it may reasonably request.
6.18 BOARD OF DIRECTORS. The Company shall have reconstituted
the Board of Directors of the Company in accordance with the Voting Agreement
and the Company shall have entered into indemnity agreements with each of the
directors in the form attached hereto as Exhibit I ..
6.19 CLOSING DOCUMENTS. The Company shall have delivered the
following documents to each of the Purchasers:
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<PAGE> 21
(a) copies certified by the Secretary of the Company of
the resolutions duly adopted by the Company's board of directors authorizing and
approving: (i) the execution, delivery and performance of the Transaction
Documents and each of the other agreements contemplated hereby, (ii) the
Restated Certificate and the filing of the Restated Certificate with the
Secretary of the State of Delaware, (iii) the reservation for issuance upon
conversion of the Series B Preferred Stock of an aggregate number of shares of
Common Stock equal to the total number of shares initially issuable upon
conversion, (iv) the issuance and sale of the Series B Preferred Stock, and (v)
the consummation of all other transactions contemplated by the Transaction
Documents;
(b) copies certified by the Secretary of the Company of
the resolutions of the Company's stockholders authorizing and approving the
Restated Certificate and the filing of the Restated Certificate with the
Delaware Secretary of the State;
(c) copies certified by the Secretary of the Company of
the Restated Certificate (as filed with the Delaware Secretary of the State) and
the Company's Bylaws, each as in effect at the Closing; and
(d) such other documents relating to the transactions
contemplated by this Agreement as the Purchasers or their counsel may reasonably
request.
6.20 GENERAL.
(a) Each Purchasers obligations under Section 1 shall be
contingent upon the performance by each other Purchaser of its obligations under
Section 1.
(b) In any event the Purchasers may in their sole
discretion waive any conditions to the Closing and close. No such waiver shall
be effective unless it shall be in writing and signed by each Purchaser.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 4 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
7.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.
7.3 QUALIFICATIONS. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in
17
<PAGE> 22
connection with the lawful issuance and sale of the Stock pursuant to this
Agreement shall be obtained and effective as of the Closing.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties and representations of the Company contained in
Section 2 hereof shall survive the execution and delivery of this Agreement and
the Closing for a period of two (2) years following the Closing.
8.2 ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents constitute the entire agreement between the Company and the Purchasers
relative to the subject matter hereof and thereof. Any previous agreement or
negotiations between the Company and the Purchasers concerning the subject
matter hereof is superseded by this Agreement and the Transaction Documents
except for any agreements relating to confidentiality.
8.3 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8.4 GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Delaware, without giving effect to principles of conflicts of
law.
8.5 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
8.6 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.7 NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or five
(5) days after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page or Exhibit A hereto, or as
subsequently modified by written notice, and if to the Company, with a copy (not
constituting notice) to Orrick, Herrington & Sutcliffe LLP, 400 Capitol Mall,
Suite 3000, Sacramento, California 95814, Attention: Iain Mickle.
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<PAGE> 23
8.8 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction except as set forth on the Schedule of Exceptions. Each Purchaser
agrees to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such Purchaser or any of its officers, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Purchaser
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.
8.9 ATTORNEY'S FEES. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
the Transaction Documents, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
8.10 AMENDMENTS AND WAIVERS OF AGREEMENT. Any term of this
Agreement may be amended or waived only with the written consent of the Company
and at least two-thirds of the holders of shares of Stock converted or
convertible into the Common Stock. Any amendment or waiver effected in
accordance with this Section 8.10 shall be binding upon the Purchasers and each
transferee of the Stock (or the Common Stock issuable upon conversion thereof),
each future holder of all such securities, and the Company.
8.11 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of
this Agreement shall be interpreted as if such provision were so excluded and
(c) the balance of this Agreement shall be enforceable in accordance with its
terms.
8.12 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and signed
by the party charged with such waiver and such waiver shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
8.13 CONFIDENTIALITY. Each party hereto agrees that,
except with the prior written permission of the other party, it shall at all
times keep confidential and not divulge,
19
<PAGE> 24
furnish or make accessible to anyone any confidential information, knowledge or
data concerning or relating to the business or financial affairs of the other
parties to which such party has been or shall become privy by reason of this
Agreement, discussions or negotiations relating to this Agreement, the
performance of its obligations hereunder or the ownership of Stock purchased
hereunder; provided, however, that the receiving party may disclose such
information (i) on a confidential basis to its attorneys, accountants,
consultants and other professionals to the extent necessary to obtain their
services in connection with its investment in the Company, (ii) to any
prospective purchaser of Stock from the such receiving party as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section 8.13, (iii) on a confidential basis to any affiliate or partner of such
receiving party and (iv) as required by judicial decree or applicable law. The
provisions of this Section 8.13 shall be in addition to, and not in substitution
for, the provisions of any separate nondisclosure agreement executed by the
parties hereto with respect to the transactions contemplated hereby.
8.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Securities.
8.15 INDEMNIFICATION. The Company shall defend, indemnify and
hold the Purchasers harmless from and against any and all claims, liabilities,
damages, losses and expenses, including reasonable attorney's fees and expenses
and costs of suit, arising out of any breach of the representations and
warranties, and out of any and all breaches of covenants, warranties,
stipulations, agreements and certifications made by or on behalf of the Company,
in the Transaction Documents or in any document delivered hereunder or
thereunder.
[Signature Pages Follow]
20
<PAGE> 25
The parties have executed this Series B Preferred Stock Purchase
Agreement as of the date first written above.
COMPANY:
PRINTCAFE, INC.
By:
-------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 40 24th Street, 5th Floor
Pittsburgh, PA 15222
Attn: President
Fax: (412) 456-1151
PURCHASERS:
CREO SRL
By:
--------------------------------------
Christopher Towner, President
-----------------------------------------
Towner International Services SRL,
Secretary, by its authorized signatory
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 26
EXHIBITS
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Amended and Restated Certificate of
Incorporation
Exhibit C - Schedule of Exceptions to Representations and
Warranties
Exhibit D - Form of Investors' Rights Agreement
Exhibit E - Voting Agreement
Exhibit F - Form of Co-Sale Agreement
Exhibit G - Financial Statements
Exhibit H - Form of Bylaws
Exhibit I - Form of Indemnification Agreement
Exhibit J - Form of Opinion of Orrick, Herrington & Sutcliffe
LLP
Exhibit K - Form of Opinion of Mathew D'Emilio
<PAGE> 27
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME/ADDRESS/FAX NO. NO. OF SHARES OF SERIES B PREFERRED STOCK
-------------------- -----------------------------------------
<S> <C>
Creo SRL
2nd Street 31,186,312
Holetown
St. James
Barbados
</TABLE>
<PAGE> 1
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made as of
___________, 2000 by and between printCafe, Inc., a Delaware corporation (the
"Company"), and ____________ ("Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers and key employees, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance. The Company and Indemnitee further recognize
the substantial increase in corporate litigation in general, subjecting
directors, officers and key employees to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely
limited. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and agents of the Company may
not be willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged
intending to be legally bound, the Company and Indemnitee hereby agree as
follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, or, with respect
<PAGE> 2
to any criminal action or proceeding, that Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld), in
each case to the extent actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action or suit if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company and its stockholders, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudicated by court order or
judgment to be liable to the Company in the performance of Indemnitee's duty to
the Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section l(a) or Section l(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees and expenses) actually and reasonably incurred by
Indemnitee in connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referred to in Section l(a) or Section l(b) of this Agreement (including amounts
actually paid in settlement of any such action, suit or proceeding). Indemnitee
hereby undertakes to repay such amounts advanced only if, and to the extent
that, it shall ultimately be determined that Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. Any advances to be made under
this Agreement shall be paid by the Company to Indemnitee within ten (10)
business days following delivery of a written request therefor by Indemnitee to
the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
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<PAGE> 3
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to either of the Chief Executive Officers of the
Company and shall be given in accordance with the provisions of Section 12(d)
below. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) PROCEDURE. Any indemnification and advances provided for in
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 11 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action as well as ten percent (10%) simple
interest on such amount. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in connection with any
action, suit or proceeding in advance of its final disposition) that Indemnitee
has not met the standards of conduct which make it permissible under applicable
law for the Company to indemnify Indemnitee for the amount claimed, but the
burden of proving such defense shall be on the Company and Indemnitee shall be
entitled to receive interim payments of expenses pursuant to Section 3(a) unless
and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 3(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, which approval
shall not be unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election so to do. However, the Company shall consult with
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<PAGE> 4
the Indemnitee prior to agreeing to any settlement with respect to such
proceeding. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (i) Indemnitee shall have the right to employ counsel in any such
proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be deemed to be
within the purview of Indemnitee's rights and the Company's obligations under
this Agreement. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested members of the Company's
Board of Directors, the General Corporation Law of the State of Delaware, or
otherwise, both as to action in Indemnitee's official capacity and as to action
in another capacity while holding such office. The indemnification provided
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though he or she may have
ceased to serve in any such capacity at the time of any action, suit or other
covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For
4
<PAGE> 5
example, the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee, at the Company's
sole expense.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall obtain
and maintain a policy or policies of insurance with reputable insurance
companies providing the officers and directors of the Company with coverage for
losses from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. In all policies of director
and officer liability insurance, Indemnitee shall be named as an insured in such
a manner as to provide Indemnitee the same rights and benefits as are accorded
to the most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company's key employees, if Indemnitee is
not an officer or director but is a key employee. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not available on
commercially reasonable terms, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
5
<PAGE> 6
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10.CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that if Indemnitee is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
11. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this
6
<PAGE> 7
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12.MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted
to be given under this Agreement shall be in writing and shall be deemed
sufficient when delivered personally or sent by telegram or fax or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, and addressed to the party to be notified at such
party's address as set forth below or as subsequently modified by written
notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and its successors and assigns, and inure to the benefit of
Indemnitee and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Company to effectively bring suit to enforce such rights.
[Signature Page Follows]
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<PAGE> 8
The parties hereto have executed this Agreement as of the day and year
set forth on the first page of this Agreement.
PRINTCAFE, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
Address: 40 24th Street, 5th Floor
Pittsburgh, PA 15222
Attn: President
Fax: (412) 456-1151
AGREED TO AND ACCEPTED:
________________________________
Address:________________________
________________________
8
<PAGE> 1
EXHIBIT 10.5
PRINTCAFE, INC.
2000 STOCK INCENTIVE PLAN
EFFECTIVE AS OF FEBRUARY 10, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1. INTRODUCTION...........................................................1
SECTION 2. DEFINITIONS............................................................1
(a) "Affiliate"...........................................................1
(b) "Award"...............................................................1
(c) "Board"...............................................................1
(d) "Change In Control"...................................................1
(e) "Code"................................................................2
(f) "Committee"...........................................................2
(g) "Common Stock"........................................................2
(h) "Company".............................................................2
(i) "Consultant"..........................................................3
(j) "Director"............................................................3
(k) "Disability"..........................................................3
(l) "Employee"............................................................3
(m) "Exchange Act"........................................................3
(n) "Exercise Price"......................................................3
(o) "Fair Market Value"...................................................3
(p) "Grant"...............................................................3
(q) "Incentive Stock Option" or "ISO".....................................4
(r) "Key Employee"........................................................4
(s) "Non-Employee Director"...............................................4
(t) "Nonstatutory Stock Option" or "NSO"..................................4
(u) "Option"..............................................................4
(v) "Optionee"............................................................4
(w) "Parent"..............................................................4
(x) "Participant".........................................................4
(y) "Plan"................................................................4
(z) "Restricted Stock"....................................................4
(aa) "Restricted Stock Agreement"..........................................4
(bb) "SAR Agreement".......................................................4
(cc) "Securities Act"......................................................4
(dd) "Service".............................................................4
</TABLE>
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<TABLE>
<S> <C>
(ee) "Share"...............................................................4
(ff) "Stock Appreciation Right" or "SAR"...................................4
(gg) "Stock Option Agreement"..............................................4
(hh) "Stock Unit"..........................................................5
(ii) "Stock Unit Agreement"................................................5
(jj) "Subsidiary"..........................................................5
(kk) "10-Percent Shareholder"..............................................5
SECTION 3. ADMINISTRATION.........................................................5
(a) Committee Composition.................................................5
(b) Authority of the Committee............................................6
(c) Indemnification.......................................................6
SECTION 4. ELIGIBILITY............................................................6
(a) General Rules.........................................................6
(b) Incentive Stock Options...............................................6
(c) Non-Employee Director Options.........................................6
SECTION 5. SHARES SUBJECT TO PLAN.................................................7
(a) Basic Limitation......................................................7
(b) Additional Shares.....................................................7
(c) Dividend Equivalents..................................................7
(d) Limits on Options and SARs............................................7
(e) Limits on Restricted Stock............................................8
SECTION 6. TERMS AND CONDITIONS OF OPTIONS........................................8
(a) Stock Option Agreement................................................8
(b) Number of Shares......................................................8
(c) Exercise Price........................................................8
(d) Exercisability and Term...............................................8
(e) Modifications or Assumption of Options................................8
(f) Transferability of Options............................................9
(g) No Rights as Stockholder..............................................9
(h) Restrictions on Transfer..............................................9
SECTION 7. PAYMENT FOR OPTION SHARES..............................................9
(a) General Rule..........................................................9
</TABLE>
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<TABLE>
<S> <C>
(b) Surrender of Stock....................................................9
(c) Promissory Note.......................................................9
(d) Other Forms of Payment...............................................10
SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK
UNITS.................................................................10
(a) Time, Amount and Form of Awards......................................10
(b) Agreements...........................................................10
(c) Payment for Restricted Stock or Stock Unit Awards....................10
(d) Form and Time of Settlement of Stock Units...........................10
(e) Vesting Conditions...................................................10
(f) Assignment or Transfer of Restricted Stock or Stock Units............10
(g) Death of Stock Units Recipient.......................................11
(h) Trusts...............................................................11
(i) Voting and Dividend Rights...........................................11
(j) Stock Units Voting and Dividend Rights...............................11
(k) Creditors' Rights....................................................11
SECTION 9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.....................12
(a) SAR Agreement...............................................................12
(b) Number of Shares............................................................12
(c) Exercise Price..............................................................12
(d) Exercisability and Term.....................................................12
(e) Exercise of SARs............................................................12
(f) Modification or Assumption of SARs..........................................12
SECTION 10. PROTECTION AGAINST DILUTION...........................................13
(a) Adjustments..........................................................13
(b) Participant Rights...................................................13
SECTION 11. EFFECT OF A CHANGE IN CONTROL.........................................13
(a) Merger or Reorganization.............................................13
(b) Acceleration.........................................................13
SECTION 12. LIMITATIONS ON RIGHTS.................................................14
(a) Retention Rights.....................................................14
(b) Stockholders' Rights.................................................14
</TABLE>
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<TABLE>
<S> <C>
(c) Regulatory Requirements..............................................14
SECTION 13. WITHHOLDING TAXES.....................................................14
(a) General..............................................................14
(b) Share Withholding....................................................14
SECTION 14. DURATION AND AMENDMENTS...............................................14
(a) Term of the Plan.....................................................14
(b) Right to Amend or Terminate the Plan.................................15
SECTION 15. EXECUTION.............................................................15
</TABLE>
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PRINTCAFE, INC.
2000 STOCK INCENTIVE PLAN
EFFECTIVE AS OF FEBRUARY 10, 2000
SECTION 1. INTRODUCTION.
The Company's Board of Directors adopted the printCafe, Inc. 2000 Stock
Incentive Plan on February 10, 2000 (the "Adoption Date"), and the
Company's stockholders approved the Plan on [APPROVAL DATE]. The Plan is
effective on the Adoption Date.
The purpose of the Plan is to promote the long-term success of the
Company and the creation of shareholder value by offering Key Employees
an opportunity to acquire a proprietary interest in the success of the
Company, or to increase such interest, and to encourage such selected
persons to continue to provide services to the Company and to attract
new individuals with outstanding qualifications.
The Plan seeks to achieve this purpose by providing for Awards in the
form of Restricted Stock, Stock Units, Stock Appreciation Rights and
Options (which may constitute Incentive Stock Options or Nonstatutory
Stock Options).
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except its choice-of-law provisions).
Capitalized terms shall have the meaning provided in Section 2 unless
otherwise provided in this Plan or Stock Option Agreement, SAR
Agreement, Stock Unit Agreement or Restricted Stock Agreement.
SECTION 2. DEFINITIONS.
(a) "AFFILIATE" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
For purposes of determining an individual's "Service," this definition
shall include any entity other than a Subsidiary, if the Company, a
Parent and/or one or more Subsidiaries own not less than 50% of such
entity.
(b) "AWARD" means any award of an Option, SAR, Stock Unit or Restricted
Stock under the Plan.
(c) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.
(d) "CHANGE IN CONTROL" except as may otherwise be provided in a Stock
Option Agreement, SAR Agreement, Stock Unit Agreement or Restricted
Stock Agreement, means the occurrence of any of the following:
<PAGE> 7
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of
the continuing or surviving entity's securities outstanding
immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders of
the Company immediately prior to such merger, consolidation or
other reorganization;
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(iii) A change in the composition of the Board, as a
result of which fewer that one-half of the incumbent directors
are directors who either (i) had been directors of the Company
on the date 24 months prior to the date of the event that may
constitute a Change in Control (the "original directors") or
(ii) were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the aggregate of
the original directors who were still in office at the time of
the election or nomination and the directors whose election or
nomination was previously so approved;
(iv) Any transaction as a result of which any person
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing at least 20% of the total voting power
represented by the Company's then outstanding voting securities.
For purposes of this Paragraph (iii), the term "person" shall
have the same meaning as when used in sections 13(d) and 14(d)
of the Exchange Act but shall exclude:
(A) A trustee or other fiduciary holding
securities under an employee benefit plan of the Company
or a subsidiary of the Company;
(B) A corporation owned directly or indirectly
by the stockholders of the Company in substantially the
same proportions as their ownership of the common stock
of the Company; and
(C) The Company; or
(v) A complete liquidation or dissolution of the
Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means a committee consisting of one or more members of
the Board that is appointed by the Board (as described in Section 3) to
administer the Plan.
(g) "COMMON STOCK" means the Company's common stock.
(h) "COMPANY" means printCafe, Inc., a Delaware corporation.
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(i) "CONSULTANT" means an individual who performs bona fide services to
the Company, a Parent, a Subsidiary or an Affiliate other than as an
Employee or Director or Non-Employee Director.
(j) "DIRECTOR" means a member of the Board who is also an Employee.
(k) "DISABILITY" means that the Key Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a continuous period
of not less than 12 months.
(l) "EMPLOYEE" means any individual who is a common-law employee of the
Company, a Parent, a Subsidiary or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "EXERCISE PRICE" means, in the case of an Option, the amount for
which a Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in
the case of a SAR, means an amount, as specified in the applicable SAR
Agreement, which is subtracted from the Fair Market Value of a Share in
determining the amount payable upon exercise of such SAR.
(o) "FAIR MARKET VALUE" means the market price of Shares, determined by
the Committee as follows:
(i) If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the last trading
price reported by the applicable composite transactions report for such
date;
(ii) If the Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last trading price quoted by the
NASDAQ system for such date;
(iii) If the Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the
Fair Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the NASDAQ system for such
date; and
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in the Wall Street
Journal. Such determination shall be conclusive and binding on all
persons.
(p) "GRANT" means any grant of an Award under the Plan.
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(q) "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock option
described in Code section 422(b).
(r) "KEY EMPLOYEE" means an Employee, Director, Non-Employee Director or
Consultant who has been selected by the Committee to receive an Award
under the Plan.
(s) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
Employee.
(t) "NONSTATUTORY STOCK OPTION" or "NSO" means a stock option that is
not an ISO.
(u) "OPTION" means an ISO or NSO granted under the Plan entitling the
Optionee to purchase Shares.
(v) "OPTIONEE" means an individual, estate or other entity that holds an
Option.
(w) "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. A corporation that
attains the status of a Parent on a date after the adoption of the Plan
shall be considered a Parent commencing as of such date.
(x) "PARTICIPANT" means an individual or estate or other entity that
holds an Award.
(y) "PLAN" means this printCafe, Inc. 2000 Stock Incentive Plan as it
may be amended from time to time.
(z) "RESTRICTED STOCK" means a Share awarded under the Plan.
(aa) "RESTRICTED STOCK AGREEMENT" means the agreement described in
Section 8 evidencing each Award of Restricted Stock.
(bb) "SAR AGREEMENT" means the agreement described in Section 9
evidencing each Award of a Stock Appreciation Right.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(dd) "SERVICE" means service as an Employee, Director, Non-Employee
Director or Consultant.
(ee) "SHARE" means one share of Common Stock.
(ff) "STOCK APPRECIATION RIGHT" OR "SAR" means a stock appreciation
right awarded under the Plan.
(gg) "STOCK OPTION AGREEMENT" means the agreement described in Section 6
evidencing each Grant of an Option.
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(hh) "STOCK UNIT" means a bookkeeping entry representing the equivalent
of a Share, as awarded under the Plan.
(ii) "STOCK UNIT AGREEMENT" means the agreement described in Section 8
evidencing each Award of Stock Units.
(jj) "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 fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain. A corporation that attains the status of a Subsidiary on a
date after the adoption of the Plan shall be considered a Subsidiary
commencing as of such date.
(kk) "10-PERCENT SHAREHOLDER" means an individual who owns more than ten
percent (10%) of the total combined voting power of all classes of
outstanding stock of the Company, its Parent or any of its subsidiaries.
In determining stock ownership, the attribution rules of section 424(d)
of the Code shall be applied.
SECTION 3. ADMINISTRATION.
(a) COMMITTEE COMPOSITION. A Committee appointed by the Board shall
administer the Plan. The Board shall designate one of the members of the
Committee as chairperson. If no Committee has been approved, the entire
Board shall constitute the Committee. Members of the Committee shall
serve for such period of time as the Board may determine and shall be
subject to removal by the Board at any time. The Board may also at any
time terminate the functions of the Committee and reassume all powers
and authority previously delegated to the Committee.
With respect to officers or directors subject to Section 16 of the
Exchange Act, the Committee shall consist of those individuals who shall
satisfy the requirements of Rule 16b-3 (or its successor) under the
Exchange Act with respect to Awards granted to persons who are officers
or directors of the Company under Section 16 of the Exchange Act.
Notwithstanding the previous sentence, failure of the Committee to
satisfy the requirements of Rule 16b-3 shall not invalidate any Awards
granted by such Committee.
The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not
qualify under Rule 16b-3, who may administer the Plan with respect to
Key Employees who are not considered officers or directors of the
Company under Section 16 of the Exchange Act, may grant Awards under the
Plan to such Key Employees and may determine all terms of such Awards.
Notwithstanding the foregoing, the Board shall constitute the Committee
and shall administer the Plan with respect to all Awards granted to
Non-Employee Directors.
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(b) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take any
actions it deems necessary or advisable for the administration of the
Plan. Such actions shall include:
(i) selecting Key Employees who are to receive Awards under
the Plan;
(ii) determining the type, number, vesting requirements and
other features and conditions of such Awards;
(iii) interpreting the Plan; and
(iv) making all other decisions relating to the operation of
the Plan.
The Committee may adopt such rules or guidelines, as it deems
appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
(c) INDEMNIFICATION. Each member of the Committee, or of the Board,
shall be indemnified and held harmless by the Company against and from
(i) any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from
any claim, action, suit, or proceeding to which he or she may be a party
or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Stock Option Agreement, SAR
Agreement, Stock Unit Agreement or Restricted Stock Agreement, and (ii)
from any and all amounts paid by him or her in settlement thereof, with
the Company's approval, or paid by him or her in satisfaction of any
judgment in any such claim, action, suit, or proceeding against him or
her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes
to handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or Bylaws, by contract, as a
matter of law, or otherwise, or under any power that the Company may
have to indemnify them or hold them harmless.
SECTION 4. ELIGIBILITY.
(a) GENERAL RULES. Only Employees, Directors, Non-Employee Directors and
Consultants shall be eligible for designation as Key Employees by the
Committee.
(b) INCENTIVE STOCK OPTIONS. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for
the grant of ISOs. In addition, a Key Employee who is a 10-Percent
Shareholder shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(5) of the Code are satisfied.
(c) NON-EMPLOYEE DIRECTOR OPTIONS. Non-Employee Directors shall also be
eligible to receive Options as described in this Section 4(c) from and
after the date the Board has determined to implement this provision.
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(i) Each eligible Non-Employee Director shall automatically be
granted an NSO to purchase 15,000 Shares (subject to adjustment under
Section 9) as a result of his or her initial election or appointment as
a Non-Employee Director. Upon the conclusion of each regular annual
meeting of the Company's stockholders following his or her initial
appointment, each eligible Non-Employee Director who will continue
serving as a member of the Board thereafter shall receive an NSO to
purchase 3,750 Shares (subject to adjustment under Section 9). All NSOs
granted pursuant to this Section 4 shall vest and become exercisable one
year from the date of grant, provided the individual is serving as a
director of the Company as of the vesting date.
(ii) All NSOs granted to Non-Employee Director under this
Section 4(c) shall become exercisable in full in the event of Change in
Control with respect to the Company.
(iii) The Exercise Price under all NSOs granted to a
Non-Employee Director under this Section 4(c) shall be equal to one
hundred percent (100%) of the Fair Market Value of a Share of Common
Stock on the date of grant, payable in one of the forms described in
Section 7.
(iv) All NSOs granted to a Non-Employee Director under this
Section 4(c) shall terminate on the earlier of:
(1) The 10th anniversary of the date of grant; or
(2) The date ninety (90) days after the termination of
such Non-Employee Director's service for any reason.
SECTION 5. SHARES SUBJECT TO PLAN.
(a) BASIC LIMITATION. The stock issuable under the Plan shall be
authorized but unissued Shares or treasury Shares. The aggregate number
of Shares reserved for Awards under the Plan shall not exceed 2,500,000.
(b) ADDITIONAL SHARES. If Awards are forfeited or terminate for any
other reason before being exercised, then the Shares underlying such
Awards shall again become available for Awards under the Plan. If SARs
are exercised, then only the number of Shares (if any) actually issued
in settlement of such SARs shall reduce the number available under
Section 5(a) and the balance shall again become available for Awards
under the Plan.
(c) DIVIDEND EQUIVALENTS. Any dividend equivalents distributed under the
Plan shall not be applied against the number of Shares available for
Awards whether or not such dividend equivalents are converted into Stock
Units.
(d) LIMITS ON OPTIONS AND SARS. No Key Employee shall receive Options to
purchase Shares and/or SARs during any fiscal year covering in excess of
1,250,000 Shares.
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(e) LIMITS ON RESTRICTED STOCK AND STOCK UNITS. No Key Employee shall
receive Award(s) of Restricted Stock and/or Stock Units during any
fiscal year covering in excess of 125,000 Shares.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each Grant under the Plan shall be evidenced
by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the
Plan and may be subject to any other terms and conditions that are not
inconsistent with the Plan and that the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various
Stock Option Agreements entered into under the Plan need not be
identical. A Stock Option Agreement may provide that new Options will be
granted automatically to the Optionee when he or she exercises the prior
Options. The Stock Option Agreement shall also specify whether the
Option is an ISO or an NSO.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for
the adjustment of such number in accordance with Section 9.
(c) EXERCISE PRICE. An Option's Exercise Price shall be established by
the Committee and set forth in a Stock Option Agreement. To the extent
required by applicable law the Exercise Price of an ISO shall not be
less than 100% of the Fair Market Value (110% for 10-Percent
Shareholders) of a Share on the date of Grant. In the case of an NSO, a
Stock Option Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the NSO is outstanding.
(d) EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of
the Option; provided that the term of an ISO shall in no event exceed
ten (10) years from the date of Grant. An ISO that is granted to a
10-Percent Shareholder shall have a maximum term of five (5) years. No
Option can be exercised after the expiration date provided in the
applicable Stock Option Agreement. A Stock Option Agreement may provide
for accelerated exercisability in the event of the Optionee's death,
disability or retirement or other events and may provide for expiration
prior to the end of its term in the event of the termination of the
Optionee's service. A Stock Option Agreement may permit an Optionee to
exercise an Option before it is vested, subject to the Company's right
of repurchase over any Shares acquired under the unvested portion of the
Option (an "early exercise"), which right of repurchase shall lapse at
the same rate the Option would have vested had there been no early
exercise. In no event shall the Company be required to issue fractional
Shares upon the exercise of an Option.
(e) MODIFICATIONS OR ASSUMPTION OF OPTIONS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options
or may accept the cancellation of outstanding options (whether granted
by the Company or by another
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issuer) in return for the grant of new Options for the same or a
different number of Shares and at the same or a different Exercise
Price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, alter or impair his or her
rights or obligations under such Option.
(f) TRANSFERABILITY OF OPTIONS. Except as otherwise provided in the
applicable Stock Option Agreement and then only to the extent permitted
by applicable law, no Option shall be transferable by the Optionee other
than by will or by the laws of descent and distribution. Except as
otherwise provided in the applicable Stock Option Agreement, an Option
may be exercised during the lifetime of the Optionee only or by the
guardian or legal representative of the Optionee. No Option or interest
therein may be assigned, pledged or hypothecated by the Optionee during
his lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
(g) NO RIGHTS AS STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any
Common Stock covered by an Option until such person becomes entitled to
receive such Common Stock by filing a notice of exercise and paying the
Exercise Price pursuant to the terms of such Option.
(h) RESTRICTIONS ON TRANSFER. Any Shares issued upon exercise of an
Option shall be subject to such rights of repurchase, rights of first
refusal and other transfer restrictions as the Committee may determine.
Such restrictions shall apply in addition to any restrictions that may
apply to holders of Shares generally and shall also comply to the extent
necessary with applicable law.
SECTION 7. PAYMENT FOR OPTION SHARES.
(a) GENERAL RULE. The entire Exercise Price of Shares issued upon
exercise of Options shall be payable in cash at the time when such
Shares are purchased, except as follows:
(i) In the case of an ISO granted under the Plan, payment shall
be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment
may be made in any form(s) described in this Section 7.
(ii) In the case of an NSO granted under the Plan, the Committee
may in its discretion, at any time accept payment in any form(s)
described in this Section 7.
(b) SURRENDER OF STOCK. To the extent that this Section 7(b) is
applicable, payment for all or any part of the Exercise Price may be
made with Shares which have already been owned by the Optionee for such
duration as shall be specified by the Committee. Such Shares shall be
valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.
(c) PROMISSORY NOTE. To the extent that this Section 7(c) is applicable,
payment for all or any part of the Exercise Price may be made with a
full-recourse promissory note.
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(d) OTHER FORMS OF PAYMENT. To the extent that this Section 7(d) is
applicable, payment may be made in any other form that is consistent
with applicable laws, regulations and rules.
SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS.
(a) TIME, AMOUNT AND FORM OF AWARDS. Awards under this Section 8 may be
granted in the form of Restricted Stock in the form of Stock Units, or
in any combination of both. Restricted Stock or Stock Units may also be
awarded in combination with NSOs or SARs, and such an Award may provide
that the Restricted Stock or Stock Units will be forfeited in the event
that the related NSOs or SARs are exercised.
(b) AGREEMENTS. Each Award of Restricted Stock or Stock Units under the
Plan shall be evidenced by a Restricted Stock Agreement or Stock Unit
Agreement between the Participant and the Company. Such Awards shall be
subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions that are not inconsistent with
the Plan and that the Committee deems appropriate for inclusion in the
applicable Agreement. The provisions of the various Agreements entered
into under the Plan need not be identical.
(c) PAYMENT FOR RESTRICTED STOCK OR STOCK UNIT AWARDS. Restricted Stock
or Stock Units may be issued with or without cash consideration under
the Plan.
(d) FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested
Stock Units may be made in the form of (i) cash, (ii) Shares or (iii)
any combination of both. The actual number of Stock Units eligible for
settlement may be larger or smaller than the number included in the
original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have
lapsed, or it may be deferred to any later date. The amount of a
deferred distribution may be increased by an interest factor or by
dividend equivalents. Until an Award of Stock Units is settled, the
number of such Stock Units shall be subject to adjustment pursuant to
Section 10.
(e) VESTING CONDITIONS. Each Award of Restricted Stock or Stock Units
shall become vested, in full or in installments, upon satisfaction of
the conditions specified in the applicable Agreement. An Agreement may
provide for accelerated vesting in the event of the Participant's death,
Disability or retirement or other events.
(f) ASSIGNMENT OR TRANSFER OF RESTRICTED STOCK OR STOCK UNITS. Except as
provided in Section 13, or in a Restricted Stock Agreement or Stock Unit
Agreement, or as required by applicable law, a Restricted Stock or Stock
Unit Award granted under the Plan shall not be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any
creditor's process, whether voluntarily, involuntarily or by operation
of
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law. Any act in violation of this Section 8(f) shall be void. However,
this Section 8(f) shall not preclude a Participant from designating a
beneficiary who will receive any outstanding Restricted Stock or Stock
Unit Awards in the event of the Participant's death, nor shall it
preclude a transfer of Restricted Stock or Stock Unit Awards by will or
by the laws of descent and distribution.
(g) DEATH OF STOCK UNITS RECIPIENT. Any Stock Units Award that becomes
payable after the Award recipient's death shall be distributed to the
recipient's beneficiary or beneficiaries. Each recipient of a Stock
Units Award under the Plan shall designate one or more beneficiaries for
this purpose by filing the prescribed form with the Company. A
beneficiary designation may be changed by filing the prescribed form
with the Company at any time before the recipient's death. If no
beneficiary was designated or if no designated beneficiary survives the
recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
(h) TRUSTS. Neither this Section 8 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted
Stock to (a) the trustee of a trust that is revocable by such
Participant alone, both at the time of the transfer or assignment and at
all times thereafter prior to such Participant's death, or (b) the
trustee of any other trust to the extent approved in advance by the
Committee in writing. A transfer or assignment of Restricted Stock from
such trustee to any person other than such Participant shall be
permitted only to the extent approved in advance by the Committee in
writing, and Restricted Stock held by such trustee shall be subject to
all of the conditions and restrictions set forth in the Plan and in the
applicable Restricted Stock Agreement, as if such trustee were a party
to such Agreement.
(i) VOTING AND DIVIDEND RIGHTS. The holders of Restricted Stock awarded
under the Plan shall have the same voting, dividend and other rights as
the Company's other stockholders. A Restricted Stock Agreement, however,
may require that the holders of Restricted Stock invest any cash
dividends received in additional Restricted Stock. Such additional
Restricted Stock shall be subject to the same conditions and
restrictions as the Award with respect to which the dividends were paid.
Such additional Restricted Stock shall not reduce the number of Shares
available under Section 5.
(j) STOCK UNITS VOTING AND DIVIDEND RIGHTS. The holders of Stock Units
shall have no voting rights. Prior to settlement or forfeiture, any
Stock Unit awarded under the Plan may, at the Committee's discretion,
carry with it a right to dividend equivalents. Such right entitles the
holder to be credited with an amount equal to all cash dividends paid on
one Share while the Stock Unit is outstanding. Dividend equivalents may
be converted into additional Stock Units. Settlement of dividend
equivalents may be made in the form of cash, in the form of Shares, or
in a combination of both. Prior to distribution, any dividend
equivalents which are not paid shall be subject to the same conditions
and restrictions as the Stock Units to which they attach.
(k) CREDITORS' RIGHTS. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured
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obligation of the Company, subject to the terms and conditions of the
applicable Stock Unit Agreement.
SECTION 9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.
(a) SAR AGREEMENT. Each Award of a SAR under the Plan shall be evidenced
by a SAR Agreement between the Optionee and the Company. Such SAR shall
be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of
the various SAR Agreements entered into under the Plan need not be
identical. SARs may be granted in consideration of a reduction in the
Optionee's other compensation.
(b) NUMBER OF SHARES. Each SAR Agreement shall specify the number of
Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Section 10.
(c) EXERCISE PRICE. Each SAR Agreement shall specify the Exercise Price.
A SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
(d) EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may
provide for accelerated exercisability in the event of the Optionee's
death, Disability or retirement or other events and may provide for
expiration prior to the end of its term in the event of the termination
of the Optionee's Service. SARs may also be awarded in combination with
Options, Restricted Stock or Stock Units, and such an Award may provide
that the SARs will not be exercisable unless the related Options,
Restricted Stock or Stock Units are forfeited. A SAR may be included in
an ISO only at the time of Grant but may be included in an NSO at the
time of Grant or at any subsequent time, but not later than six months
before the expiration of such NSO. A SAR granted under the Plan may
provide that it will be exercisable only in the event of a Change in
Control.
(e) EXERCISE OF SARS. If, on the date when a SAR expires, the Exercise
Price under such SAR is less than the Fair Market Value on such date but
any portion of such SAR has not been exercised or surrendered, then such
SAR shall automatically be deemed to be exercised as of such date with
respect to such portion. Upon exercise of a SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death)
shall receive from the Company (i) Shares, (ii) cash or (iii) a
combination of Shares and cash, as the Committee shall determine. The
amount of cash and/or the Fair Market Value of Shares received upon
exercise of SARs shall, in the aggregate, be equal to the amount by
which the Fair Market Value (on the date of surrender) of the Shares
subject to the SARs exceeds the Exercise Price.
(f) MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the
Company or by another issuer)
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in return for the grant of new SARs for the same or a different number
of Shares and at the same or a different Exercise Price. The foregoing
notwithstanding, no modification of a SAR shall, without the consent of
the Optionee, alter or impair his or her rights or obligations under
such SAR.
SECTION 10. PROTECTION AGAINST DILUTION.
(a) ADJUSTMENTS. In the event of a subdivision of the outstanding
Shares, a declaration of a dividend payable in Shares, a declaration of
a dividend payable in a form other than Shares in an amount that has a
material effect on the price of Shares, a combination or consolidation
of the outstanding Shares (by reclassification or otherwise) into a
lesser number of Shares, a recapitalization, reorganization, merger,
liquidation, spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its reasonable discretion, deems appropriate
in order to prevent the dilution or enlargement of rights hereunder in
one or more of:
(i) the number of Shares available for future Awards and the per
person Share limits under Section 5;
(ii) the number of Shares covered by each outstanding Award; or
(iii) the Exercise Price under each outstanding SAR or Option.
(b) PARTICIPANT RIGHTS. Except as provided in this Section 10, a
Participant shall have no rights by reason of any issue by the Company
of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class.
SECTION 11. EFFECT OF A CHANGE IN CONTROL.
(a) MERGER OR REORGANIZATION. In the event that the Company is a party
to a merger or other reorganization, outstanding Awards shall be subject
to the agreement of merger or reorganization. Such agreement may
provide, without limitation, for the assumption of outstanding Awards by
the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated
vesting or for their cancellation with or without consideration.
(b) ACCELERATION. The Committee may determine, at the time of granting
an Award or thereafter, that such Award shall become fully vested as to
all Shares subject to such Award in the event that a Change in Control
occurs with respect to the Company.
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SECTION 12. LIMITATIONS ON RIGHTS.
(a) RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an
employee, consultant or director of the Company, a Parent, a Subsidiary
or an Affiliate. The Company and its Parents and Subsidiaries and
Affiliates reserve the right to terminate the Service of any person at
any time, and for any reason, subject to applicable laws, the Company's
Certificate of Incorporation and Bylaws and a written employment
agreement (if any).
(b) STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any
Shares covered by his or her Award prior to the issuance of a stock
certificate for such Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date
when such certificate is issued, except as expressly provided in Section
10.
(c) REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Shares under the
Plan shall be subject to all applicable laws, rules and regulations and
such approval by any regulatory body as may be required. The Company
reserves the right to restrict, in whole or in part, the delivery of
Shares pursuant to any Award prior to the satisfaction of all legal
requirements relating to the issuance of such Shares, to their
registration, qualification or listing or to an exemption from
registration, qualification or listing.
SECTION 13. WITHHOLDING TAXES.
(a) GENERAL. A Participant shall make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that
arise in connection with his or her Award. The Company shall not be
required to issue any Shares or make any cash payment under the Plan
until such obligations are satisfied.
(b) SHARE WITHHOLDING. If a public market for the Company's Shares
exists, the Committee may permit a Participant to satisfy all or part of
his or her withholding or income tax obligations by having the Company
withhold all or a portion of any Shares that otherwise would be issued
to him or her or by surrendering all or a portion of any Shares that he
or she previously acquired. Such Shares shall be valued at their Fair
Market Value on the date when taxes otherwise would be withheld in cash.
Any payment of taxes by assigning Shares to the Company may be subject
to restrictions, including, but not limited to, any restrictions
required by rules of the Securities and Exchange Commission.
SECTION 14. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board, subject to the
approval of the Company's stockholders. No Options or SARs shall be
exercisable until such stockholder approval is obtained. In the event
that the stockholders fail to approve the Plan within twelve (12) months
after its
14
<PAGE> 20
adoption by the Board, any Awards made shall be null and void and no
additional Awards shall be made. To the extent required by applicable
law, the Plan shall terminate on the date that is ten (10) years after
its adoption by the Board and may be terminated on any earlier date
pursuant to Section 14(b).
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend or
terminate the Plan at any time and for any reason. The termination of
the Plan, or any amendment thereof, shall not affect any Award
previously granted under the Plan. No Awards shall be granted under the
Plan after the Plan's termination. An amendment of the Plan shall be
subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules.
SECTION 15. EXECUTION.
To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to execute this Plan on behalf of the
Company.
PRINTCAFE, INC.
By _________________________________
Title ______________________________
15
<PAGE> 1
EXHIBIT 10.8
PRINTCAFE, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
FEBRUARY 15, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Purchase and Sale of Preferred Stock..................................................1
1.1 Sale and Issuance of Series C Preferred Stock..................................1
1.2 Closing; Delivery..............................................................1
2. Representations and Warranties of the Company.........................................1
2.1 Organization, Good Standing and Qualification..................................2
2.2 Capitalization.................................................................2
2.3 Rights of Registration and Voting Rights.......................................3
2.4 Subsidiaries; Joint Ventures...................................................3
2.5 Authorization..................................................................3
2.6 Valid Issuance of Securities...................................................4
2.7 Governmental Consents..........................................................4
2.8 Litigation.....................................................................4
2.9 Intellectual Property..........................................................5
2.10 Confidential Information and Invention Assignment Agreements...................5
2.11 Compliance with Other Instruments..............................................5
2.12 Agreements; Action.............................................................6
2.13 No Conflict of Interest........................................................6
2.14 Title to Property and Assets...................................................7
2.15 Financial Statements...........................................................7
2.16 Changes........................................................................7
2.17 Distributions..................................................................9
2.18 Tax Returns and Payments.......................................................9
2.19 Insurance......................................................................9
2.20 Employee Benefit Plans.........................................................9
2.21 Labor Agreements and Actions...................................................9
2.22 Compliance with Environmental Requirements.....................................9
2.23 Permits.......................................................................10
2.24 Private Offering..............................................................10
2.25 Brokers and Finders...........................................................10
2.26 Certificate of Incorporation..................................................10
2.27 Bylaws........................................................................10
2.28 Disclosure....................................................................10
2.29 Compliance with Other Laws....................................................11
2.30 Year 2000 Compliance..........................................................11
3. Interpretation.......................................................................11
4. Representations and Warranties of the Purchasers.....................................11
4.1 Authorization.................................................................12
4.2 Purchase Entirely for Own Account.............................................12
4.3 Disclosure of Information.....................................................12
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
4.4 Restricted Securities.........................................................12
4.5 No Public Market..............................................................13
4.6 Legends.......................................................................13
4.7 Accredited Investor...........................................................13
4.8 Foreign Investors.............................................................13
5. Covenants of the Company.............................................................13
5.1 Compliance....................................................................13
5.2 Performance...................................................................13
5.3 Books and Records.............................................................14
5.4 Renewals and Good Standing....................................................14
5.5 Principal Business............................................................14
5.6 Proprietary Information and Assignment Agreement..............................14
5.7 Stock Options.................................................................14
5.8 Securities Filings............................................................14
5.9 Investment of Funds...........................................................14
5.10 Directors' and Officers' Insurance............................................15
5.11 Survival of Company's Covenants...............................................15
6. Conditions of the Purchasers' Obligations at the Closing.............................15
6.1 Representations and Warranties................................................15
6.2 Performance...................................................................15
6.3 Compliance Certificate........................................................15
6.4 Qualifications................................................................15
6.5 Written Consents..............................................................15
6.6 Stock Certificates............................................................15
6.7 Restated Certificate..........................................................16
6.8 Restated Investors' Rights Agreement..........................................16
6.9 Restated Co-Sale Agreement....................................................16
6.10 Restated Voting Agreement.....................................................16
6.11 Confidential Information and Invention Assignment Agreement...................16
6.12 No Material Adverse Change....................................................16
6.13 Due Diligence.................................................................16
6.14 Company Legal Opinions........................................................16
6.15 Closing of Creo Transaction...................................................16
6.16 Closing of PSI Transaction....................................................17
6.17 No Litigation.................................................................17
6.18 Proceedings and Documents.....................................................17
6.20 Closing Documents.............................................................17
6.21 Payoff of Silicon Valley Bank Loan............................................18
6.22 General.......................................................................18
7. Conditions of the Company's Obligations at the Closing...............................18
</TABLE>
ii
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
7.1 Representations and Warranties................................................18
7.2 Performance...................................................................18
7.3 Qualifications................................................................18
8. Miscellaneous........................................................................18
8.1 Survival of Warranties........................................................18
8.2 Entire Agreement..............................................................18
8.3 Transfer; Successors and Assigns..............................................18
8.4 Governing Law.................................................................19
8.5 Counterparts..................................................................19
8.6 Titles and Subtitles..........................................................19
8.7 Notices.......................................................................19
8.8 Finder's Fee..................................................................19
8.9 Attorney's Fees...............................................................19
8.10 Amendments and Waivers of Agreement...........................................19
8.11 Severability..................................................................20
8.12 Delays or Omissions...........................................................20
8.13 Confidentiality...............................................................20
8.14 Exculpation Among Purchasers..................................................20
8.15 Indemnification...............................................................21
8.16 Press Release.................................................................21
8.17 Use of Proceeds...............................................................21
</TABLE>
iii
<PAGE> 5
PRINTCAFE, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (this "Agreement") is
made as of February 15, 2000 by and among printCafe, Inc., a Delaware
corporation (the "Company"), and the investors listed on Exhibit A attached
hereto (each a "Purchaser" and together the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary
of State of the State of Delaware on or before the Closing (as defined in
Section 1.2(a) below) the Third Amended and Restated Certificate of
Incorporation in the form attached hereto as Exhibit B (the "Restated
Certificate").
(b) Subject to the terms and conditions of this
Agreement, each Purchaser agrees to purchase at the Closing, and the Company
agrees to sell and issue to each Purchaser at the Closing, that number of shares
of the Company's Series C Preferred Stock and/or Series C-1 Preferred Stock,
each with $0.0001 par value per share (collectively, "Series C Preferred
Stock"), set forth opposite each such Purchaser's name on Exhibit A attached
hereto at a purchase price of $5.80 per share. The shares of Series C Preferred
Stock issued to the Purchasers pursuant to this Agreement shall be hereinafter
referred to as the "Stock."
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take place
at the executive offices of the Company, at 10:00 a.m., on February 15, 2000, or
at such other time and place as the Company and the Purchasers mutually agree
upon, orally or in writing (which time and place are designated as the
"Closing").
(b) At the Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased by such Purchaser
against payment of the purchase price therefor by check payable to the Company
or by wire transfer to the Company's bank account.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that (acknowledging that each
Purchaser is relying on the representations and warranties set forth in this
Section 2 in connection with the purchase of Stock by such Purchaser), except as
set forth on the Schedule of Exceptions attached hereto as Exhibit C:
<PAGE> 6
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business. The Company is duly qualified as a foreign
corporation or is otherwise duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would, either
individually or in the aggregate, have a material adverse effect on its business
or properties.
2.2 CAPITALIZATION. Immediately prior to the Closing, the
authorized capital of the Company shall consist of:
(a) 46,165,082 shares of Preferred Stock, of which (i)
2,500,000 shares have been designated Series A Preferred Stock, 2,455,798 of
which will be issued and outstanding immediately prior to the Closing, (ii)
10,250,000 shares have been designated Series A-1 Preferred Stock, 9,725,096 of
which will be issued and outstanding immediately prior to the Closing, (iii)
31,250,000 have been designated Series B Preferred Stock, 31,186,312 of which
will be issued and outstanding immediately prior to the Closing, (iv) 2,015,082
have been designated Series C Preferred Stock, none which will be issued and
outstanding immediately prior to the Closing, and (v) 150,000 have been
designated Series C-1 Preferred Stock, none which will be issued and outstanding
immediately prior to the Closing. The rights, privileges and preferences of the
Preferred Stock are as stated in the Restated Certificate. All of the
outstanding shares of Preferred Stock have been duly authorized, fully paid and
nonassessable and issued in compliance with all applicable federal and state
securities laws.
(b) 150,000,000 shares of Common Stock, of which (i)
118,750,000 have been designated Class A Common Stock, 5,886,656 shares of which
are issued and outstanding immediately prior to the Closing, and (ii) 31,250,000
have been designated Class B Common Stock, no shares of which are issued and
outstanding immediately prior to the Closing. All of the outstanding shares of
Common Stock have been duly authorized, fully paid and are nonassessable and
issued in compliance with all applicable federal and state securities laws.
(c) The Company has reserved 382,215 shares of Common
Stock and 516,976 shares of Series A-1 Preferred Stock (collectively, "Option
Stock") for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Revised Stock Plan duly adopted by the Board of
Directors and approved by the Company's stockholders (the "1999 Revised Stock
Plan"), and the Company has reserved 2,500,000 shares of Common Stock for
issuance to officers, directors, employees and consultants of the Company
pursuant to its 2000 Incentive Stock Plan duly adopted by the Board of Directors
and approved by the Company's stockholders (the "2000 Incentive Stock Plan" and,
together with the 1999 Revised Stock Plan, the "Stock Plans"). Of such reserved
shares of Option Stock under the 1999 Revised Stock Plan, no shares have been
issued pursuant to restricted stock purchase agreements, options to purchase
382,215 shares of Common Stock and 516,976 shares of Series A-1 Preferred Stock
have been granted and are currently outstanding, and no shares of Common Stock
remain available for issuance to officers, directors, employees and consultants
pursuant to the 1999 Revised Stock Plan. Of such reserved shares of Common Stock
under the 2000 Incentive Stock
2
<PAGE> 7
Plan, no shares have been issued pursuant to restricted stock purchase
agreements, options to purchase 175,000 shares of Common Stock have been granted
and are currently outstanding, and 2,325,000 shares of Common Stock remain
available for issuance to officers, directors, employees and consultants
pursuant to the 2000 Incentive Stock Plan.
(d) Except for outstanding options issued pursuant to
the Stock Plans, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital STOCK.
2.3 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the First Amended and Restated Investors' Rights Agreement, in
the form attached hereto as Exhibit D (the "Restated Investors' Rights
Agreement"), the Company has not granted or agreed to grant any registration
rights, including piggyback registration rights, to any person or entity. To the
Company's knowledge, except as contemplated in the First Amended and Restated
Voting Agreement, in the form attached hereto as Exhibit E (the "Restated Voting
Agreement"), no stockholder of the Company has entered into any agreements with
respect to the voting of capital stock of the Company. Except as contemplated by
the Restated Certificate, the Restated Voting Agreement and the First Amended
and Restated Right of First Refusal and Co-Sale Agreement, in the form attached
hereto as Exhibit F (the "Restated Co-Sale Agreement"), there are no
stockholders agreements, pledge agreements, buy-sell arrangements, rights of
first refusal or proxies related to any securities of the Company to which the
Company is subject or a party or to which, to the Company's knowledge, any
stockholder, officer, director or affiliate of the Company is a party or
subject.
2.4 SUBSIDIARIES; JOINT VENTURES. The Company does not currently
own or control, directly or indirectly, any interest in any other corporation,
association, or other business entity other than the subsidiaries set forth on
Schedule 2.4 of the Schedule of Exceptions (the "Subsidiaries"). The Company is
not a participant in any joint venture, partnership or similar arrangement.
2.5 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Restated Investors'
Rights Agreement, the Restated Voting Agreement and the Restated Co-Sale
Agreement (collectively, the "Transaction Documents"), the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Stock and the Common Stock issuable upon conversion
of the Stock (together, the "Securities") has been taken or will be taken prior
to the Closing, and the Transaction Documents, when executed and delivered by
the Company, shall constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, or (ii) to the extent the indemnification provisions contained in the
Restated Investors' Rights Agreement may be limited by applicable federal or
state
3
<PAGE> 8
securities laws. All corporate action on the part of the Company or its
predecessor, its officers, directors, stockholders and subsidiaries necessary
for the authorization, execution and delivery for all past material corporate
actions was obtained.
2.6 VALID ISSUANCE OF SECURITIES. The Stock that is being issued
to the Purchasers hereunder, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and free and clear of all
preemptive rights, rights of first refusal, liens, charges, restrictions, claims
and any other encumbrances imposed by or through the Company other than
restrictions on transfer under this Agreement, the Restated Investors' Rights
Agreement, the Restated Co-Sale Agreement and applicable state and federal
securities laws of the United States and, where applicable, provincial
securities laws of Canada. Based in part upon the representations of the
Purchasers in this Agreement and subject to the provisions of Section 2.7 below,
the Stock will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon conversion of the Stock has been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Restated Certificate, shall be duly and validly issued, fully paid
and nonassessable and free and clear of all preemptive rights, rights of first
refusal, liens, charges, restrictions, claims and any other encumbrances imposed
by or through the Company other than restrictions on transfer under this
Agreement, the Restated Investors' Rights Agreement, the Restated Co-Sale
Agreement and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws of the United
States and, where applicable, provincial securities laws of Canada.
2.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority of the United
States, or, where applicable, any federal, provincial or local government
authority of Canada, on the part of the Company is required in connection with
the consummation of the transactions contemplated by this Agreement, except for
filings pursuant to applicable state and, where applicable, provincial
securities laws and Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"). The offer, sale and issuance of the Stock, in accordance with
the terms hereof for the consideration expressed herein, are exempt from the
registration requirements of Section 5 of the Securities Act and from the
qualification requirements of applicable state securities laws.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries, or any basis therefor known to
the Company, that questions the validity of the Transaction Documents or the
right of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse change in the financial condition,
assets, liabilities, operations or financial performance of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company. Neither the Company nor any of its subsidiaries is a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its subsidiaries currently
pending or which the Company or any of its
4
<PAGE> 9
subsidiaries intends to initiate. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or technologies
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employees.
2.9 INTELLECTUAL PROPERTY. To the Company's knowledge, (i) the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, tradenames, copyrights, trade secrets, licenses, information and
proprietary rights and processes (collectively, "Intellectual Property")
necessary for its business without any conflict with, or infringement of, the
rights of others; and (ii) no third party is infringing or violating any of the
Company's Intellectual Property. The Company has not received any written
communications alleging that the Company has violated or, by conducting its
business, would violate any of the Intellectual Property of any other person or
entity. There are no outstanding options, licenses or agreements of any kind
related to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other forms.
2.10 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENTS. Each director, officer, independent contractor, consultant and
employee of the Company (collectively, "Service Providers") have entered into an
agreement with the Company, substantially in the form or forms delivered to the
Purchasers, regarding confidentiality, non-solicitation of employees and
customers and assignment of all Intellectual Property, technical information and
other information developed and/or worked on by such Service Provider while
employed or engaged with the Company (each, a "Confidentiality and Invention
Assignment Agreement"). To the Company's knowledge, (i) no past or present
Service Provider is in violation of any term of any Confidentiality and
Invention Assignment Agreement between the Company and such Service Provider;
and (ii) it is not nor will it be necessary to use any inventions of any of its
Service Providers (or persons it currently intends to hire) made prior to their
employment or engagement by the Company. Each Service Provider hired or engaged
by the Company after the date hereof shall, prior to their employment or
engagement with the Company, enter into a Confidentiality and Invention
Assignment Agreement with the Company.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation in any material respect or default of any provisions of its Restated
Certificate or Bylaws or of any provision, instrument, agreement, commitment,
arrangement, license, judgment, order, writ, decree or contract to which it is a
party or by which it is bound or, to its knowledge, of any provision of federal
or state statute, rule or regulation applicable to the Company, which violation
or default is reasonably likely to result in a material adverse effect on the
financial condition, assets, liabilities, operations or financial performance of
the Company. No event has occurred which with the passage of time or the giving
of notice, or both, would constitute a material breach of or default under any
of the foregoing, which material violation or breach or default is reasonably
likely to result in a material adverse effect on the financial condition,
assets, liabilities, operations or financial performance of the Company. The
execution, delivery and performance of the Transaction Documents and the
consummation of the transactions contemplated thereby will not result in any
such violation or breach or be in conflict with or
5
<PAGE> 10
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, agreement, commitment, arrangement, license,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company. Neither the execution or delivery of this Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business as proposed, will, to the Company's knowledge, conflict
in any material respect with or result in a material breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of the Company's employees is now
obligated.
2.12 AGREEMENTS; ACTION.
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates
or any affiliate thereof.
(b) Except as explicitly contemplated by the Transaction
Documents, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of $50,000,
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company or any of its subsidiaries, or (iii) the grant of
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person or affect the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products.
(c) Neither the Company nor any of its subsidiaries has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances to the Company's
employees for business expenses, or (iv) sold, exchanged or otherwise disposed
of any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) Except as disclosed in Section 2.12 of the Schedule
of Exceptions or as set out in the Transaction Documents, the Company has not
entered into any binding letters of intent with any corporation, partnership,
association, other business entity or any individual regarding (i) the
consolidation or merger of the Company with or into any such corporation or
other business entity, (ii) the sale, conveyance or disposition of all or
substantially all of the assets of the Company or a transaction or series of
transactions in which more than 50% of the voting power of the company is
disposed of, or (iii) any other form of acquisition, liquidation, dissolution or
winding-up of the Company.
2.13 NO CONFLICT OF INTEREST. The Company is not indebted,
directly or indirectly, to any of its officers or directors, in any amount
whatsoever, other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or relocation expenses of employees.
To the Company's knowledge, none of the Company's officers or
6
<PAGE> 11
directors are, directly or indirectly, indebted to the Company (other than in
connection with purchases of the Company's stock) or have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company (other than ownership of stock in,
but not exceeding two percent (2%) of the outstanding capital stock of, any
publicly traded company that competes with the Company). To the Company's
knowledge, none of the Company's officers or directors are, directly or
indirectly, interested in any material contract with the Company. The Company is
not a guarantor of any indebtedness of any other person, firm or corporation.
2.14 TITLE TO PROPERTY AND ASSETS. The Company has good and
valid title to all of its properties and assets, both real and personal, and has
good title to all its leasehold interests, in each case free and clear of all
mortgages, liens, pledges, loans, security interests, conditional sales
agreements, encumbrances or charges, except for Permitted Liens (as defined
below). The Company owns or leases all properties and assets reasonably
necessary to the operation of its business as now conducted. With respect to the
property and assets it leases, the Company is in compliance with such leases
and, to the Company's knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances, except for Permitted Liens. For purposes of this
Agreement, "Permitted Liens" shall mean any (a) mechanics', carriers', workers'
and other similar liens arising in the ordinary course of business which are not
delinquent and which in the aggregate are not material in amount, and do not
interfere with the present use of the assets of the Company to which they apply;
(b) liens for current taxes and assessments not yet due and payable; (c) liens
and encumbrances that have arisen in the ordinary course of business and that do
not (in any case or in the aggregate) materially detract from the value of the
assets subject thereto or materially impair the operations of the Company; and
(d) with respect to any asset of the Company which consists of a leasehold or
other possessory interest in real property, all encumbrances, covenants,
imperfections in title, easements, restrictions and other title matters (whether
or not the same are recorded) not known to the Company to which the underlying
fee estate in such real property is subject which were not created by or
incurred by the Company.
2.15. FINANCIAL STATEMENTS. Attached hereto as Exhibit G are
the unaudited balance sheet of the Company as of September 30, 1999, together
with an unaudited statement of income and expenses and statement of cash flows
for the nine month period ended September 30, 1999 (collectively, the "Financial
Statements"). The Financial Statements are complete and in accordance with the
books and records of the Company and fairly present the financial position of
the Company on the dates thereof. The Financial Statements fairly set out and
describe the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject to the lack of footnote
disclosures and normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1999, (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, and (iii) performance obligations of the Company under the
Transaction Documents.
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2.16 CHANGES. Since September 30, 1999 there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction, loss or other occurrence or
development materially and adversely affecting the business, properties or
financial condition of the Company;
(c) any waiver or compromise by the Company of a
valuable right or any material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, business, properties
or financial condition or operating results of the Company;
(e) any material change or amendment to a material
contract or agreement by which the Company or any of its assets or properties is
bound or subject;
(f) any material change or amendment in any compensation
arrangement or agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any
officer or key employee of the Company; and the Company, is not aware of any
impending resignation or termination of employment of any such officer or key
employee;
(i) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect to any of its
material properties or assets, except for Permitted Liens;
(j) any loans or guarantees made by the Company to or
for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties or financial condition of the Company; or
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(m) any arrangement or commitment by the Company to do
any of the things described in this Section 2.16.
2.17 DISTRIBUTIONS. There has been no declaration or payment by
the Company of any dividend, nor any distribution by the Company of any assets
of any kind, to any of its stockholders.
2.18 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns and reports as required by applicable law and such tax returns and
reports are true and correct in all material respects. The Company has paid all
taxes, fees, assessments and other governmental charges upon the Company, or
upon any of its properties, income, or franchises, shown in such returns and on
assessments received by the Company to be due as of the date hereof and no such
taxes or assessments are being contested.
2.19 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and has such other insurance policies and
coverages as are customary in the Company's industry.
2.20 EMPLOYEE BENEFIT PLANS. The Company has previously provided
to the Purchasers or Purchasers' counsel copies of all currently effective
employment contracts, deferred compensation arrangements, bonus plans, incentive
plans, profit sharing plans, retirement agreements or other employee
compensation agreements, and disclosed the existence of such plans and
agreements in Section 2.20 of the Schedule of Exceptions. The Company does not
have any Employee Benefit Plan as defined in the Employee Retirement Income
Security Act of 1974, as amended.
2.21 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the knowledge of the Company threatened, which could have
a material adverse effect on the financial condition, assets, liabilities,
operations or financial performance of the Company, nor is the Company aware of
any labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
The services of each consultant and independent contractor is terminable by the
Company upon not more than thirty (30) days prior written notice. To its
knowledge, the Company has complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related
to employment.
2.22 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. To the
Company's knowledge, it has obtained all material permits, licenses and other
authorizations required under federal, state and local laws relating to
pollution or protection of the environment. The Company has not violated any
applicable Environmental Law, the violation of which is reasonably likely to
result in a material adverse change in the financial condition, assets,
liabilities, operations or
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financial performance of the Company. To the knowledge of the Company, there are
no present requirements of any applicable Environmental Law which is due to be
imposed upon it which will materially increase its cost of complying with the
Environmental Laws. All past on-site generation, treatment, storage and disposal
of Waste, including Hazardous Waste, by the Company and, to its knowledge, by
its predecessors have been done in compliance with the currently applicable
Environmental Laws, and all past off-site treatment, storage and disposal of
Waste, including Hazardous Waste, generated by the Company and, to its
knowledge, by its predecessors have been done in compliance with the currently
applicable Environmental Laws. As used in this Agreement, the terms (i)
"Environmental Laws" include, but are not limited to, any federal, state, local
or foreign law, statute, charter or ordinance, and any rule, regulation, binding
interpretation, binding policy, permit, order, court order or consent decree
issued pursuant to any of the foregoing, which pertains to, governs or otherwise
regulates any of the following activities, including, without limitation, (a)
the emission, discharge, release or spilling of any substance into the air,
surface water, groundwater, soil or substrata; (b) the manufacturing,
processing, sale, generation, treatment, storage, disposal labeling or other
management of any Waste, Hazardous Substance or Hazardous Waste, and (ii)
"Waste," "Hazardous Substance," and "Hazardous Waste" include any substance
defined as such by any applicable Environmental Law.
2.23 PERMITS. The Company and each of its subsidiaries has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could materially and adversely affect
the business, properties or financial condition of the Company and, to its
knowledge, it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.24 PRIVATE OFFERING. Neither the Company nor anyone acting on
its behalf has offered any of the Stock or similar securities for issuance or
sale to, or solicited any offer to acquire any of the same from, anyone so as to
make the issuance and sale of the Stock subject to registration requirements of
Section 5 of the Securities Act.
2.25 BROKERS AND FINDERS. The Company has not retained any
investment banker, broker, finder or any other third party in connection with
the transactions contemplated by this Agreement, except that the Company has
retained, and shall be responsible for the fees and expenses of, McDonald
Investments to act as its agent with respect to certain placements of the Stock
offered hereby.
2.26 CERTIFICATE OF INCORPORATION. At the time of Closing, the
Company's certificate of incorporation on file with the Secretary of the State
of Delaware shall be in the form of the Restated Certificate, and no action
shall have been taken to amend or modify such Restated Certificate.
2.27 BYLAWS. The Bylaws of the Company are in the form attached
hereto as Exhibit H and no action has been taken to amend or modify such Bylaws.
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2.28 DISCLOSURE. The Company has provided the Purchasers with
all the information that the Purchasers have requested for deciding whether to
acquire the Stock. This Agreement, including all representations herein by the
Company, and any exhibits hereto and the historical and factual information
contained in the Company's Confidential Information Memorandum dated December,
1999 (the "Memorandum") or any certificate furnished or to be furnished to
Purchasers at the Closing, taken together, do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. The projections set forth in the
Memorandum were prepared by the Company in good faith based upon assumptions
which the Company deemed reasonable.
2.29 COMPLIANCE WITH OTHER LAWS. The Company has complied in all
material respects with all laws, statutes, rules, regulations and orders of,
and, to its knowledge, has secured all necessary permits and authorizations and
licenses issued by, federal, state, local and foreign agencies and authorities,
applicable to its business, properties and operations.
2.30 YEAR 2000 COMPLIANCE. To the Company's knowledge, each item
of software and hardware that has been developed by the Company is Year 2000
Compliant (as defined below). For purposes of this Section 2.30, an item of
software or hardware shall be deemed to be "Year 2000 Compliant" only if
operating on a stand-alone basis without reference to dates supplied by third
party software or hardware: (i) the functions, calculations, and other computing
processes of such item of software or hardware (collectively, "Processes")
perform without interruption related to the processing of date data representing
calendar dates before, on or after January 1, 2000; (ii) such item of software
or hardware accepts, calculates, compares, sorts, extracts, sequences and
otherwise processes date inputs and date values, and returns and displays date
values, without interruption related to the processing of date data representing
calendar dates before, on or after January 1, 2000; (iii) such item of software
or hardware stores and displays date information without interruption related to
the processing of date data representing calendar dates before, on or after
January 1, 2000; and (iv) such item of software or hardware determines leap
years without interruption related to the processing of date data representing
calendar dates before, on or after January 1, 2000, unless, in each case, such
interruption related to the processing of date data representing calendar dates
before, on or after January 1, 2000 is caused by external sources, such as in
third party operating systems, data, or other applications not supplied by the
Company, or with respect to incorrect or two-digit date information provided by
the user, third party operating systems or from any other external product,
source or interface.
3. INTERPRETATION.
(a) For the purposes of the representations and warranties
contained in Section 2, whenever "to the Company's knowledge" or "to its
knowledge" is used, it means to the knowledge of the officers and directors of
the Company after making such diligent inquiry as may be reasonable under the
circumstances.
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(b) For the purposes of the representations and warranties
contained in Section 2, all references to the "Company" shall be deemed to
include Programmed Solutions, Inc. and the Subsidiaries.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:
4.1 AUTHORIZATION. Such Purchaser has full power and authority
to enter into the Transaction Documents. The Transaction Documents, when
executed and delivered by the Purchaser, will constitute valid and legally
binding obligations of the Purchaser, enforceable in accordance with their
respective terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors' rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief, or other equitable remedies, or (b) to the extent the indemnification
provisions contained in the Restated Investors' Rights Agreement may be limited
by applicable federal or state securities laws.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representations to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof in
violation of the Securities Act, and that the Purchaser has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the Securities Act. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
4.3 DISCLOSURE OF INFORMATION. The Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Stock with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as any other written
information delivered by the Company to the Purchaser, were intended to describe
the aspects of the Company's business which it believes to be material.
4.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has
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no obligation to register or qualify the Securities for resale except as set
forth in the Restated Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements, including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy except as specifically provided in the Restated Investors' Rights
Agreement.
4.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
4.6 LEGENDS. The Purchaser understands that the Securities, and
any securities issued in respect of or exchange for the Securities, may bear one
or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Transaction
Documents.
(c) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
4.7 ACCREDITED INVESTOR. The Purchaser is an accredited investor
as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4.8 FOREIGN INVESTORS. If the Purchaser is not a United States
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Securities or any use of this Agreement,
including (i) the legal requirements within its jurisdiction for the purchase of
the Securities, (ii) any foreign exchange restrictions applicable to such
purchase, (iii) any governmental or other consents that may need to be obtained,
and (iv) the income tax and other tax consequences, if any, that may be relevant
to the purchase, holding, redemption, sale, or transfer of the Securities. Such
Purchaser's subscription and payment for and continued beneficial ownership of
the Securities, will not violate any applicable securities or other laws of the
Purchaser's jurisdiction.
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5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
Purchaser that:
5.1 COMPLIANCE. The Company shall comply with all laws, rules,
regulations and orders, the non-compliance with which could materially and
adversely affect the financial condition, assets, liabilities, operations or
financial performance of the Company or its obligations under this Agreement or
any other agreement with each Purchaser.
5.2 PERFORMANCE. The Company shall diligently observe and
perform or cause to be observed and performed all covenants to be observed or
performed under the Transaction Documents and under any other agreement between
the Company and each Purchaser.
5.3 BOOKS AND RECORDS. The Company shall maintain complete and
accurate records and books of account in which entries shall be made in
accordance with generally accepted accounting principles consistently applied,
reflecting all transactions of the Company and its subsidiaries, if any.
5.4 RENEWALS AND GOOD STANDING. The Company shall (a) do all
things necessary to obtain, promptly renew and maintain in good standing from
time to time, all approvals, leases, licenses, permits and consents as are
required to own, develop and operate the business, assets or operations of the
Company and undertaking, except where the failure to obtain, renew or maintain
in good standing such approvals, leases, licenses, permits and consents is not
reasonably likely to result in a material adverse change in the Company's
financial condition, assets, liabilities, operations or financial performance
and (b) perform its obligations under this Agreement and all other agreements
between the Company and each Purchaser.
5.5 PRINCIPAL BUSINESS. Prior to the initial public offering of
the Company's Common Stock, the Company shall not change its principal business
or engage in any other business from that which it is engaged on the date of
this Agreement without the written consent of at least two-thirds of the holders
of shares of Stock converted or convertible into Common Stock.
5.6 PROPRIETARY INFORMATION AND ASSIGNMENT AGREEMENT. The
Company shall require all future officers, directors and employees of the
Company and each subsidiary of the Company to execute and deliver a proprietary
information and assignment agreement and shall require all future consultants
and independent contractors to the Company to execute and deliver a consulting
agreement which provides substantially similar protection from misappropriation
to the intellectual property of the Company.
5.7 STOCK OPTIONS. All stock options granted by the Company
shall have a term of ten (10) years and shall be exercisable, over time, based
upon continued employment over a vesting period to be determined by the
Company's Board of Directors. The per share exercise price of all options
granted by the Company will be no less than the fair market value on the date of
grant as determined by the Board of Directors in good faith. Unless otherwise
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specifically approved by the Board of Directors, options granted by the Company
will not accelerate upon a change of control of the Company or any subsidiary of
the Company.
5.8 SECURITIES FILINGS. Within the prescribed time after the
Closing, the Company shall file all documents and take all proceedings required
to be taken by it to permit the Stock to be distributed to each Purchaser in
compliance with applicable federal and state securities laws and the applicable
securities legislation in Canada.
5.9 INVESTMENT OF FUNDS. The Company shall not make any
investments in any securities, other than high grade commercial paper or other
form of comparable security.
5.10 DIRECTORS' AND OFFICERS' INSURANCE. Within 45 days after
the Closing, the Company agrees to have in place Directors' and Officers'
insurance, from a reputable organization, of such type and amount as a
comparable company in its industry.
5.11 SURVIVAL OF COMPANY'S COVENANTS. The covenants of the
Company set forth in this Section 5 will survive the completion of the
transactions contemplated by this Agreement and will continue in full force and
effect for the benefit of each Purchaser until the earlier to occur of (a) five
(5) years from the Closing, or (b) the consummation of a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement under the Securities Act, the public
offering price of which is not less than $11.60 per share (appropriately
adjusted for any stock split, dividend, combination or other recapitalization)
and which results in aggregate gross cash proceeds to the Company of at least
$30,000,000 (before underwriting discounts and commissions).
6. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT THE CLOSING. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
6.2 PERFORMANCE. The Company shall have performed and complied
in all material respects with all covenants, agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.
6.3 COMPLIANCE CERTIFICATE. The President or CEO of the Company
shall deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 6.1 and 6.2 have been fulfilled.
6.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required to be obtained prior to the Closing in connection
with the lawful issuance and sale of the Stock pursuant to this Agreement shall
be obtained and effective as of the Closing.
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6.5 WRITTEN CONSENTS. The Company shall have obtained and
delivered to the Purchasers any and all written waivers, permits, consents and
approvals required to be obtained prior to the Closing in connection with the
consummation of the transactions contemplated by the Transaction Documents in a
form and content reasonably acceptable to the Purchasers.
6.6 STOCK CERTIFICATES. The Company shall have delivered to the
Purchasers stock certificates in form and content acceptable to the Purchasers
and sufficient to transfer to and vest in each Purchaser good and valid title to
the purchased Stock free of any lien created by or through the Company.
6.7 RESTATED CERTIFICATE. The Company shall have filed the
Restated Certificate with the Department of State of the State of Delaware on or
prior to the Closing, which shall continue to be in full force and effect as of
the Closing.
6.8 RESTATED INVESTORS' RIGHTS AGREEMENT. The Company, each
Purchaser and Creo SRL ("Creo") shall have executed and delivered the Restated
Investors' Rights Agreement in substantially the form attached as Exhibit D.
6.9 RESTATED CO-SALE AGREEMENT. The Company, each Purchaser, the
holders of a majority of the outstanding Founders Shares (as defined in the
Restated Co-Sale Agreement), and Creo shall have executed and delivered the
Restated Co-Sale Agreement in substantially the form attached as Exhibit F.
6.10 RESTATED VOTING AGREEMENT. The Company, each Purchaser and
Creo shall have executed and delivered the Restated Voting Agreement in
substantially the form attached as Exhibit E.
6.11 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENT. The Company and each of its Service Providers (other than as set
forth on Section 2.10 of the Schedule of Exceptions) shall have entered into a
Confidential Information and Invention Assignment Agreement, in substantially
the form provided to the Purchasers.
6.12 NO MATERIAL ADVERSE CHANGE. Except as set forth on the
Schedule of Exceptions, there shall have been no material adverse change in the
Company's the financial condition, assets, liabilities, operations or financial
performance since September 30, 1999 (it being understood that none of the
following shall be deemed, in and of itself, to constitute a material adverse
change in the financial condition, assets, liabilities, operations or financial
performance of the Company since September 30, 1999: (a) a change that results
from conditions generally affecting the U.S. economy or the world economy, (b) a
change that results from conditions generally affecting the Company's industry,
(c) a change that results from the announcement or pendency of the transactions
contemplated hereby and (d) a change that results from the taking of any action
required by this Agreement).
6.13 DUE DILIGENCE. The Purchasers shall have completed and be
satisfied with their due diligence investigation into the Company, in the
Purchasers' reasonable discretion.
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6.14 COMPANY LEGAL OPINIONS. Orrick, Herrington & Sutcliffe LLP,
special counsel for the Company, shall have delivered a legal opinion to the
Purchasers in the form attached hereto as Exhibit J, and Mathew D'Emilio,
counsel for the Company, shall have delivered a legal opinion to the Purchasers
in the form attached hereto as Exhibit K.
6.15 CLOSING OF CREO TRANSACTION. The Company shall have
completed and otherwise closed the transactions contemplated by that certain
Series B Preferred Stock Purchase Agreement, dated as of February 9, 2000,
between the Company and Creo, and that certain Strategic Alliance Agreement
between the Company and Creo Products, Inc. shall have become effective in
accordance with the terms thereof.
6.16 CLOSING OF PSI TRANSACTION. The Company shall have
completed and otherwise closed the transactions contemplated by that certain
Stock Purchase Agreement, dated as of January 13, 2000, between the Company and
PSI.
6.17 NO LITIGATION. There shall be no action, suit or proceeding
or investigation instituted or threatened to set aside the transactions provided
for herein or to enjoin or prevent the consummation of the transactions
contemplated hereby.
6.18 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be in form and
substance satisfactory to each Purchaser and its counsel and each Purchaser
shall have received all such counterpart originals or certified or other copies
of such documents as it may reasonably request.
6.19 BOARD OF DIRECTORS. The Company shall have reconstituted
the Board of Directors of the Company in accordance with the Restated Voting
Agreement and the Company shall have entered into indemnity agreements with each
of the directors in the form attached hereto as Exhibit I.
6.20 CLOSING DOCUMENTS. The Company shall have delivered the
following documents to each of the Purchasers:
(a) copies certified by the Secretary of the Company of
the resolutions duly adopted by the Company's board of directors authorizing and
approving: (i) the execution, delivery and performance of the Transaction
Documents and each of the other agreements contemplated hereby, (ii) the
Restated Certificate and the filing of the Restated Certificate with the
Secretary of the State of Delaware, (iii) the reservation for issuance upon
conversion of the Series C Preferred Stock of an aggregate number of shares of
Common Stock equal to the total number of shares initially issuable upon
conversion, (iv) the issuance and sale of the Series C Preferred Stock, and (v)
the consummation of all other transactions contemplated by the Transaction
Documents;
(b) copies certified by the Secretary of the Company of
the resolutions of the Company's stockholders authorizing and approving the
Restated Certificate and the filing of the Restated Certificate with the
Delaware Secretary of the State;
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(c) copies certified by the Secretary of the Company of
the Restated Certificate (as filed with the Delaware Secretary of the State) and
the Company's Bylaws, each as in effect at the Closing;
(d) a good standing certificate with respect to the
Company from the Delaware Secretary of State; and
(e) such other documents relating to the transactions
contemplated by this Agreement as the Purchasers or their counsel may reasonably
request.
6.21 PAYOFF OF SILICON VALLEY BANK LOAN. The Company shall have
paid in full all amounts due and payable under and pursuant to that certain
Assumption Agreement, dated October 31, 1999, between the Company and Silicon
Valley Bank, and shall have delivered to counsel to the Purchasers a payoff
letter or other evidence of cancellation of indebtedness related thereto.
6.22 GENERAL.
(a) Each Purchasers obligations under Section 1 shall be
contingent upon the performance by each other Purchaser of its obligations under
Section 1.
(b) In any event the Purchasers may in their sole
discretion waive any conditions to the Closing and close. No such waiver shall
be effective unless it shall be in writing and signed by each Purchaser.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 4 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
7.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.
7.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties and representations of the Company contained in
Section 2 hereof shall survive
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the execution and delivery of this Agreement and the Closing for a period of two
(2) years following the Closing.
8.2 ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents constitute the entire agreement between the Company and the Purchasers
relative to the subject matter hereof and thereof. Any previous agreement or
negotiations between the Company and the Purchasers concerning the subject
matter hereof is superseded by this Agreement and the Transaction Documents
except for any agreements relating to confidentiality.
8.3 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8.4 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.
8.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
8.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.7 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or five (5) days
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, addressed to the party to be notified at such party's address
as set forth on the signature page or Exhibit A hereto, or as subsequently
modified by written notice, and if to the Company, with a copy (not constituting
notice) to Orrick, Herrington & Sutcliffe LLP, 400 Capitol Mall, Suite 3000,
Sacramento, California 95814, Attention: Iain Mickle.
8.8 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction except as set forth on the Schedule of Exceptions. Each Purchaser
agrees to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such Purchaser or any of its officers, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Purchaser
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against
19
<PAGE> 24
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
8.9 ATTORNEY'S FEES. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
the Transaction Documents, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
8.10 AMENDMENTS AND WAIVERS OF AGREEMENT. Any term of this
Agreement may be amended or waived only with the written consent of the Company
and at least a majority of the holders of shares of Stock converted or
convertible into the Common Stock. Any amendment or waiver effected in
accordance with this Section 8.10 shall be binding upon the Purchasers and each
transferee of the Stock (or the Common Stock issuable upon conversion thereof),
each future holder of all such securities, and the Company.
8.11 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of
this Agreement shall be interpreted as if such provision were so excluded and
(c) the balance of this Agreement shall be enforceable in accordance with its
terms.
8.12 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and signed
by the party charged with such waiver and such waiver shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
8.13 CONFIDENTIALITY. Each party hereto agrees that, except with
the prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder; provided, however, that the receiving
party may disclose such information (i) on a confidential basis to its
attorneys, accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective purchaser of Stock from the such receiving
party as long as such prospective
20
<PAGE> 25
purchaser agrees in writing to be bound by the provisions of this Section 8.13,
(iii) on a confidential basis to any affiliate or partner of such receiving
party and (iv) as required by judicial decree or applicable law. The provisions
of this Section 8.13 shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by the parties
hereto with respect to the transactions contemplated hereby.
8.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Securities.
8.15 INDEMNIFICATION. The Company shall defend, indemnify and
hold the Purchasers harmless from and against any and all claims, liabilities,
damages, losses and expenses, including reasonable attorney's fees and expenses
and costs of suit, arising out of any breach of the representations and
warranties, and out of any and all breaches of covenants, warranties,
stipulations, agreements and certifications made by or on behalf of the Company,
in the Transaction Documents or in any document delivered hereunder or
thereunder.
8.16 PRESS RELEASE. Upon the consummation of this transaction,
the Company may issue a press release identifying Mellon Ventures II, L.P.
("Mellon"), Key Principal Partners LLC ("Key") and/or BancBoston Capital
("BancBoston") as a Purchaser, subject to the prior approval by Mellon, Key
and/or BancBoston, as applicable, of such press release, which approval will not
be unreasonably withheld.
8.17 USE OF PROCEEDS. The proceeds the Company shall receive
upon the consummation of the transactions contemplated hereby shall be solely
used for product development, working capital and other general corporate
purposes and not for investment purposes other than high grade commercial paper
or other instruments.
[Signature Pages Follow]
21
<PAGE> 26
The parties have executed this Series C Preferred Stock Purchase
Agreement as of the date first written above.
COMPANY:
PRINTCAFE, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address: 40 24th Street, 5th Floor
Pittsburgh, PA 15222
Attn: President
Fax: (412) 456-1151
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 27
PURCHASERS:
MELLON VENTURES II, L.P.
By its general partner
MVMA II L.P.
By its general partner
MVMA Inc.
By:
---------------------------------
Ryan Busch, Senior Associate
KEY PRINCIPAL PARTNERS LLC
By:
---------------------------------
John Sinnenberg, President
BANCBOSTON CAPITAL INC.
By:
---------------------------------
Jason Hurd, Vice President
ORRICK, HERRINGTON & SUTCLIFFE LLP
By:
---------------------------------
Name:
Title:
MENLO VENTURES VII, L.P.
By: MV MANAGEMENT VII, L.L.C.,
its General Partner
By:
---------------------------------
Its Managing Member
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 28
MENLO ENTREPRENEURS FUND VII, L.P.
By: MV MANAGEMENT VII, L.L.C.,
its General Partner
By:
---------------------------------
Its Managing Member
OLYMPIC VENTURE PARTNERS III, L.P.
By: OVMC III, L.P.,
its General Partner
By:
---------------------------------
Name:
Title:
OVP III ENTREPRENEURS FUND
By OVMC III, L.P.,
its General Partner
By:
---------------------------------
Name:
Title:
------------------------------------
Iain Mickle
------------------------------------
Gary Herrmann
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE> 29
EXHIBITS
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Amended and Restated Certificate of Incorporation
Exhibit C - Schedule of Exceptions to Representations and Warranties
Exhibit D - Form of Restated Investors' Rights Agreement
Exhibit E - Restated Voting Agreement
Exhibit F - Form of Restated Co-Sale Agreement
Exhibit G - Financial Statements
Exhibit H - Form of Bylaws
Exhibit I - Form of Indemnification Agreement
Exhibit J - Form of Opinion of Orrick, Herrington & Sutcliffe LLP
Exhibit K - Form of Opinion of Mathew D'Emilio
<PAGE> 30
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NO. OF SHARES OF NO. OF SHARES OF
SERIES C SERIES C-1
NAME/ADDRESS/FAX NO. PREFERRED STOCK PREFERRED STOCK
-------------------- ------------------ -----------------
<S> <C> <C>
BancBoston Capital Inc.
Attn: Jason H. Hurd 172,413
175 Federal Street, 10th Floor
Boston, MA 02110
Fax: (617) 434-1153
Gary Herrmann
c/o Orrick, Herrington & Sutcliffe LLP 862
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, CA 94111-3143
Fax: (415) 773-5759
Key Principal Partners LLC
Attn: Bill Blake 344,827
127 Public Square, 2nd Floor
Cleveland, OH 44114
Fax: (216) 689-4121
Mellon Venture II, L.P.
c/o Mellon Ventures, Inc. 1,143,103 150,000
Attn: Ryan Busch
One Mellon Center, Suite 5300
Pittsburgh, PA 15258-0001
Fax: (412) 236-3593
Menlo Ventures VII, L.P.
Attn: Doug Carlisle 55,776
3000 Sand Hill Road M
Building 4 Suite 100
Menlo Park, CA 94026
Fax: (650) 854-8540
Menlo Entrepreneurs Fund VII, L.P.
Attn: Doug Carlisle 2,474
3000 Sand Hill Road M
Building 4 Suite 100
Menlo Park, CA 94026
Fax: (650) 854-8540
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
NO. OF SHARES OF NO. OF SHARES OF
SERIES C SERIES C-1
NAME/ADDRESS/FAX NO. PREFERRED STOCK PREFERRED STOCK
-------------------- ------------------ -----------------
<S> <C> <C>
Iain Mickle
c/o Orrick, Herrington & Sutcliffe 862
LLP
400 Capitol Mall, Suite 3000
Sacramento, CA 95814
Fax: (916) 329-4900
Olympic Venture Partners III, L.P.
Attn: George Clute 30,337
2420 Carillon Point
Kirkland, WA 98033
Fax: (425) 889-0153
OVP III Entrepreneurs Fund
Attn: George Clute 1,426
2420 Carillon Point
Kirkland, WA 98033
Fax: (425) 889-0153
Orrick, Herrington & Sutcliffe LLP
Old Federal Reserve Bank Building 13,000
400 Sansome Street
San Francisco, CA 94111-3143
Fax: (415) 773-5759
TOTAL 1,765,082 150,000
</TABLE>
<PAGE> 1
EXHIBIT 10.14
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PRINTCAFE, INC.
PRINTCAFE SYSTEMS, INC.
HAGEN SYSTEMS, INC.
AND
STOCKHOLDERS
OF HAGEN SYSTEMS, INC.
FEBRUARY 22, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. THE MERGER........................................................................................... 1
1.1 The Merger................................................................................. 1
1.2 Closing; Effective Time.................................................................... 2
1.3 Effect of the Merger....................................................................... 2
1.4 Certificate of Incorporation; Bylaws....................................................... 2
1.5 Directors and Officers..................................................................... 2
1.6 Effect on Capital Stock.................................................................... 2
1.7 Surrender of Certificates.................................................................. 4
1.8 No Further Ownership Rights in Target Capital Stock........................................ 5
1.9 Tax and Accounting Consequences............................................................ 5
1.10 Taking of Necessary Action; Further Action................................................. 6
1.11 Withholding................................................................................ 6
1.12 Lost, Stolen or Destroyed Certificates..................................................... 6
2. REPRESENTATIONS AND WARRANTIES OF TARGET AND TARGET STOCKHOLDERS..................................... 6
2.1 Organization; Subsidiaries................................................................. 7
2.2 Articles of Incorporation; Bylaws.......................................................... 7
2.3 Capital Structure.......................................................................... 7
2.4 Authority.................................................................................. 8
2.5 No Conflicts; Required Filings and Consents................................................ 8
2.6 Financial Statements....................................................................... 9
2.7 Absence of Undisclosed Liabilities......................................................... 9
2.8 Absence of Certain Changes................................................................. 9
2.9 Litigation................................................................................. 11
2.10 Restrictions on Business Activities........................................................ 11
2.11 Permits; Company Products; Regulation...................................................... 12
2.12 Title to Property.......................................................................... 13
2.13 Intellectual Property...................................................................... 13
2.14 Environmental Matters...................................................................... 15
2.15 Taxes...................................................................................... 16
2.16 Employee Benefit Plans..................................................................... 19
2.17 Certain Agreements Affected by the Merger.................................................. 21
2.18 Employee Matters........................................................................... 21
2.19 Material Contracts......................................................................... 22
2.20 Interested Party Transactions.............................................................. 23
2.21 Insurance.................................................................................. 23
2.22 Compliance With Laws....................................................................... 24
2.23 Minute Books............................................................................... 24
2.24 Brokers' and Finders' Fees................................................................. 24
2.25 Vote Required.............................................................................. 24
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
2.26 Board Approval............................................................................. 24
2.27 Accounts Receivable........................................................................ 24
2.28 Customers and Suppliers.................................................................... 25
2.29 Third Party Consents....................................................................... 25
2.30 No Commitments Regarding Future Products................................................... 25
2.31 Representations Complete................................................................... 25
3. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB............................................ 26
3.1 Organization, Standing and Power........................................................... 26
3.2 Capital Structure.......................................................................... 26
3.3 Authority.................................................................................. 27
3.4 No Conflict; Required Filings and Consents................................................. 28
3.5 Absence of Undisclosed Liabilities......................................................... 28
3.6 Absence of Certain Changes................................................................. 28
3.7 Litigation................................................................................. 28
3.8 Governmental Authorization................................................................. 29
3.9 Compliance With Laws....................................................................... 29
3.10 Broker's and Finders' Fees................................................................. 29
3.11 Accounting and Tax Matters................................................................. 29
3.12 Hart-Scott-Rodino Exemption................................................................ 29
3.13 Securities Laws............................................................................ 29
3.14 Representations Complete................................................................... 29
4. CONDUCT PRIOR TO THE EFFECTIVE TIME.................................................................. 30
4.1 Conduct of Business of Target and Acquiror................................................. 30
4.2 Conduct of Business of Target.............................................................. 31
4.3 No Solicitation............................................................................ 33
5. ADDITIONAL AGREEMENTS................................................................................ 33
5.1 Best Efforts and Further Assurances........................................................ 33
5.2 Consents; Cooperation...................................................................... 33
5.3 Access to Information...................................................................... 34
5.4 Confidentiality............................................................................ 35
5.5 Public Disclosure.......................................................................... 35
5.6 FIRPTA..................................................................................... 35
5.7 State Statutes............................................................................. 35
5.8 Blue Sky Laws.............................................................................. 35
5.9 Stockholder's Representation Agreements.................................................... 35
5.10 Maintenance of Target Indemnification Obligations.......................................... 36
5.11 Non-Competition Agreements................................................................. 36
5.12 Certain Tax Matters........................................................................ 36
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
5.13 401(k) Plan................................................................................ 37
5.14 Waiver of Dissenter's Rights............................................................... 37
5.15 Stock Option Agreements.................................................................... 37
6. CONDITIONS TO THE MERGER............................................................................. 37
6.1 Conditions to Obligations of Each Party to Effect the Merger............................... 37
6.2 Additional Conditions to Obligations of Target............................................. 38
6.3 Additional Conditions to the Obligations of Acquiror and Merger Sub........................ 40
7. TERMINATION, AMENDMENT AND WAIVER.................................................................... 42
7.1 Termination................................................................................ 42
7.2 Effect of Termination...................................................................... 43
7.3 Expenses................................................................................... 43
7.4 Amendment.................................................................................. 43
7.5 Extension; Waiver.......................................................................... 43
8. ESCROW AND INDEMNIFICATION........................................................................... 43
8.1 Survival of Representations and Warranties................................................. 43
8.2 Escrow Fund................................................................................ 44
8.3 Indemnification by Target and Target Shareholders.......................................... 44
8.4 Damages Threshold.......................................................................... 45
8.5 Escrow Period.............................................................................. 45
8.6 Method of Asserting Claims................................................................. 45
8.7 Representative of the Stockholders; Power of Attorney...................................... 45
8.8 Indemnification by Acquiror................................................................ 46
8.9 Damages Threshold.......................................................................... 46
9. GENERAL PROVISIONS................................................................................... 46
9.1 Notices.................................................................................... 46
9.2 Interpretation............................................................................. 47
9.3 Counterparts............................................................................... 48
9.4 Entire Agreement; Nonassignability; Parties in Interest.................................... 48
9.5 Severability............................................................................... 48
9.6 Remedies Cumulative........................................................................ 48
9.7 Governing Law.............................................................................. 48
9.8 Rules of Construction...................................................................... 48
9.9 Amendments and Waivers..................................................................... 48
</TABLE>
iii
<PAGE> 5
EXHIBITS
Exhibit A - Delaware Certificate of Merger
Exhibit B - Minnesota Certificate of Merger
Exhibit C - Exchange Ratio
Exhibit D - FIRPTA Certificate
Exhibit E - Stockholder's Representation Agreement
Exhibit F - Non-Competition Agreement
Exhibit G - Employment Agreements
Exhibit H - Legal Opinion from Acquiror's Counsel
Exhibit I - Legal Opinion from Target's Counsel
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of February 22, 2000 by and among printCafe, Inc., a Delaware
corporation ("Acquiror"), printCafe Systems, Inc., a Delaware corporation and
wholly a owned subsidiary of Acquiror ("Merger Sub"), Hagen Systems, Inc., a
Minnesota corporation ("Target"), and Richard J. Hagen, Steven R. Peterson and
Patricia J. Peterson (each a "Target Stockholder" and, collectively, the "Target
Stockholders").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub and the
Target Stockholders believe it is in the best interests of their respective
companies and the stockholders of their respective companies that Target and
Merger Sub combine into a single company through the merger of Merger Sub and
Target (the "Merger") and, in furtherance thereof, have approved the Merger.
Pursuant to the Merger, among other things, the outstanding shares of capital
stock of Target (the "Target Capital Stock") shall be converted into shares of
the Class A Common Stock, par value $0.0001 per share, of Acquiror (the
"Acquiror Common Stock"), at the rates set forth herein and the right to receive
cash and subordinated promissory notes at the rates set forth herein.
B. Target, Acquiror and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code.
AGREEMENT
In consideration of the premises and the mutual representations,
warranties and covenants set forth below, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION ONE
1. THE MERGER.
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the
certificate of merger to be filed with the Secretary of State of the State of
Delaware attached hereto as Exhibit A (the "Delaware Certificate of Merger") the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
the certificate of merger to be filed with the Secretary of State of the State
of Minnesota attached hereto at Exhibit B (the "Minnesota Certificate of
Merger"), the applicable provisions of the Minnesota Business Corporation Act
("Minnesota Law"), Target shall be merged with and into Merger Sub, the separate
corporate existence of
1
<PAGE> 7
Target shall cease and Merger Sub shall continue as the surviving corporation of
the Merger. Merger Sub as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place as soon as
practicable, (and in no event later than 5 business days after the satisfaction
or waiver of each of the conditions set forth in Section 4 below) or at such
other time as the parties agree (the "Closing Date"). In connection with the
Closing, the parties shall cause the Merger to be consummated by filing the
Certificate of Merger, with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of Delaware Law (the time of such filing
being the "Effective Time") and shall file the Minnesota Certificate of Merger
with the Secretary of State of the State of Minnesota, in accordance with the
relevant provisions of Minnesota Law. The Closing shall take place at the
offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York, or at such other location as the parties agree.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Delaware Certificate of
Merger, the applicable provisions of Delaware Law, the Minnesota Certificate of
Merger and the applicable provisions of Minnesota Law. At the Effective Time,
all the property, rights, privileges, powers and franchises of Target and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Target and Merger Sub shall become the debts, liabilities and duties
of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation.
(b) At the Effective time, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, and the officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Merger Sub, Target or any of their respective
stockholders, the following shall occur at the Effective Time:
(a) CONVERSION OF TARGET CAPITAL STOCK. All of the issued and
outstanding shares of Common Stock, par value $0.01 per share, of Target (the
"Target Common
2
<PAGE> 8
Stock") issued and outstanding immediately prior to the Effective Time (other
than shares to be cancelled pursuant to Section 1.6(b) and shares, if any, held
by persons who have not voted such shares for approval of the Merger and with
respect to which such persons shall become entitled to exercise dissenters'
rights in accordance with Section 302A.471 of Minnesota Law ("Dissenting
Shares")) shall be converted and exchanged for (i) that number of shares of
Acquiror Common Stock as shall be determined in accordance with the calculation
set forth with respect to the Target Common Stock set forth on Exhibit C
attached hereto (the "Exchange Ratio"), (ii) $34.60582 per share in cash, plus
an amount per share in cash equal to interest thereon at the rate of 8.75% per
annum from February 9, 2000 to the Closing Date (the "Cash Consideration") and
(iii) $51.90872 per share in Subordinated Promissory Notes of Acquiror (the
"Notes Consideration" and, together with the shares to be received under clause
(i) and the Cash Consideration to be received under clause (ii), the "Merger
Consideration"). All shares of Target Common Stock, when so converted, shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such shares of
Target Common Stock shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration therefor upon the surrender of
such certificate in accordance with Section 1.7, without interest.
(b) CANCELLATION OF TARGET CAPITAL STOCK OWNED BY ACQUIROR OR
TARGET. At the Effective Time, all shares of Target Capital Stock that are owned
by Target as treasury stock, each share of Target Capital Stock owned by
Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or of
Target immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof.
(c) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each
stock certificate of Merger Sub evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(d) ADJUSTMENTS; MAXIMUM CONSIDERATION. The Exchange Ratio
shall be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Acquiror Common Stock or Target Capital Stock), reorganization,
recapitalization or other like change with respect to Acquiror Common Stock or
Target Capital Stock occurring after the date of this Agreement and prior to the
Effective Time. The Cash Consideration and Note Consideration shall also be
adjusted to reflect the effect of any of the events described in the immediately
preceding sentence with respect to Target occurring after the date of this
Agreement and prior to the Effective Time. In exchange for the acquisition by
Merger Sub of all outstanding Target Capital Stock, the maximum number of shares
of Acquiror Common Stock to be issued shall be 2,305,084.7 shares, adjusted in
accordance with the preceding sentence and Exhibit C attached hereto and reduced
as a result of any Dissenting Shares, the maximum aggregate Cash Consideration
shall be $8,000,000 and the maximum aggregate amount of the Notes Consideration
shall be $12,000,000. No adjustment shall be made in the Merger Consideration as
a result of any increase or decrease in the market price of Acquiror Common
Stock prior to the Effective Time.
(e) DISSENTERS' RIGHTS. Any Dissenting Shares shall not be converted
into the right to receive the Merger Consideration but shall instead be
converted into the right to
3
<PAGE> 9
receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to applicable law. Target agrees that, except with
the prior written consent of Acquiror, or as required under applicable law, it
will not voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares who, pursuant
to the provisions of applicable law, becomes entitled to payment of the fair
value for shares of Target Capital Stock shall receive payment therefor (but
only after such value shall have been agreed upon or finally determined pursuant
to such provisions). If, after the Effective Time, any Dissenting Shares shall
lose their status as Dissenting Shares, Acquiror shall issue and deliver, upon
surrender by such holder of certificate or certificates representing shares of
Target Capital Stock and the Merger Consideration to which such holder would
otherwise be entitled under this Section 1.6.
(f) FRACTIONAL SHARES. No fraction of a share of Acquiror
Common Stock will be issued, but in lieu thereof each holder of shares of Target
Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the fair market value of a share of Acquiror
Common Stock immediately prior to the Effective Time, as determined in good
faith by Acquiror's Board of Directors.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Orrick, Herrington & Sutcliffe LLP shall
act as exchange agent (the "Exchange Agent") in the Merger.
(b) ACQUIROR TO PROVIDE COMMON STOCK, CASH AND NOTES. Promptly
after the Effective Time, Acquiror shall make available to the Exchange Agent
for exchange in accordance with this Section 1, through such reasonable
procedures as Acquiror may adopt, (i) the shares of Acquiror Common Stock
issuable pursuant to Section 1.6(a), (ii) cash in an amount sufficient to permit
payment of the Cash Consideration, together with cash in lieu of fractional
shares pursuant to Section 1.6(g) and (iii) Subordinated Promissory Notes
issuable pursuant to Section 1.6(a) less the notes to be deposited into the
Escrow Fund pursuant to the requirements of Section 8.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
the Exchange Agent shall, subject to the satisfaction of the conditions set
forth in Section 6.3(m), deliver or cause to be delivered to each Target
Stockholder (i) a certificate representing the number of whole shares of
Acquiror Common Stock to which such holder is entitled as calculated in
accordance with the Exchange Ratio (ii) cash in the amount of the Cash
Consideration to which such holder is entitled as provided in Section 1.6(a)
plus payment in lieu of fractional shares which such holder has the right to
receive pursuant to Section 1.6 and (iii) a Subordinated Promissory Note in the
amount of the Notes Consideration to which such holder is entitled as provided
in Section 1.6(a), less the notes to be deposited in the Escrow Fund on such
holder's behalf pursuant to Section 8 below, and the Certificate so surrendered
shall forthwith be cancelled. Until so surrendered, each Certificate will be
deemed from and after the Effective Time, for all corporate purposes, to
evidence the right to receive the Merger Consideration.
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(d) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) DISSENTING SHARES. The provisions of this Section 1.7
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Acquiror under this Section 1.7 shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the Merger Consideration to which such
holder is entitled pursuant to Section 1.6 hereof.
(f) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time payable (but for the provisions of this Section 1.7(f)) with
respect to such shares of Acquiror Common Stock.
(g) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of such issuance that the Certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK. All shares
of Acquiror Common Stock and all Subordinated Promissory Notes of the Acquiror
issued upon the surrender for exchange of shares of Target Capital Stock in
accordance with the terms hereof (including any cash paid in lieu of fractional
shares) shall be deemed to have been issued, and all cash in the amount of the
Cash Consideration shall be deemed to have been paid, in full satisfaction of
all rights pertaining to such shares of Target Capital Stock, and there shall be
no further registration of transfers on the records of the Surviving Corporation
of shares of Target Capital Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be cancelled and exchanged
as provided in this Section 1.
1.9 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code.
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1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Target and Merger Sub, the officers and directors of
Target and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
1.11 WITHHOLDING. Each of the Exchange Agent, Acquiror, and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Target Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or any provision of state,
local or foreign tax law or under any other applicable legal requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the person to whom
such amounts would otherwise have been paid.
1.12 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such Merger Consideration as may
be required pursuant to Section 1.6; provided, however, that Acquiror may, in
its discretion and as a condition precedent to such exchange, require the owner
of such lost, stolen or destroyed Certificates to deliver a bond in such sum as
Acquiror may reasonably direct as indemnity against any claim that may be made
against Acquiror, the Surviving Corporation or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
SECTION TWO
2. REPRESENTATIONS AND WARRANTIES OF TARGET AND TARGET STOCKHOLDERS.
In this Agreement, any reference to a "Material Adverse Effect" with
respect to any entity or group of entities means any event, change or effect
that, when taken individually or together with all other adverse changes and
effects, is or is reasonably likely to be materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
results of operations or prospects of such entity and its subsidiaries, taken as
a whole, or to prevent or materially delay consummation of the Merger or
otherwise to prevent such entity and its subsidiaries from performing their
obligations under this Agreement.
In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party reasonably believed to have knowledge of the
matter in questions.
Except as disclosed in a document dated as of the date of this
Agreement and delivered by Target to Acquiror prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Target Disclosure
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Schedule"), Target and Target Stockholders represent and warrant to Acquiror and
Merger Sub as follows:
2.1 ORGANIZATION; SUBSIDIARIES. Each of Target and each subsidiary
of Target (each a "Subsidiary") is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of Target and each Subsidiary has the requisite corporate
power and authority and all necessary government approvals to own, lease and
operate its properties and to carry on its business as now being conducted and
as proposed to be conducted, except where the failure to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Target. Each of Target and each
Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on Target. Section 2.1 of Target
Disclosure Schedule sets forth each jurisdiction where Target and each
Subsidiary is qualified to do business. A true and complete list of all the
Subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary, is set forth in Section 2.1 of the Target Disclosure Schedule.
Target is the owner of all outstanding shares of capital stock of each
Subsidiary and all such shares are duly authorized, validly issued, fully paid
and nonassessable. All of the outstanding shares of capital stock of each
Subsidiary are owned by Target free and clear of all liens, charges, claims,
encumbrances or rights of others. There are no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the issued or
unissued capital stock or other securities of any Subsidiary, or otherwise
obligating Target or any Subsidiary to issue, transfer, sell, purchase, redeem
or otherwise acquire any such securities. Except as set forth in Section 2.1 of
the Target Disclosure Schedule, Target does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, limited liability company, joint venture or other business
association or entity
2.2 ARTICLES OF INCORPORATION; BYLAWS. Target has delivered a true
and correct copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Target and each Subsidiary, each as amended to
date, to Acquiror. Neither Target nor any Subsidiary is in violation of any of
the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents.
2.3 CAPITAL STRUCTURE. The authorized capital stock of Target
consists of 1,250,000 shares of voting Common Stock, par value $0.01 per share
and 1,250,000 shares of non-voting Common Stock, par value $0.01 per share, and
no shares of Preferred Stock, of which there were issued and outstanding as of
the date hereof 111,175 shares of voting Common Stock and 120,000 shares of
non-voting Common Stock. There are no other outstanding shares of capital stock
or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities after the date hereof or any other rights or
securities granted or issued to any person to cause Target to issue, sell,
redeem or repurchase any shares of capital stock of Target. There does not exist
nor is there outstanding any right, option, warrant, convertible obligation or
other security or agreement entered into or granted by any Target
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Stockholder with respect to any shares of Target Common Stock. All outstanding
shares of Target Capital Stock are duly authorized, validly issued, fully paid
and non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof, and are
not subject to preemptive rights or rights of first refusal created by statute,
the Articles of Incorporation or Bylaws of Target or any agreement to which
Target or any Target Stockholder is a party or by which it is bound. Each Target
Stockholder is the lawful record and beneficial owner of that number of shares
of Target Common Stock set forth next to each Target Stockholder's name on
Section 2.3 of the Target Disclosure Schedule, free and clear of all liens,
encumbrances or claims of any kind. There does not exist nor is there
outstanding any right, option, warrant, convertible obligation or other security
or agreement entered into or granted by any Target Stockholder with respect to
any shares of Target Common Stock. Except (i) for the rights created pursuant to
this Agreement and (ii) as set forth in this Section 2.3, there are no options,
warrants, calls, rights, commitments, agreements or arrangements of any
character to which Target or any Subsidiary is a party or by which Target or any
Subsidiary is bound relating to the issued or unissued capital stock of Target
or any Subsidiary or obligating Target or any Subsidiary to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of capital stock of Target or any Subsidiary or
obligating Target or any Subsidiary to grant, extend, accelerate the vesting of,
change the price of, or otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no contracts, commitments or
agreements relating to voting, purchase or sale of Target's capital stock (i)
between or among Target and any of the Target Stockholders or (ii) entered into
by or on behalf of any of the Target Stockholders.
2.4 AUTHORITY. (a) Target has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Target. Target's Board of
Directors has unanimously approved the Merger and this Agreement. This Agreement
has been duly executed and delivered by Target and assuming due authorization,
execution and delivery by Acquiror and Merger Sub, constitutes the valid and
binding obligation of Target and each Target Stockholder enforceable against
Target and each Target Stockholder in accordance with its terms.
(a) Each Target Stockholder has the requisite capacity to
enter into this Agreement and to consummate the transaction contemplated hereby.
This Agreement has been duly executed and delivered by each Target Stockholder
and constitutes a valid and binding obligation enforceable against him or her in
accordance with its terms.
2.5 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Target and
each Target Stockholder does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Articles of Incorporation or
Bylaws of Target or any of its Subsidiaries, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment,
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order, decree, statute, law, ordinance, rule or regulation applicable to Target,
any Target Stockholder, or any Subsidiary or any of his, hers or its properties
or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Target, any Target Stockholder or any
Subsidiary in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger, together with the required officers'
certificates, as provided in Section 1.2, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), applicable state
securities laws and the securities laws of any foreign country; and (iii) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Target and
would not prevent, or materially alter or delay any of the transactions
contemplated by this Agreement.
2.6 FINANCIAL STATEMENTS. Section 2.6 of the Target Disclosure
Schedule includes a true, correct and complete copy of Target's audited balance
sheet, income statement and statement of cash flows for each of the fiscal years
ended December 31,1998 and December 31, 1999, respectively (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each. The Financial Statements
accurately set out and describe the financial condition and operating results of
Target and its consolidated Subsidiaries as of the dates, and for the periods,
indicated therein. Target maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Target nor any
Subsidiary has material obligations or liabilities of any nature (matured or
unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the Balance Sheet for the period ended December 31, 1999 (the
"Target Balance Sheet"), (ii) those incurred in the ordinary course of business
and not required to be set forth in the Target Balance Sheet under generally
accepted accounting principles, (iii) those incurred in the ordinary course of
business since the date of the Target Balance Sheet and consistent with past
practice, and (iv) those incurred in connection with the execution of this
Agreement.
2.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 2.8
of the Target Disclosure Schedule, since date of the Target Balance Sheet (the
"Target Balance Sheet Date") there has not been, occurred or arisen any:
(a) transaction by Target or any Subsidiary except in the
ordinary course of business as conducted on that date and consistent with past
practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of Target;
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(c) capital expenditure or commitment by Target or any
Subsidiary, in any individual amount exceeding $5,000, or in the aggregate,
exceeding $20,000;
(d) destruction of, damage to, or loss of any assets
(including, without limitation, intangible assets), business or customer of
Target or any Subsidiary (whether or not covered by insurance) which would
constitute a Material Adverse Effect;
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, any change in policies
in making or reversing accruals, or any change in capitalization of software
development costs) by Target or any revaluation by Target of any of its or any
of its Subsidiaries' assets;
(g) revaluation by the Company or any Subsidiary of any of
their respective assets;
(h) declaration, setting aside, or payment of a dividend or
other distribution in respect to the capital stock of Target, or any direct or
indirect redemption, purchase or other acquisition by Target of any of its
capital stock, except repurchases of Target Common Stock from terminated Target
employees at the original per share purchase price of such shares;
(i) increase in the salary or other compensation payable or to
become payable by Target to any officers, directors, employees or advisors of
Target or any Subsidiary, except in the ordinary course of business consistent
with past practice, or the declaration, payment, or commitment or obligation of
any kind for the payment by Target of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement, or other than as set forth in Section 2.16 below, the establishment
of any bonus, insurance, deferred compensation, pension, retirement, profit
sharing, stock option (including without limitation, the granting of stock
options, stock appreciation rights, performance awards), stock purchase or other
employee benefit plan;
(j) sale, lease, license of other disposition of any of the
assets or properties of Target or any Subsidiary, except in the ordinary course
of business and not in excess of $20,000 in the aggregate;
(k) termination or material amendment of any material
contract, agreement or license (including any distribution agreement) to which
Target or any Subsidiary is a party or by which it is bound;
(l) loan by Target or any Subsidiary to any person or entity,
or guaranty by Target or any Subsidiary of any loan, except for (x) travel or
similar advances made to employees in connection with their employment duties in
the ordinary course of business, consistent with past practices and (y) trade
payables not in excess of $200,000 in the aggregate and in the ordinary course
of business, consistent with past practices;
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(m) waiver or release of any right or claim of Target or any
Subsidiary, including any write-off or other compromise of any account
receivable of Target or any Subsidiary, in excess of $20,000 in the aggregate;
(n) the commencement or notice or threat of commencement of
any lawsuit or proceeding against or, to the Target's or and it Subsidiaries
knowledge, investigation of Target or any Subsidiary or their respective
affairs;
(o) notice of any claim of ownership by a third party of
Target's or any Subsidiary's Intellectual Property (as defined in Section 2.13
below) or of infringement by Target or any Subsidiary of any third party's
Intellectual Property rights;
(p) issuance or sale by Target or any Subsidiary of any of its
shares of capital stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(q) change in pricing or royalties set or charged by Target or
any Subsidiary to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Intellectual Property to Target or any
Subsidiary;
(r) event or condition of any character that has or could
reasonably be expected to have a Material Adverse Effect on the Company; or
(s) agreement by Target, any Subsidiary or any officer or
employee of either on behalf of such entity to do any of the things described in
the preceding clauses (a) through (r) (other than negotiations with Acquiror and
its representatives regarding the transactions contemplated by this Agreement).
2.9 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target or any
Subsidiary, threatened against Target or any Subsidiary or any of their
respective properties or any of their respective officers or directors (in their
capacities as such) that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on Target or any Subsidiary. There is
no judgment, decree or order against Target or any Subsidiary or, to the best
knowledge of Target and its Subsidiaries, any of their respective directors or
officers (in their capacities as such), that could prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Target. All litigation to which Target or any Subsidiary is a party
(or, to the knowledge of Target, threatened to become a party) is disclosed in
the Target Disclosure Schedule.
2.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Target or any Subsidiary
which has or could reasonably be expected to have the effect of prohibiting or
materially impairing any current or future business practice of Target or any
Subsidiary, any acquisition of property by Target or any Subsidiary or the
overall conduct of business by Target or any Subsidiary as currently conducted
or as proposed to be conducted by Target or by any Subsidiary. Neither Target
nor any Subsidiary has entered into any agreement under which Target or any
Subsidiary is restricted
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from selling, licensing or otherwise distributing any of its products to any
class of customers, in any geographic area, during any period of time or in any
segment of the market.
2.11 PERMITS; COMPANY PRODUCTS; REGULATION.
(a) Each of Target and each Subsidiary is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders necessary for Target or
that Subsidiary, to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Target Authorizations") and no
suspension or cancellation of any Target Authorization is pending or, to the
best of Target's knowledge, threatened, except where the failure to have, or the
suspension or cancellation of, any Target Authorization would not have a
Material Adverse Effect on Target. Neither Target nor any Subsidiary is in
conflict with, or in default or violation of, (i) any laws applicable to Target
or any Subsidiary or by which any property or asset of Target or any Subsidiary
is bound or affected, (ii) any Target Authorization, or (iii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Target or any Subsidiary is a party or
by which Target or any Subsidiary or any property or asset of Target or any
Subsidiary is bound or affected, except for any such conflict, default or
violation that would not, individually or in the aggregate, have a Material
Adverse Effect on Target or any Subsidiary.
(b) Except as would not have a Material Adverse Effect on
Target, there have been no written notices, citations or decisions by any
governmental or regulatory body that any product produced, manufactured,
marketed or distributed at any time by Target or any Subsidiary (the "Products")
is defective or fails to meet any applicable standards promulgated by any such
governmental or regulatory body. To the best knowledge of Target, Target and
each Subsidiary has complied in all material respects with the laws,
regulations, policies, procedures and specifications with respect to the design,
manufacture, labeling, testing and inspection of the Products. Except as
disclosed in Section 2.11(b) of the Target Disclosure Schedule, there have been
no recalls, field notifications or seizures ordered or, to Target's knowledge,
threatened by any such governmental or regulatory body with respect to any of
the Products.
(c) Target has obtained, in all countries where either Target
or a Subsidiary is marketing or has marketed its Products, all applicable
licenses, registrations, approvals, clearances and authorizations required by
local, state or federal agencies in such countries regulating the safety,
effectiveness and market clearance of the Products currently or previously
marketed by Target or any Subsidiary in such countries, except for any such
failures as would not, individually or in the aggregate, have a Material Adverse
Effect on Target. Target has identified and made available for examination by
Acquiror all information relating to regulation of its Products, including
licenses, registrations, approvals and permits. Target has identified in writing
to Acquiror all international locations where regulatory information and
documents are kept.
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2.12 TITLE TO PROPERTY.
(a) Target and each Subsidiary has good and marketable title
to all of its respective properties, interests in properties and assets, real
and personal, reflected in the Target Balance Sheet or acquired after the Target
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Target Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests in, free and clear of all mortgages, liens, pledges, charges
or encumbrances of any kind or character, except (i) the lien of current taxes
not yet due and payable, (ii) such imperfections of title, liens and easements
as do not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties, and (iii) liens securing debt
which is reflected on the Target Balance Sheet. The plants, property and
equipment of Target and Subsidiaries that are used in the operations of their
businesses are in good operating condition and repair. All properties used in
the operations of Target and its Subsidiaries are reflected in the Target
Balance Sheet to the extent United States generally accepted accounting
principles require the same to be reflected. Section 2.12(a) of the Target
Disclosure Schedule sets forth a true, correct and complete list of all real
property owned or leased by Target and by each Subsidiary, the name of the
lessor, the date of the lease and each amendment thereto and the aggregate
annual rental and other fees payable under such lease. Such leases are in good
standing, are valid and effective in accordance with their respective terms, and
there is not under any such leases any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a default).
(b) Section 2.12(b) of the Target Disclosure Schedule also
sets forth a true, correct and complete list of all equipment (the "Equipment")
owned or leased by Target and its Subsidiaries, and such Equipment is, taken as
a whole, (i) adequate for the conduct of Target's business, consistent with its
past practice, and (ii) in good operating condition (except for ordinary wear
and tear).
2.13 INTELLECTUAL PROPERTY.
(a) Target and each of its Subsidiaries own, or are licensed
or otherwise possess legally enforceable rights to use all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights, service
marks, copyrights, and any applications for any of the foregoing, maskworks, net
lists, schematics, industrial models, inventions, technology, know-how, trade
secrets, inventory, ideas, algorithms, processes, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material ("Intellectual Property") that
are used or proposed to be used in the business of Target or any Subsidiary as
currently conducted or as proposed to be conducted by Target or any Subsidiary,
except to the extent that the failure to have such rights have not had and could
not reasonably be expected to have a Material Adverse Effect on Target or any
Subsidiary.
(b) Section 2.13 of the Target Disclosure Schedule lists (i)
all patents and patent applications and all registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and maskworks, included in the Intellectual
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Property, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for such
issuance and registration has been filed, (ii) all licenses, sublicenses and
other agreements as to which Target or any Subsidiary is a party and pursuant to
which any person is authorized to use any Intellectual Property, and (iii) all
licenses, sublicenses and other agreements as to which Target or any Subsidiary
is a party and pursuant to which Target or any Subsidiary is authorized to use
any third party patents, trademarks or copyrights, including software ("Third
Party Intellectual Property Rights") which are incorporated in, are, or form a
part of any Target product that is material to its business. Neither Target nor
any Subsidiary is in violation of any license, sublicense or agreement described
in Section 2.13 of the Target Disclosure Schedule. The execution and delivery of
this Agreement by Target and the consummation of the transactions contemplated
hereby, will neither cause Target or any Subsidiary to be in violation or
default under any such license, sublicense or agreement, nor entitle any other
party to any such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement. Except as set forth in Section 2.13 of the
Target Disclosure Schedule, Target is the sole and exclusive owner or licensee
of, with all right, title and interest in and to (free and clear of any liens),
the Intellectual Property, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which Intellectual Property is being
used.
(c) There is no material unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Target
or any Subsidiary, any trade secret material to Target or any Subsidiary or any
Intellectual Property right of any third party to the extent licensed by or
through Target or any Subsidiary, by any third party, including any employee or
former employee of Target or any Subsidiary. Neither Target nor any Subsidiary
has entered into any agreement to indemnify any other person against any charge
of infringement of any Intellectual Property, other than indemnification
provisions contained in purchase orders arising in the ordinary course of
business.
(d) Neither Target nor any Subsidiary is or will be as a
result of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Intellectual Property or Third Party Intellectual
Property Rights, the breach of which would have a Material Adverse Effect on
Target.
(e) All patents, registered trademarks, service marks and
copyrights held by Target or any Subsidiary are valid and existing and there is
no assertion or claim (or basis therefor) challenging the validity of any
Intellectual Property of Target or any Subsidiary. Target has not been sued in
any suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party. Neither the conduct of the
business of Target and each Subsidiary as currently conducted or contemplated
nor the manufacture, sale, licensing or use of any of the products of Target or
any Subsidiary as now manufactured, sold or licensed or used, nor the use in any
way of the Intellectual Property in the manufacture, use, sale or licensing by
Target or any Subsidiary of any products currently proposed, infringes on or
will infringe or conflict with, in any way, any license, trademark, trademark
right, trade name, trade name right, patent, patent right, industrial model,
invention, service mark or copyright of any
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third party that, individually or in the aggregate, is reasonably likely to have
a Material Adverse Effect on Target. All registered trademarks, service marks
and copyrights held by Target are valid and existing. To Target's knowledge, no
third party is challenging the ownership by Target or any Subsidiary, or the
validity or effectiveness of, any of the Intellectual Property. Neither Target
nor any Subsidiary has brought any action, suit or proceeding for infringement
of Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party. There are no pending, or to the
best of Target's knowledge, threatened interference, re-examinations,
oppositions or nullities involving any patents, patent rights or applications
therefor of Target or any Subsidiary, except such as may have been commenced by
Target or any Subsidiary. There is no breach or violation of or threatened or
actual loss of rights under any license agreement to which Target is a party.
(f) Target has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Target does not
already own by operation of law.
(g) Target has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property not
otherwise protected by patents, patent applications or copyright ("Confidential
Information"). Each of Target and its respective Subsidiaries has a policy
requiring each employee, consultant and independent contractor to execute
proprietary information and confidentiality agreements substantially in Target's
standard forms and all current and former employees, consultant and independent
contractors of Target and each Subsidiary have executed such an agreement. All
use, disclosure or appropriation of Confidential Information owned by Target or
a Subsidiary by or to a third party has been pursuant to the terms of a written
agreement between Target or the applicable Subsidiary and such third party. All
use, disclosure or appropriation of Confidential Information not owned by Target
or a Subsidiary has been pursuant to the terms of a written agreement between
Target or a Subsidiary and the owner of such Confidential Information, or is
otherwise lawful.
2.14 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any
federal, state or local laws, ordinances, codes, regulations, rules, policies
and orders, as each may be amended from time to time, that are intended to
assure the protection of the environment, or that classify, regulate, call for
the remediation of, require reporting with respect to, or list or define air,
water, groundwater, solid waste, hazardous or toxic substances, materials,
wastes, pollutants or contaminants; which regulate the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Materials or
materials containing Hazardous Materials; or which are intended to assure the
protection, safety and good health of employees, workers or other persons,
including the public.
(ii) "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws; petroleum and petroleum
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products including crude oil and any fractions thereof; natural gas, synthetic
gas, and any mixtures thereof; radon; asbestos; and any other pollutant or
contaminant.
(iii) "Property" shall mean all real property leased
or owned by Target or its Subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and
improvements on the Property of Target or its Subsidiaries.
(b) Target represents and warrants as follows: (i) no
methylene chloride or asbestos is contained in or has been used at or released
from the Facilities; (ii) all Hazardous Materials and wastes have been disposed
of in accordance with all Environmental and Safety Laws; (iii) Target and its
Subsidiaries have received no notice (verbal or written) of any noncompliance of
the Facilities or of its past or present operations with Environmental and
Safety Laws; (iv) no notices, administrative actions or suits are pending or
threatened relating to Hazardous Materials or a violation of any Environmental
and Safety Laws; (v) neither Target nor its Subsidiaries are a potentially
responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), or any state analog statute, arising
out of events occurring prior to the Closing Date; (vi) there has not been in
the past, and are not now, any contamination, disposal, spilling, dumping,
incineration, discharge, storage, treatment or handling of Hazardous Materials
on, under or migrating to or from the Facilities or Property (including without
limitation, soils and surface and ground waters); (vii) there have not been in
the past, and are not now, any underground tanks or underground improvements at,
on or under the Property including without limitation, treatment or storage
tanks, sumps, or water, gas or oil wells; (viii) there are no polychlorinated
biphenyls ("PCBs") deposited, stored, disposed of or located on the Property or
Facilities or any equipment on the Property containing PCBs at levels in excess
of 50 parts per million; (ix) there is no formaldehyde on the Property or in the
Facilities, nor any insulating material containing urea formaldehyde in the
Facilities; (x) the Facilities and Target's and its Subsidiaries uses and
activities therein have at all times complied with all Environmental and Safety
Laws; (xi) Target and its Subsidiaries have all the permits and licenses
required to be issued and are in full compliance with the terms and conditions
of those permits; and (xii) neither Target nor any of its Subsidiaries is liable
for any off-site contamination nor under any Environmental and Safety Laws.
2.15 TAXES.
(a) For purposes of this Section 2.15 and other provisions of
this Agreement relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
federal, state and foreign income taxes), payroll and employee withholding
taxes, unemployment insurance contributions, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes,
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franchise taxes, gross receipts taxes, withholding taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, (B) any liability for the
payment of amounts referred to in (A) as a result of being a member of any
affiliated, consolidated, combined or unitary group, or (C) any liability for
amounts referred to in (A) or (B) as a result of any obligations to indemnify
another person.
(ii) The term "Returns" shall mean all reports,
estimates, declarations of estimated tax, information statements and returns
required to be filed in connection with any Taxes, including information returns
with respect to backup withholding and other payments to third parties.
(b) All Returns required to be filed by or on behalf of Target
or any Subsidiary have been duly filed on a timely basis, except where the
failure to timely file such Return will not have a Material Adverse Effect on
Target, and each such Return is true, complete and correct in all material
respects. All Taxes shown to be payable on such Returns or on subsequent
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of Target or any Subsidiary under Section 6655 of the
Code or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis, and no other material Taxes are payable by Target or any
Subsidiary with respect to items or periods covered by such Returns (whether or
not shown on or reportable on such Returns). Target and each Subsidiary have
withheld and paid over all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding in connection
with amounts paid or owing to any employee, creditor, independent contractor, or
other third party. There are no liens on any of the assets of Target or any
Subsidiary with respect to Taxes, other than liens for Taxes not yet due and
payable or for Taxes that Target or that Subsidiary is contesting in good faith
through appropriate proceedings. Neither Target nor any Subsidiary has been at
any time a member of an affiliated group of corporations filing consolidated,
combined or unitary income or franchise tax returns for a period for which the
statute of limitations for any Tax potentially applicable as a result of such
membership has not expired.
(c) The amount of Target's and any Subsidiary's liabilities
for unpaid Taxes for all periods through the date of the Financial Statements do
not, in the aggregate, materially exceed the amount of the current liability
accruals for Taxes reflected on the Financial Statements, and the Financial
Statements properly accrue in accordance with generally accepted accounting
principles ("GAAP") all liabilities for Taxes of Target and its Subsidiaries
payable after the date of the Financial Statements attributable to transactions
and events occurring prior to such date. No liability for Taxes of Target or any
Subsidiary has been incurred (or prior to Closing will be incurred) since such
date other than in the ordinary course of business.
(d) Acquiror has been furnished by Target true and complete copies
of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of Target or
any Subsidiary relating to Taxes, and (ii) all federal, state and foreign income
or franchise tax Returns for or including Target and its
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Subsidiaries for all periods since the later of Target's and such Subsidiaries'
inception, or 3 full years preceding the date of this Agreement.
(e) No audit of the Returns of or including Target and its
Subsidiaries by a government or taxing authority is in process, threatened or,
to Target's knowledge, pending (either in writing or orally, formally or
informally). No deficiencies exist or have been asserted (either in writing or
orally, formally or informally and not resolved) or are expected to be asserted
with respect to Taxes of Target or any of its Subsidiaries, and Target has not
received notice (either in writing or orally, formally or informally) nor does
it expect to receive notice that it or any Subsidiary has not filed a Return or
paid Taxes required to be filed or paid. Neither Target nor any Subsidiary is a
party to any action or proceeding for assessment or collection of Taxes, nor has
such event been asserted or threatened (either in writing or orally, formally or
informally) against Target, any Subsidiary or any of their respective assets. No
waiver or extension of any statute of limitations is in effect with respect to
Taxes or Returns of Target or any Subsidiary. Target and each Subsidiary have
disclosed on their federal and state income and franchise tax returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662 or comparable provisions of
applicable state tax laws.
(f) Target and its Subsidiaries are not (nor have they ever
been) parties to any tax sharing agreement. Since April 16, 1997, neither Target
nor any of its Subsidiaries has been a distributing corporation or a controlled
corporation in a transaction described in Section 355(a) of the Code.
(g) Target is not, nor has it been, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Target is not a "consenting corporation" under Section 341(f) of the Code.
Neither Target nor any Subsidiary has entered into any compensatory agreements
with respect to the performance of services which payment thereunder would
result in a nondeductible expense to Target or to such Subsidiary pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. Neither Target nor any Subsidiary has
agreed to, nor is it required to make, other than by reason of the Merger, any
adjustment under Code Section 481(a) by reason of, a change in accounting
method, and Target and each Subsidiary will not otherwise have any income
reportable for a period ending after the Closing Date attributable to a
transaction or other event (e.g., an installment sale) occurring prior to the
Closing Date with respect to which Target or such Subsidiary received the
economic benefit prior to the Closing Date. Neither Target nor any Subsidiary
is, nor has it been, a "reporting corporation" subject to the information
reporting and record maintenance requirements of Section 6038A and the
regulations thereunder.
(h) The Target Disclosure Schedule contains accurate and
complete information regarding Target's and its Subsidiaries' net operating
losses for federal and each state tax purposes. Target and its Subsidiaries have
no net operating losses and credit carryovers or other tax attributes currently
subject to limitation under Sections 382, 383, or 384 of the Code, not taking
into account any such limitation resulting from the Merger.
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(i) Target has made a valid election under the Code to be
treated as an S corporation effective for all taxable years of Target since its
taxable year that began on January 1, 1997, and Target's status as an S
corporation for federal income tax purposes has not been terminated for any
reason and has remained valid during the period since such date to and including
the Closing Date.
2.16 EMPLOYEE BENEFIT PLANS.
(a) Schedule 2.16 lists, with respect to Target, each
Subsidiary of Target and any trade or business (whether or not incorporated)
which is treated as a single employer with Target (an "ERISA Affiliate") within
the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), (ii) each loan to a non-officer
employee, loans to officers and directors and any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
contracts and agreements relating to employment and all severance agreements,
with any of the directors, officers or employees of Target or its Subsidiaries
(other than, in each case, any such contract or agreement that is terminable by
the Company or its Subsidiary at will or without penalty or other adverse
consequence), (iv) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (v) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of Target or any Subsidiary and that do not generally apply to all employees,
and (vi) any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of Target
or any Subsidiary remain for the benefit of, or relating to, any present or
former employee, consultant or director of Target or any Subsidiary (together,
the "Target Employee Plans").
(b) Target has furnished to Acquiror a copy of each of the Target
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and, to the extent still in its possession, any material
employee communications relating thereto) and has, with respect to each Target
Employee Plan which is subject to ERISA reporting requirements, provided copies
of the Form 5500 reports filed for the last three plan years. Any Target
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all amendments to
the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or
has applied to the Internal Revenue Service for such a determination letter
prior to the expiration of the requisite period under applicable Treasury
Regulations or Internal Revenue Service pronouncements in which to apply for
such determination letter and to make any amendments necessary to obtain a
favorable determination with the exception of any amendments required by such
subsequent legislation for which the period during which a determination letter
may be requested from the Internal Revenue Service has not yet expired under
such applicable Treasury regulation or Internal Revenue Service pronouncements.
Target has also furnished Acquiror with the most recent Internal Revenue Service
determination letter issued with respect to each such Target Employee Plan, and
nothing
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has occurred since the issuance of each such letter which could reasonably be
expected to cause the loss of the tax-qualified status of any Target Employee
Plan subject to Code Section 401(a) except as has been disclosed to Acquiror or
its counsel.
(c) Except as set forth in Section 2.16(c) of the Target
Disclosure Schedule, (i) none of the Target Employee Plans promises or provides
retiree medical or other retiree welfare or life insurance benefits to any
person; (ii) there has been no "prohibited transaction," as such term is defined
in Section 406 of ERISA and Section 4975 of the Code, with respect to any Target
Employee Plan, which could reasonably be expected to have, in the aggregate, a
Material Adverse Effect; (iii) each Target Employee Plan has been administered
in accordance with its terms and in compliance with the requirements prescribed
by any and all statutes, rules and regulations (including ERISA and the Code),
except as would not have, in the aggregate, a Material Adverse Effect, and
Target and each Subsidiary or ERISA Affiliate have performed all obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any material default or
violation by any other party to, any of the Target Employee Plans; (iv) neither
Target nor any Subsidiary or ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Target Employee Plans; (v) all material contributions
required to be made by Target or any Subsidiary or ERISA Affiliate to any Target
Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each Target Employee Plan for the
current plan years; (vi) with respect to each Target Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Target Employee Plan
is covered by, and neither Target nor any Subsidiary or ERISA Affiliate has
incurred or expects to incur any direct or indirect liability under, arising out
of or by operation of Title IV of ERISA in connection with the termination of,
or an employee's withdrawal from, any Target Employee Plan or other retirement
plan or arrangement, and no fact or event exists that could give rise to any
such liability, or under Section 412 of the Code; (viii) Target and the
Subsidiaries have not incurred any liability under, and have complied in all
respects with, the Worker Adjustment Retraining Notification Act, (the "WARN
Act")and no fact or event exists that could give rise to liability under such
act; and (ix) no compensation paid or payable to any employee of Target or any
Subsidiary has been, or will be, non-deductible by reason of application of
Section 162(m) of the Code. With respect to each Target Employee Plan subject to
ERISA as either an employee pension plan within the meaning of Section 3(2) of
ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, Target has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed to the
best of Targets' knowledge) and has properly and timely filed and distributed or
posted all notices and reports to employees required to be filed, distributed or
posted with respect to each such Target Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the best
knowledge of Target is threatened, against or with respect to any such Target
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither Target nor any Subsidiary or other ERISA Affiliate
is a party to, or has made any contribution to or otherwise incurred any
obligation under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
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(d) With respect to each Target Employee Plan, Target and each
of its United States Subsidiaries have complied with (i) the applicable health
care continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder and
(ii) the applicable requirements of the Family Leave Act of 1993 and the
regulations thereunder, except to the extent that such failure to comply would
not, in the aggregate, have a Material Adverse Effect.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target, any Subsidiary or any other ERISA Affiliate to severance
benefits or any other payment (including, without limitation, unemployment
compensation, golden parachute or bonus), except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting of any such
benefits (except to the extent of any vesting required as a result of the
termination of the plan described in Section 5.13), or increase the amount of
compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target, any Subsidiary or other ERISA
Affiliate relating to, or change in participation or coverage under, any Target
Employee Plan which would materially increase the expense of maintaining such
Plan above the level of expense incurred with respect to that Plan for the most
recent fiscal year included in Target's financial statements.
2.17 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of Target or any of
its Subsidiaries, (ii) materially increase any benefits otherwise payable by
Target, or (iii) result in the acceleration of the time of payment or vesting of
any such benefits.
2.18 EMPLOYEE MATTERS. Target and each of its Subsidiaries are in
compliance in all material respects with all currently applicable federal,
state, local and foreign laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any unfair labor practice. There are no pending claims against Target or any
of its Subsidiaries under any workers compensation plan or policy or for long
term disability. Neither Target nor any of its Subsidiaries has any material
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There are no controversies pending or, to the
knowledge of Target or any of its Subsidiaries, threatened, between Target or
any of its Subsidiaries and any of their respective employees, which
controversies have or could reasonably be expected to have a Material Adverse
Effect on Target. Neither Target nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor unions contract nor does Target
or any of its Subsidiaries know of any activities or proceedings of any labor
union or other group to organize any such employees.
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2.19 MATERIAL CONTRACTS.
(a) Subsections (i) through (ix) of Section 2.19(a) of the
Target Disclosure Schedule contain a list of all contracts and agreements to
which Target or any Subsidiary is a party and that are material to the business,
results of operations, or condition (financial or otherwise), of Target and the
Subsidiaries taken as a whole (such contracts, agreements and arrangements as
are required to be set forth in Section 2.19(a) of the Target Disclosure
Schedule being referred to herein collectively as the "Material Contracts").
Material Contracts shall include, without limitation, the following and shall be
categorized in the Target Disclosure Schedule as follows:
(i) each contract and agreement (other than routine
purchase orders and pricing quotes in the ordinary course of business covering a
period of less than 1 year) for the purchase of inventory, spare parts, other
materials or personal property with any supplier or for the furnishing of
services to Target or any Subsidiary under the terms of which Target or any
Subsidiary: (A) paid or otherwise gave consideration of more than $5,000 in the
aggregate during the calendar year ended December 31, 1999 , (B) is likely to
pay or otherwise give consideration of more than $5,000 in the aggregate during
the calendar year ended December 31, 2000, (C) is likely to pay or otherwise
give consideration of more than $5,000 in the aggregate over the remaining term
of such contract, or (D) cannot be cancelled by Target or such Subsidiary
without penalty or further payment of less than $5,000;
(ii) each customer contract and agreement (other than
routine purchase orders, pricing quotes with open acceptance and other tender
bids, in each case, entered into in the ordinary course of business and covering
a period of less than one year) to which Target or any Subsidiary is a party
which (A) involved consideration of more than $5,000 in the aggregate during the
calendar year ended December 31, 1999, (B) is likely to involve consideration of
more than $5,000 in the aggregate during the calendar year ended December 31,
2000, (C) is likely to involve consideration of more than $5,000 in the
aggregate over the remaining term of the contract, or (D) cannot be cancelled by
Target or such Subsidiary without penalty or further payment of less than
$5,000;
(iii) (A) all distributor, manufacturer's
representative, broker, franchise, agency and dealer contracts and agreements to
which Target or any Subsidiary is a party (specifying on a matrix, in the case
of distributor agreements, the name of the distributor, product, territory,
termination date and exclusivity provisions) and (B) all sales promotion, market
research, marketing and advertising contracts and agreements to which Target or
any Subsidiary is a party which: (1) involved consideration of more than $5,000
in the aggregate during the calendar year ended December 31, 1999, (2) are
likely to involve consideration of more than $5,000 in the aggregate during the
calendar year ended December 31, 2000, or (3) are likely to involve
consideration of more than $5,000 in the aggregate over the remaining term of
the contract;
(iv) all management contracts with independent
contractors or consultants (or similar arrangements) to which Target or any
Subsidiary is a party and which (A) involved consideration or more than $5,000
in the aggregate during the calendar year ended December 31, 1999, (B) are
likely to involve consideration of more than $5,000 in the aggregate
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during the calendar year ended December 31, 2000, or (C) are likely to involve
consideration of more than $5,000 in the aggregate over the remaining term of
the contract;
(v) all contracts and agreements (excluding routine
checking account overdraft agreements involving petty cash amounts) under which
Target or any Subsidiary has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness or under which Target or any
Subsidiary has imposed (or may impose) a security interest or lien on any of
their respective assets, whether tangible or intangible, to secure indebtedness;
(vi) all contracts and agreements that limit the ability
of Target or any Subsidiary or, after the Effective Time, Acquiror or any of its
affiliates, to compete in any line of business or with any person or in any
geographic area or during any period of time, or to solicit any customer or
client;
(vii) all contracts and agreements between or among
Target or any Subsidiary, on the one hand, and any affiliate of Target (other
than a wholly owned subsidiary), on the other hand:
(viii) all contracts and agreements to which Target or
any Subsidiary is a party under which it has agreed to supply products to a
customer at specified prices, whether directly or through a specific
distributor, manufacturer's representative or dealer; and
(ix) all other contracts or agreements (A) which are
material to Target and its Subsidiaries or the conduct of their respective
businesses, (B) the absence of which would have a Material Adverse Effect on
Target, or (C) which are believed by Target to be of unique value even though
not material to the business of Target.
(b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect on Target, each Target license, each Material
Contract and each other material contract or agreement of Target or any
Subsidiary which would not have been required to be disclosed in Section 2.19(a)
of the Target Disclosure Schedule had such contract or agreement been entered
into prior to the date of this Agreement, is a legal, valid and binding
agreement, and none of the Target licenses or Material Contracts is in default
by its terms or has been cancelled by the other party; Target and the
Subsidiaries are not in receipt of any claim of default under any such
agreement; and none of Target or any of the Subsidiaries anticipates any
termination or change to, or receipt of a proposal with respect to, any such
agreement as a result of the Merger or otherwise. Target has furnished Acquiror
with true and complete copies of all such agreements together with all
amendments, waivers or other changes thereto.
2.20 INTERESTED PARTY TRANSACTIONS. Neither Target nor any
Subsidiary is indebted to any director, officer, employee or agent of Target or
any Subsidiary (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to Target or
any Subsidiary.
2.21 INSURANCE. Target and each of its Subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or
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owning assets similar to those of Target and its Subsidiaries. There is no
material claim pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and Target and its Subsidiaries are otherwise in compliance with the terms
of such policies and bonds. Target has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.22 COMPLIANCE WITH LAWS. Each of Target and its Subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not reasonably be expected to have a Material Adverse Effect on Target.
2.23 MINUTE BOOKS. The minute books of Target and its Subsidiaries
made available to Acquiror contain a complete summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of Target and the respective Subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
2.24 BROKERS' AND FINDERS' FEES. Target has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.25 VOTE REQUIRED. Except for shareholder approval which has been
duly obtained, the signature by the Target Stockholders on this Agreement is the
only action of the holders of any of Target's capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
2.26 BOARD APPROVAL. The Board of Directors of Target has
unanimously (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the stockholders of Target and is on terms
that are fair to such stockholders and (iii) recommended that the stockholders
of Target approve this Agreement and the Merger.
2.27 ACCOUNTS RECEIVABLE.
(a) Target has made available to Acquiror a list of all
accounts receivable of Target and each Subsidiary reflected on the Financial
Statements ("Accounts Receivable") along with a range of days elapsed since
invoice.
(b) All Accounts Receivable of Target and its Subsidiaries
arose in the ordinary course of business and are carried at values determined in
accordance with GAAP consistently applied. No person has any lien on any of such
Accounts Receivable and no request or agreement for deduction or discount has
been made with respect to any of such Accounts Receivable.
(c) All of the inventories of Target and each Subsidiary
reflected in the Financial Statements and Target's books and records on the date
hereof were purchased,
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acquired or produced in the ordinary and regular course of business and in a
manner consistent with Target's regular inventory practices and are set forth on
Target's books and records in accordance with the practices and principles of
Target consistent with the method of treating said items in prior periods. None
of the inventory of Target or any Subsidiary reflected on the Financial
Statements or on Target's books and records as of the date hereof (in either
case net of the reserve therefor) is obsolete, defective or in excess of the
needs of the business of Target reasonably anticipated for the normal operation
of the business consistent with past practices and outstanding customer
contracts. The presentation of inventory on the Financial Statements conforms to
GAAP and such inventory is stated at the lower of cost or net realizable value.
2.28 CUSTOMERS AND SUPPLIERS. As of the date hereof, no customer
which individually accounted for more than 5% of Target's gross revenues during
the 12-month period preceding the date hereof, and no supplier of Target, has
cancelled or otherwise terminated, or made any written threat to Target to
cancel or otherwise terminate its relationship with Target, or has at any time
on or after the Target Balance Sheet Date decreased materially its services or
supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to Target's
knowledge, no such supplier or customer intends to cancel or otherwise terminate
its relationship with Target or to decrease materially its services or supplies
to Target or its usage of the services or products of Target, as the case may
be. From and after the date hereof, no customer which individually accounted for
more than 5% of Target's gross revenues during the 12 month period preceding the
Closing Date, has cancelled or otherwise terminated, or made any written threat
to Target to cancel or otherwise terminate, for any reason, including without
limitation the consummation of the transactions contemplated hereby, its
relationship with Target, and to Target's knowledge, no such customer intends to
cancel or otherwise terminate its relationship with Target or to decrease
materially its usage of the services or products of Target. Target has not
knowingly breached, so as to provide a benefit to Target that was not intended
by the parties, any agreement with, or engaged in any fraudulent conduct with
respect to, any customer or supplier of Target.
2.29 THIRD PARTY CONSENTS. Except as set forth in Section 2.29 of
the Target Disclosure Schedule, no consent or approval is needed from any third
party in order to effect the Merger, this Agreement or any of the transactions
contemplated hereby.
2.30 NO COMMITMENTS REGARDING FUTURE PRODUCTS. Target has made no
sales to customers that are contingent upon providing future enhancements of
existing products, to add features not presently available on existing products
or to otherwise enhance the performance of its existing products (other than
beta or similar arrangements pursuant to which Target's customers from time to
time test or evaluate products). The products Target has delivered to customers
substantially comply with published specifications for such products and Target
has not received material complaints from customers about its products that
remain unresolved. Section 2.30 of the Target Disclosure Schedule accurately
sets forth a complete list of products in development (exclusive of mere
enhancements to and additional features for existing products).
2.31 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Schedule, or certificate furnished by Target pursuant to this
Agreement, when all such documents are read
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together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
SECTION THREE
3. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB.
Except as disclosed in a document dated as of the date of this
Agreement and delivered by Acquiror to Target prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub
hereby jointly and severally represent and warrant to Target as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Acquiror and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of Acquiror and Merger Sub
has the corporate power to own its properties and to carry on its business as
now being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Acquiror. Acquiror has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Acquiror
and Merger Sub, each as amended to date, to Target. Neither Acquiror nor any of
its subsidiaries is in violation of any material provisions of its Certificate
of Incorporation or Bylaws or equivalent organizational documents.
3.2 CAPITAL STRUCTURE.
(a) Except as disclosed in Section 3.2 of the Acquiror
Disclosure Schedule, the authorized capital stock of Acquiror consists of (i)
150,000,000 shares of Common Stock, $0.0001 par value, of which (A) 118,750,000
have been designated Class A Common Stock, 5,886,656 shares of which were issued
and outstanding as of the close of business on the day immediately preceding the
Closing Date (the "Capitalization Date"), and (B) 31,250,000 have been
designated Class B Common Stock, none of which were issued and outstanding as of
the close of business on the Capitalization Date and (ii) 46,165,082 shares of
Preferred Stock, $0.0001 par value, of which (A) 2,500,000 shares have been
designated Series A Preferred Stock, 2,455,798 of which were issued and
outstanding as of the closing of business on the Capitalization Date, (B)
10,250,000 shares have been designated Series A-1 Preferred Stock, 9,725,096 of
which were issued and outstanding as of the closing of business on the
Capitalization Date, (C) 31,250,000 have been designated Series B Preferred
Stock, 31,186,312 of which were issued and outstanding as of the closing of
business on the Capitalization Date, (D) 2,015,082 have been designated Series C
Preferred Stock, 1,765,082 which were issued and outstanding as of the closing
of business on the Capitalization Date, and (E) 150,000 have been designated
Series C-1 Preferred Stock, all of which were issued and outstanding as of the
closing of business on the Capitalization Date. As of the close of business on
the Capitalization Date, the Acquiror has reserved 382,215 shares of Class A
Common Stock and 516,976 shares of
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Series A-1 Preferred Stock (collectively, "Option Stock") for issuance to
officers, directors, employees and consultants of the Acquiror pursuant to its
1999 Revised Stock Plan duly adopted by the Board of Directors and approved by
the Acquiror's stockholders (the "1999 Revised Stock Plan"), and the Acquiror
has reserved 2,500,000 shares of Common Stock for issuance to officers,
directors, employees and consultants of the Acquiror pursuant to its 2000
Incentive Stock Plan duly adopted by the Board of Directors and approved by the
Acquiror's stockholders (the "2000 Incentive Stock Plan" and, together with the
1999 Revised Stock Plan, the "Stock Plans"). Of such reserved shares of Option
Stock under the 1999 Revised Stock Plan, no shares have been issued pursuant to
restricted stock purchase agreements, options to purchase 382,215 shares of
Class A Common Stock and 516,976 shares of Series A-1 Preferred Stock have been
granted and are currently outstanding, and no shares of Class A Common Stock
remain available for issuance to officers, directors, employees and consultants
pursuant to the 1999 Revised Stock Plan. Of such reserved shares of Class A
Common Stock under the 2000 Incentive Stock Plan, no shares have been issued
pursuant to restricted stock purchase agreements, options to purchase 175,000
shares of Class A Common Stock have been granted and are currently outstanding,
and 2,325,000 shares of Class A Common Stock remain available for issuance to
officers, directors, employees and consultants pursuant to the 2000 Incentive
Stock Plan. Other than as contemplated under this Agreement or as set forth in
the Acquiror Disclosure Schedule, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Acquiror or Merger
Sub is a party or by which either of them is bound obligating Acquiror or Merger
Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Acquiror or obligating Acquiror or Merger Sub to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. The shares of
Acquiror Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and non-assessable.
(b) The authorized capital stock of Merger Sub consists of
1,000,000 shares of Common Stock, par value $0.0001 of which 100 are issued and
outstanding and are held by Acquiror. All outstanding shares of Acquiror and
Merger Sub have been duly authorized, validly issued, fully paid and are
nonassessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. There are no
options, warrants, calls, rights, commitments or agreements of any character to
which Acquiror or Merger Sub is a party or by which either of them is bound
obligating Acquiror or Merger Sub to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of Merger Sub or obligating Acquiror or Merger Sub to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.
3.3 AUTHORITY. Acquiror and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, including but not
limited to the issuance of the Notes Consideration, have been duly authorized by
all necessary corporate action on the part of Acquiror and Merger Sub (other
than, with respect to the Merger, the filing and recordation of appropriate
merger documents as required by Delaware Law). This Agreement has been duly
executed and delivered by Acquiror and Merger Sub and constitutes the valid and
binding obligations of Acquiror and Merger Sub.
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3.4 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Acquiror or Merger Sub, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or Merger Sub or their properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or Merger Sub in connection with the execution
and delivery of this Agreement by Acquiror and Merger Sub or the consummation by
Acquiror and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of appropriate merger documents as required by Delaware Law and
Minnesota Law, (ii) any filings as may be required under applicable state
securities laws and the securities laws of any foreign country and (iii) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Acquiror and
would not prevent, materially alter or delay any the transactions contemplated
by this Agreement.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet heretofore provided to Target for the period ended December 31,
1999 (the "Acquiror Balance Sheet"), (ii) those incurred in the ordinary course
of business and not required to be set forth in the Acquiror Balance Sheet under
United States generally accepted accounting principles, and (iii) those incurred
in the ordinary course of business since the Acquiror Balance Sheet Date and
consistent with past practice.
3.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 3.6
of the Acquiror Disclosure Schedule, since the date of the Acquiror Balance
Sheet (the "Acquiror Balance Sheet Date"), Acquiror has conducted its business
in the ordinary course in a manner consistent with past practice and there has
not occurred: (i) any change, event or condition (whether or not covered by
insurance) that has resulted in, or might reasonably be expected to result in, a
Material Adverse Effect to Acquiror; (ii) any declaration, setting aside, or
payment of a dividend or other distribution with respect to the shares of
Acquiror, or any direct or indirect redemption, purchase or other acquisition by
Acquiror of any of its shares of capital stock; (iii) any material amendment or
change to Acquiror's Certificate of Incorporation or Bylaws; or (iv) any
negotiation or agreement by Acquiror to do any of the things described in the
preceding clauses (i) through (iii) (other than negotiations with Target and its
representatives regarding the transactions contemplated by this Agreement).
3.7 LITIGATION. Except as set forth in Section 3.7 of the Acquiror
Disclosure Schedule, there is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror or any of its
subsidiaries, threatened against Acquiror or any of its
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subsidiaries or any of their respective properties or any of their respective
officers or directors (in their capacities as such) that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
Acquiror. There is no judgment, decree or order against Acquiror or any of its
subsidiaries or, to the knowledge of Acquiror or any of its subsidiaries, any of
their respective directors or officers (in their capacities as such) that could
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on Acquiror.
3.8 GOVERNMENTAL AUTHORIZATION. Except as set forth in Section 3.8
of the Acquiror Disclosure Schedule, each of Acquiror and its subsidiaries has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity that is
required for the operation of Acquiror's or any of its subsidiaries' business
("Acquiror Authorizations"), and all of such Acquiror Authorizations are in full
force and effect, except where the failure to obtain or have any of such
Acquiror Authorizations could not reasonably be expected to have a Material
Adverse Effect on Acquiror.
3.9 COMPLIANCE WITH LAWS. Each of Acquiror and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not reasonably be expected to have a Material Adverse Effect on Acquiror.
3.10 BROKER'S AND FINDERS' FEES. Acquiror has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.11 ACCOUNTING AND TAX MATTERS. Neither Acquiror nor any of its
subsidiaries nor, to the knowledge of Acquiror, any of their respective
affiliates or agents is aware of any agreement, plan or other circumstance that
would prevent the Merger from constituting a transaction under Section 368(a) of
the Code.
3.12 HART-SCOTT-RODINO EXEMPTION. Neither the Acquiror not any
person that is an "ultimate parent entity" of Acquiror (as defined in the
regulations promulgated by the Federal trade Commission under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act")) has annual net sales or total assets (each as determined pursuant to the
regulations promulgated by the Federal Trade Commission under the HSR Act) of
$100,000,000 or more.
3.13 SECURITIES LAWS. All outstanding shares of capital stock of
Acquiror were issued, and the shares of Acquiror Common Stock to be issued
pursuant to the Merger will be issued, in compliance with all applicable federal
and state securities laws.
3.14 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Acquiror and Merger Sub herein or in any Schedule hereto, or
certificate furnished by Acquiror or Merger Sub pursuant to this Agreement, when
all such documents are read together in their entirety, contains or will contain
at the Effective Time any untrue statement of a material
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fact, or omits or will omit at the Effective Time to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
SECTION FOUR
4. CONDUCT PRIOR TO THE EFFECTIVE TIME.
4.1 CONDUCT OF BUSINESS OF TARGET AND ACQUIROR. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of Target and Acquiror
agrees (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its and its subsidiaries'
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay and to cause its subsidiaries to pay
debts and Taxes when due subject in the case of Taxes of Target or any of its
Subsidiaries, to Acquiror's consent to the filing of material Tax Returns if
applicable, to pay or perform other obligations when due, and to use all
reasonable efforts consistent with past practice and policies to preserve intact
its and its subsidiaries' present business organization, keep available the
services of its and its subsidiaries' present officers and key employees and
preserve its and its subsidiaries' relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it
or its subsidiaries, to the end that its and its subsidiaries' goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Each of Target and
Acquiror agrees to promptly notify the other of any event or occurrence not in
the ordinary course of its or its subsidiaries' business, and of any event which
could have a Material Adverse Effect. Without limiting the foregoing, except as
expressly contemplated by this Agreement, Target shall not do, cause or permit
any of the following, or allow, cause or permit any of its Subsidiaries to do,
cause or permit any of the following, without the prior written consent of
Acquiror:
(a) CHARTER DOCUMENTS. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its Subsidiaries;
(c) STOCK OPTION PLANS, ETC. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans; or
(d) OTHER. Take, or agree in writing or otherwise to take, any
of the actions described in Sections 4.1(a) through (c) above, or any action
which would make any of
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its representations or warranties contained in this Agreement untrue or
incorrect or prevent it from performing or cause it not to perform its covenants
hereunder.
4.2 CONDUCT OF BUSINESS OF TARGET. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Target shall not do, cause or permit any of the following, or allow,
cause or permit any of its Subsidiaries to do, cause or permit any of the
following, without the prior written consent of Acquiror:
(a) MATERIAL CONTRACTS. Enter into any Material Contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its Material Contracts, other than in the ordinary course of business
consistent with past practice;
(b) ISSUANCE OF SECURITIES. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement; provided, however, that Target
may, in the ordinary course of business consistent with past practice, grant
options for the purchase of Target Common Stock under the Target Stock Option
Plan;
(c) INTELLECTUAL PROPERTY. Transfer to any person or entity
any rights to its Intellectual Property;
(d) EXCLUSIVE RIGHTS. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(e) DISPOSITIONS. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material, individually or
in the aggregate, to its and its Subsidiaries' business, taken as a whole,
except in the ordinary course of business consistent with past practice;
(f) INDEBTEDNESS. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(g) LEASES. Enter into operating lease;
(h) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an
amount in excess of $5,000 in any one case or $20,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;
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(i) CAPITAL EXPENDITURES. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course of
business and consistent with past practice;
(j) INSURANCE. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(k) TERMINATION OR WAIVER. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(l) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Adopt or
amend any employee benefit or stock purchase or option plan, or hire any new
director level or officer level employee (except that it may hire a replacement
for any current director level or officer level employee if it first provides
Acquiror advance notice regarding such hiring decision), pay any special bonus
or special remuneration to any employee or director, or increase the salaries or
wage rates of its employees;
(m) SEVERANCE ARRANGEMENT. Grant any severance or termination
pay (i) to any director or officer or (ii) to any other employee except payments
made pursuant to standard written agreements outstanding on the date of this
Agreement;
(n) LAWSUITS. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(o) ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its Subsidiaries' business, taken as a whole;
(p) TAXES. Other than in the ordinary course of business, make
or change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes;
(q) NOTICES. Target shall give all notices and other
information required to be given to the employees of Target, any collective
bargaining unit representing any group of employees of Target, and any
applicable government authority under the National Labor Relations Act, the
Internal Revenue Code, COBRA, and other applicable law in connection with the
transactions provided for in this Agreement;
(r) REVALUATION. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
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(s) OTHER. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.2(a) through (r) above, or any action
which would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not to
perform its covenants hereunder.
4.3 NO SOLICITATION. Target and its Subsidiaries and the officers,
directors, employees or other agents of Target and its Subsidiaries and the
Target Stockholders will not, directly or indirectly, (i) take any action to
solicit, initiate, encourage or approve any Takeover Proposal (as defined below)
or (ii) engage in negotiations with, or disclose any nonpublic information
relating to Target or any of it Subsidiaries to, or afford access to the
properties, books or records of Target or any of its Subsidiaries to, any person
that has advised Target that it may be considering making, or that has made, a
Takeover Proposal. For purposes of this Agreement, "Takeover Proposal" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Target or any of its Subsidiaries or the
acquisition of any significant equity interest in, or a significant portion of
the assets of, Target or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
SECTION FIVE
5. ADDITIONAL AGREEMENTS.
5.1 BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
5.2 CONSENTS; COOPERATION.
(a) Each of Acquiror and Target shall use its reasonable best
efforts to promptly (i) obtain from any Governmental Entity any consents,
licenses, permits, waivers, approvals, authorizations or orders required to be
obtained or made by Acquiror or Target or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereunder and (ii) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under the Securities Act and
the Exchange Act and any other applicable federal, state or foreign securities
laws.
(b) From the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, each party shall promptly
notify the other party in writing of any pending or, to the knowledge of such
party, threatened action, proceeding or investigation by any Governmental Entity
or any other person (i) challenging or seeking material damages in connection
with this Agreement or the transactions contemplated hereunder or (ii) seeking
to restrain or prohibit the consummation of the Merger or the transactions
contemplated
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hereunder or otherwise limit the right of Acquiror or its subsidiaries to own or
operate all or any portion of the businesses or assets of Target or its
subsidiaries.
(c) Each of Acquiror and Target shall give or cause to be
given any required notices to third parties, and use its reasonable best efforts
to obtain all consents, waivers and approvals from third parties (i) necessary,
proper or advisable to consummate the transactions contemplated hereunder, (ii)
disclosed or required to be disclosed in the Target Disclosure Schedule or the
Acquiror Disclosure Schedule, or (iii) required to prevent a Material Adverse
Effect on Target or Acquiror from occurring prior or after the Effective Time.
In the event that Acquiror or Target shall fail to obtain any third party
consent, waiver or approval described in this Section 5.2(c), it shall use its
reasonable best efforts, and shall take any such actions reasonably requested by
the other party, to minimize any adverse effect upon Acquiror and Target, their
respective subsidiaries and their respective businesses resulting (or which
could reasonably be expected to result after the Effective Time) from the
failure to obtain such consent, waiver or approval.
(d) Each of Acquiror and Target will, and will cause their
respective subsidiaries to, take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on them with respect
to the consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.3 ACCESS TO INFORMATION.
(a) Target shall afford Acquiror and its accountants, counsel
and other representatives reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Target's and its
Subsidiaries' properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of
Target and its Subsidiaries as Acquiror may reasonably request. Target agrees to
provide to Acquiror and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. Acquiror shall
afford Target and its accountants, counsel and other representatives reasonable
access during normal business hours during the period prior to the Effective
Time to (i) all of Acquiror's and its subsidiaries' properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Acquiror and its subsidiaries as
Target may reasonably request. Acquiror agrees to provide to Target and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
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(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 CONFIDENTIALITY. Any information concerning any party hereto
disclosed to any other party hereto or any party's affiliates or representatives
in connection with this Agreement or the transactions contemplated hereby, which
has not been publicly disclosed, shall be kept strictly confidential by such
party, its affiliates and/or representatives. Each party hereto shall keep, and
shall cause its affiliates and/or representatives to keep, such confidential
information in strict confidence.
5.5 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law.
5.6 FIRPTA. Each Target Stockholder shall, prior to the Closing
Date, provide Acquiror with a properly executed certificate with respect to the
Foreign Investment and Real Property Tax Act of 1980 ("FIRPTA") in the form
attached hereto as Exhibit D ("FIRPTA Certificate").
5.7 STATE STATUTES. If any state takeover law shall become
applicable to the transactions contemplated by this Agreement, Acquiror and its
Board of Directors or Target and its Board of Directors, as the case may be,
shall use their reasonable best efforts to grant such approvals and take such
actions as are necessary so that the transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effects of such state takeover law on
the transactions contemplated by this Agreement.
5.8 BLUE SKY LAWS. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
5.9 STOCKHOLDER'S REPRESENTATION AGREEMENTS. The Target Stockholders
will each execute and deliver to Acquiror a Stockholder's Representation
Agreement substantially in the form attached hereto as Exhibit E (the
"Stockholder's Representation Agreement") which imposes certain restrictions
regarding the resale of Acquiror Common Stock received in the Merger.
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5.10 MAINTENANCE OF TARGET INDEMNIFICATION OBLIGATIONS.
(a) Subject to and following the Effective Time, the Surviving
Corporation shall, and Acquiror shall cause the Surviving Corporation to,
indemnify and hold harmless the Indemnified Target Parties (as defined below) to
the extent provided in the Bylaws or Articles of Incorporation of Target, in
each case as in effect as of the date of this Agreement. The Surviving
Corporation shall, and Acquiror shall cause the Surviving Corporation to, keep
in effect such provisions, which shall not be amended except as required by
applicable law or to make changes permitted by applicable law that would enlarge
the rights to indemnification available to the Indemnified Target Parties and
changes to provide for exculpation of director and officer liability to the
fullest extent permitted by applicable law. For purposes of this Section 5.10,
"Indemnified Target Parties" shall mean the individuals who were officers,
directors, employees and agents of Target on or prior to the Effective Time.
(b) Subject to and following the Effective Time, Acquiror and
the Surviving Corporation shall be jointly and severally obligated to pay the
reasonable expenses, including reasonable attorney's fees, that may be incurred
by any Indemnified Target Party in enforcing the rights provided in this Section
5.10 and shall make any advances of such expenses to the Indemnified Target
Party that would be available under the Bylaws or Articles of Incorporation of
Target (in each case as in effect as of the date of this Agreement) with regard
to the advancement of indemnifiable expenses, subject to the undertaking of such
party to repay such advances in the event that it is ultimately determined that
such party is not entitled to indemnification.
(c) The provisions of this Section 5.10 shall be in addition
to any other rights available to the Indemnified Target Parties, shall survive
the Effective Time of the Merger, and are expressly intended for the benefit of
the Indemnified Target Parties.
5.11 NON-COMPETITION AGREEMENTS. Prior to the Closing, the Target
Stockholders will each execute and deliver to Acquiror Non-Competition
Agreements substantially in the form of Exhibit F attached hereto (the
"Non-Competition Agreements").
5.12 CERTAIN TAX MATTERS.
(a) Merger Sub shall cause to be prepared by Target's current
auditors and file or cause to be prepared and filed all income and franchise Tax
Returns for the Target and its Subsidiaries for all periods ending on or prior
to the Closing Date that are filed after the Closing Date in a manner consistent
with the prior Tax Returns of Target and it Subsidiaries; provided, however,
that Merger Sub shall not be required to take any position that it reasonably
believes could subject it to penalty. Merger Sub shall permit Target
Stockholders to review and comment upon each Tax Return prior to filing and
shall make such revisions to such Tax Returns as are reasonably requested by a
majority of the Target Stockholders. All parties hereto agree to cooperate with
each other and with each other's agents, including accounting firms and legal
counsel, in connection with the preparation and filing of Tax Returns pursuant
to this Section 5.12(a).
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(b) Neither Acquiror nor Merger Sub shall file any amended
returns for Target for tax period ending on or prior to the Closing Date without
the consent of a majority in interest of the Target Stockholders.
(c) Neither Acquiror nor Merger Sub shall take any action,
either before or after the Merger, that would cause the Merger to fail to
constitute a "reorganization" within the meaning of Section 368(a) of the Code.
5.13 401(k) PLAN. Prior to the Closing, Target shall terminate the
Hagen Systems, Inc. 401(k) Plan. For purposes of the 401(k) plan sponsored by
Acquiror and/or its affiliates, (a) service with Target credited under the Hagen
Systems, Inc. 401(k) Plan as of the Closing shall be credited under the 401(k)
plan sponsored by Acquiror and/or its affiliates and (b) individuals who are
Target employees immediately prior to the Closing shall be considered to be
members of a class eligible for the 401(k) plan sponsored by Acquiror and/or its
affiliates.
5.14 WAIVER OF DISSENTER'S RIGHTS. Each Target Stockholder
acknowledges that such Target Stockholder has received from Target an adequate
disclosure and notice as required under Minnesota Law that such Target
Stockholder is entitled under the provisions of Section 302A.471 of the
Minnesota Law to dissent from the Merger and receive the fair market value of
his or her shares of Target Common Stock in accordance with the terms,
conditions and procedures set forth in Section 302A.471 of the Minnesota Law.
Each Target Stockholder hereby irrevocably and unconditionally waives any and
all rights which such Target Stockholder has or may have to dissent from the
Merger under or by reason of Section 302A.471 of the Minnesota Law and agrees
with the Acquiror, Merger Sub, Target and each other Target Stockholder that the
fair market value of each share of Target Common Stock for purposes of such
Section 302A.471 is not greater than the per share Merger Consideration and
agrees that he or she shall not exercise or attempt to exercise any rights of
dissent with respect to the Merger provided for in such Section 302A.471.
5.15 STOCK OPTION AGREEMENTS. Promptly after the Closing Date,
Acquiror shall enter into stock option agreements with those new employees of
Merger Sub listed on the Employees Stock Options List (dated 2-17-2000) provided
by Target on February 16, 2000, granting to each such employee options to
acquire the number of shares of Acquiror's Common Stock listed opposite such
employee's name at a purchase price equal to the share price used to calculate
the Exchange Ratio at Closing, such option to be subject to Acquiror's normal
terms and conditions, including vesting restrictions.
SECTION SIX
6. CONDITIONS TO THE MERGER.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction on or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
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(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(b) GOVERNMENTAL APPROVAL. Acquiror, Target and Merger Sub and
their respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for consummation
of or in connection with the Merger and the several transactions contemplated
hereby, including, without limitation, such approvals, waivers and consents as
may be required under the Securities Act and under any state securities laws.
(c) TAX OPINION. Acquiror and Target shall have received
written opinions of Acquiror's legal counsel and Target's legal counsel,
respectively, dated on or about the Closing Date, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code, and such opinions shall not have been withdrawn. In rendering such
opinions, counsel shall be entitled to rely upon, among other things, reasonable
assumptions as well as representations of Acquiror, Merger Sub and Target and
Target Stockholders.
(d) Merger Sub shall have entered into employee agreements
with Richard J. Hagen and Steven R. Peterson, substantially in the form of
Exhibit G hereto, and shall have entered into an employment agreement with
Robert Bierwagen upon mutually agreeable terms.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The obligations
of Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Target:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS (i) Each of the
representations and warranties of Acquiror and Merger Sub in this Agreement that
is expressly qualified by a reference to materiality shall be true in all
respects as so qualified, and each of the representations and warranties of
Acquiror and Merger Sub in this Agreement that is not so qualified shall be true
and correct in all material respects, on and as of the Effective Time as though
such representation or warranty had been made on and as of such time (except
that those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date), and (ii)
Acquiror and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.
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(b) Certificates of Acquiror.
(i) COMPLIANCE CERTIFICATE OF ACQUIROR. Target shall
have been provided with a certificate executed on behalf of Acquiror by its
President or its Chief Financial Officer to the effect that, as of the Effective
Time, each of the conditions set forth in Sections 6.1(a) has been satisfied
with respect to Acquiror.
(ii) CERTIFICATE OF SECRETARY OF ACQUIROR. Target shall
have been provided with a certificate executed by the Secretary or Assistant
Secretary of Acquiror certifying:
(A) Resolutions duly adopted by the Board of
Directors and the stockholders of Acquiror authorizing the execution of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and
(B) the incumbency of the officers of
Acquiror executing this Agreement and all agreements and documents contemplated
hereby.
(c) Certificates of Merger Sub.
(i) COMPLIANCE CERTIFICATE OF MERGER SUB. Target shall
have been provided with a certificate executed on behalf of Merger Sub by its
President or its Chief Financial Officer to the effect that, as of the Effective
Time, each of the conditions set forth in Section 6.1(a) has been satisfied with
respect to Merger Sub.
(ii) CERTIFICATE OF SECRETARY OF MERGER SUB. Target
shall have been provided with a certificate executed by the Secretary or
Assistant Secretary of Merger Sub certifying:
(A) Resolutions duly adopted by the Board of
Directors and the sole stockholder of Merger Sub authorizing the execution of
this Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and
(B) the incumbency of the officers of Merger Sub
executing this Agreement and all agreements and documents contemplated hereby.
(d) LEGAL OPINION. Target shall have received a legal opinion
from Acquiror's legal counsel substantially in the form of Exhibit H hereto.
(e) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror and its subsidiaries,
taken as a whole since the Acquiror Balance Sheet Date (it being understood that
none of the following shall be deemed, in and of itself, to constitute a
material adverse change in the financial condition, assets, liabilities,
operations or financial performance of the Acquiror since the Acquiror Balance
Sheet Date: (a) a change that results from conditions
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generally affecting the U.S. economy or the world economy, (b) a change that
results from conditions generally affecting the Acquiror's industry, (c) a
change that results from the announcement or pendency of the transactions
contemplated hereby and (d) a change that results from the taking of any action
required by this Agreement).
(f) GOOD STANDING. Target shall have received a certificate or
certificates of the Secretary of State of the State of Delaware and any
applicable franchise tax authority of such state, certifying as of a date no
more than 5 business days prior to the Effective Time that each of Acquiror and
Merger Sub has filed all required reports, paid all required fees and taxes and
is, as of such date, in good standing and authorized to transact business as a
domestic corporation.
(g) CLOSING OF RELATED TRANSACTIONS. Acquiror shall have
closed its Series D Preferred Stock financing.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND MERGER
SUB. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) Each of the
representations and warranties of Target in this Agreement that is expressly
qualified by a reference to materiality shall be true in all respects as so
qualified, and each of the representations and warranties of Target in this
Agreement that is not so qualified shall be true and correct in all material
respects, on and as of the Effective Time as though such representation or
warranty had been made on and as of such time (except that those representations
and warranties which address matters only as of a particular date shall remain
true and correct as of such date), and (ii) Target shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Effective Time.
(b) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target and its subsidiaries,
taken as a whole since the Target Balance Sheet Date (it being understood that
none of the following shall be deemed, in and of itself, to constitute a
material adverse change in the financial condition, assets, liabilities,
operations or financial performance of Target since the Target Balance Sheet
Date: (a) a change that results from conditions generally affecting the U.S.
economy or the world economy, (b) a change that results from conditions
generally affecting Target's industry, (c) a change that results from the
announcement or pendency of the transactions contemplated hereby and (d) a
change that results from the taking of any action required by this Agreement).
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(c) Certificates of Target.
(i) COMPLIANCE CERTIFICATE OF TARGET. Acquiror and
Merger Sub shall have been provided with a certificate executed on behalf of
Target by its President or (see 6.2) its Chief Financial Officer to the effect
that, as of the Effective Time, each of the conditions set forth in Section
6.3(a) and (b) above has been satisfied.
(ii) CERTIFICATE OF SECRETARY OF TARGET. Acquiror and
Merger Sub shall have been provided with a certificate executed by the Secretary
of Target certifying:
(A) Resolutions duly adopted by the Board of
Directors and the stockholders of Target authorizing the execution of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
(B) The Articles of Incorporation and Bylaws of
Target, as in effect immediately prior to the Effective Time, including all
amendments thereto; and
(C) the incumbency of the officers of Target
executing this Agreement and all agreements and documents contemplated hereby.
(d) THIRD PARTY CONSENTS. Acquiror shall have been furnished
with evidence satisfactory to it that Target has obtained those consents,
waivers, approvals or authorizations of those Governmental Entities and third
parties whose consent or approval are required in connection with the Merger.
(e) LEGAL OPINION. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form of Exhibit I.
(f) FIRPTA CERTIFICATES. Each Target Stockholder shall, prior
to the Closing Date, provide Acquiror with a properly executed FIRPTA
Certificate
(g) STOCKHOLDER'S REPRESENTATION AGREEMENTS. Acquiror shall
have received from the holders of the Target Capital Stock, outstanding
immediately prior to the Effective Time, duly executed and delivered the
Stockholder's Representation Agreements.
(h) NON-COMPETITION AGREEMENTS. Each of the Target
Stockholders shall have executed a Non-Competition Agreement.
(i) GOOD STANDING. Acquiror shall have received a certificate
or certificates of the Secretary of State of the State of Minnesota and any
applicable franchise tax authority of such state, certifying as of a date no
more than 5 business days prior to the Effective Time that Target and has filed
all required reports, paid all required fees and taxes and is, as of such date,
in good standing and authorized to transact business as a domestic corporation.
(j) RELEASE. Target shall deliver to Acquiror (i) a release
from each of Alvin H. Hagen and Jean A. Hagen (the "Secured Party") of all of
Target's obligations to the Secured Party under the Promissory Note in favor of
the Secured Party, dated July 1, 1994, in the principal amount of $619,255.80
and the Pledge Agreement of even date therewith and
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(ii) evidence of termination, without cost to Target, of the Consulting
Agreement between Target and Al Hagen dated as of January 1, 1994.
(k) PLAN TERMINATION. Target, without liability to Acquiror,
shall have terminated the Hagen Systems, Inc. 401(K) Plan and delivered evidence
of such termination to Acquiror.
(l) TARGET COMMON STOCK CERTIFICATES. The Target Stockholders
shall deliver to Acquiror for cancellation the stock certificates, in form
suitable for transfer, evidencing all the issued and outstanding shares of
Target Common Stock, endorsed in blank or with an executed blank stock transfer
power attached thereto.
(m) VOTING AGREEMENT; CO-SALE AGREEMENT. Each of the Target
Stockholders shall have executed and delivered to Acquiror an Amended and
Restated Voting Agreement and an Amended and Restated Right of First Refusal and
Co-Sale Agreement, substantially in the forms of the Second Amended Voting
Agreement and the Second Amended and Restated Right of First Refusal and Co-Sale
Agreement, delivered to Target's counsel on February 17, 2000.
SECTION SEVEN
7. TERMINATION, AMENDMENT AND WAIVER.
7.1 TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the stockholders of Target, this Agreement may be terminated and the Merger
may be abandoned:
(a) by mutual consent duly authorized by the Boards of
Directors of each of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of the
terminating party;
(i) the Effective Time shall not have occurred on or
before March 1, 2000 (or such later date as may be agreed upon in writing by the
parties); or
(ii) there shall be any applicable federal or state law
that makes consummation of the Merger illegal or otherwise prohibited or if any
court of competent jurisdiction or Governmental Entity shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable.
(c) by Acquiror, if Target shall materially breach any of its
representations, warranties or obligations hereunder and such breach shall not
have been cured within 2 business days of receipt by Target of written notice of
such breach, provided that Acquiror is not in material breach of any of its
representations, warranties or obligations
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hereunder, and provided further, that no cure period shall be required for a
breach which by its nature cannot be cured;
(d) by Target, if Acquiror shall materially breach any of its
representations, warranties or obligations hereunder and such breach shall not
have been cured within 2 business days following receipt by Acquiror of written
notice of such breach, provided that Target is not in material breach of any of
its representations, warranties or obligations hereunder, and provided further,
that no cure period shall be required for a breach which by its nature cannot be
cured.
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror, Merger
Sub or Target or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from the breach
by a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that, the provisions of Section 5.4
(Confidentiality), Section 7.3 (Expenses) and this Section 7.2 shall remain in
full force and effect and survive any termination of this Agreement.
7.3 EXPENSES. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated including, without limitation, filing fees and the fees and
expenses of advisors, accountants, legal counsel and financial printers, shall
be paid by Acquiror.
7.4 AMENDMENT. The boards of directors of the parties may cause this
Agreement to be amended at any time by execution of an instrument in writing
signed on behalf of each of the parties; provided that an amendment made
subsequent to adoption of the Agreement by the stockholders of Target or Merger
Sub shall not (i) alter or change the amount or kind of consideration to be
received on conversion of the Target Capital Stock, (ii) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the
stockholders of Target or Merger Sub.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any
party may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties, (ii)
waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
SECTION EIGHT
8. ESCROW AND INDEMNIFICATION.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to be
performed prior to the Effective Time, and all representations and warranties in
this Agreement
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<PAGE> 49
or in any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and continue until the 12 month anniversary of the
Closing Date (the "Escrow Termination Date"), except for the representations and
warranties contained in Sections 2.3 and 2.15 which shall survive the Closing
Date until 30 days after the expiration of the applicable statue of limitations,
giving effect to any extension thereof (the "Tax Indemnity Termination Date");
provided that if any claims for indemnification have been asserted with respect
to any such representations and warranties prior to the Escrow Termination Date
or, with respect to the representations and warranties contained in Sections 2.3
and 2.15, the Tax Indemnity Termination Date, the representations and warranties
on which any such claims are based shall continue in effect until final
resolution of any claims. All covenants to be performed after the Effective Time
shall continue indefinitely.
8.2 ESCROW FUND. At the Effective Time, Subordinated Promissory
Notes of the Acquiror in the amount of 10% of the aggregate Merger Consideration
shall, without any act of any stockholder of Target, be registered in the name
of, and be deposited with, Merger Sub as escrow agent (the "Escrow Agent"), such
deposit (together with principal paid thereon prior to the Escrow Termination
Date) to constitute the escrow fund (the "Escrow Fund"), to be governed by the
terms set forth herein. In the event that any Damages (as defined below) arise,
the Escrow Fund shall be available to compensate the Indemnified Persons
(defined below) pursuant to the indemnification obligations of the stockholders
of the Target pursuant to Section 8.3.
8.3 INDEMNIFICATION BY TARGET AND TARGET SHAREHOLDERS.
(a) INDEMNIFIED DAMAGES. Subject to the limitations set forth
in this Section 8, from and after the Effective Time, Target (in the event that
Merger does not Close) and Target Stockholders shall jointly and severally
protect, defend, indemnify and hold harmless Acquiror and the Surviving
Corporation and their respective affiliates, officers, directors, employees,
representatives and agents (Acquiror, Surviving Corporation and each of the
foregoing persons or entities is hereinafter referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
any and all losses, costs, damages, liabilities, fees (including without
limitation attorneys' fees) and expenses (collectively, the "Damages"), that any
of the Indemnified Persons incurs by reason of or in connection with any claim,
demand, action or cause of action alleging misrepresentation, breach of, or
default in connection with, any of the representations, warranties, covenants or
agreements of Target contained in this Agreement, including any exhibits or
schedules attached hereto, and the Certificate of Merger, which becomes known to
Acquiror during the Escrow Period or, with respect to the representations and
warranties contained in Sections 2.3 and 2.15, the Tax Indemnity Termination
Date. Damages in each case shall be net of the amount of any insurance proceeds
and indemnity and contribution actually recovered by Acquiror or the Surviving
Corporation.
(b) EXCLUSIVE CONTRACTUAL REMEDY AND LIMITATIONS. Acquiror,
the former stockholders of Target and Target each acknowledge that Damages, if
any, would relate to unresolved contingencies existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
total consideration Acquiror would have agreed to pay in connection with the
Merger. Resort to the Escrow Fund shall be the exclusive contractual remedy of
Acquiror and Surviving Corporation for any Damages if the Merger closes except
as
44
<PAGE> 50
hereinafter provided. The maximum liability of any former holder of the Target
Capital Stock for any breach of a representation, warranty or covenant of the
Target shall be limited to the Escrow Fund in which such holder has an interest;
provided, however, that nothing herein shall limit the liability: (i) of Target
for any breach of representation, warranty or covenant if the Merger does not
close, (ii) of any Target Stockholder in connection with any breach by such
stockholder of the Stockholder Representation Agreement, (iii) of Target or
Target Stockholders in connection with any breach of any of the representations
and warranties contained in Sections 2.1, 2.3, 2.4 and 2.15 and (iv) of any
officer, director or Target Stockholder for such person's or entity's fraud or
intentional misrepresentation.
8.4 DAMAGES THRESHOLD. Notwithstanding the foregoing, Acquiror may
not receive any amount from the Escrow Fund unless and until a certificate
signed by an officer of Acquiror (an "Officer's Certificate") identifying
Damages in the aggregate amount in excess of $100,000 has been delivered to the
Escrow Agent and such amount is determined pursuant to this Section 8 to be
payable, in which case Acquiror shall receive a proportional amount of escrowed
shares and escrowed cash from the Escrow Fund equal in value to the full amount
of such Damages without deduction. In determining the amount of any Damages
attributable to a breach, any materiality standard contained in any
representation, warranty or covenant of Target and Target Shareholders shall be
disregarded.
8.5 ESCROW PERIOD. Subject to the following requirements, the Escrow
Fund shall remain in existence until the Escrow Termination Date (the "Escrow
Period"). Upon the expiration of the Escrow Period, the Escrow Fund shall
terminate; provided, however, that the amount of escrowed cash and escrowed
notes in the Escrow Fund, which, in the reasonable judgment of Acquiror, subject
to the objection of the Stockholders' Representative (as defined in Section 8.8
below) and the subsequent arbitration of the claim in the manner provided
herein, are necessary to satisfy any unsatisfied claims specified in any
Officer's Certificate delivered to the Escrow Agent prior to the expiration of
such Escrow Period with respect to facts and circumstances existing on or prior
to the Escrow Termination Date shall remain in the Escrow Fund (and the Escrow
Fund shall remain in existence) until such claims have been resolved. As soon as
all such claims have been resolved, the Escrow Agent shall deliver to Target
Stockholders all escrowed cash and escrowed notes remaining in the Escrow Fund
and not required to satisfy such claims. Deliveries of from the Escrow Fund to
Target Stockholders pursuant to this Section 8.5 shall be made in proportion to
their respective original contributions to the Escrow Fund.
8.6 METHOD OF ASSERTING CLAIMS. All claims for indemnification by
the Surviving Corporation or any other Indemnified Person pursuant to this
Section 8 shall be made in accordance with the provisions of this Agreement.
8.7 REPRESENTATIVE OF THE STOCKHOLDERS; POWER OF ATTORNEY. The
Target Stockholders hereby appoint Richard Hagen as agent and attorney-in-fact
(collectively, the "Stockholders' Representative") for each Target Stockholder
(except such stockholders, if any, as shall have perfected their appraisal
rights under Minnesota Law), for and on behalf of Target Stockholders, to give
and receive notices and communications on behalf of Target Stockholders, to
authorize delivery to Acquiror of escrowed subordinated Promissory Notes from
the Escrow Fund in satisfaction of claims by Acquiror or any other Indemnified
Person, to object to such
45
<PAGE> 51
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Stockholders' Representative for the
accomplishment of the foregoing. The Stockholders' Representative shall act by
vote or written action or consent of a majority of the members of the Committee.
8.8 INDEMNIFICATION BY ACQUIROR.
(a) INDEMNIFIED DAMAGES. Subject to the limitations set forth
in this Section 8, from and after the Effective Time, Acquiror shall protect,
defend, indemnify and hold harmless Target (in the event that Merger does not
Close) Target Stockholders and their respective affiliates, officers, directors,
employees, representatives and agents (Target, Target Stockholders and each of
the foregoing persons or entities is hereinafter referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
any and all losses, costs, damages, liabilities, fees (including without
limitation attorneys' fees) and expenses (collectively, the "Damages"), that any
of the Indemnified Persons incurs by reason of or in connection with any claim,
demand, action or cause of action alleging misrepresentation, breach of, or
default in connection with, any of the representations, warranties, covenants or
agreements of Acquiror and Merger Sub contained in this Agreement, including any
exhibits or schedules attached hereto, and the Certificate of Merger, which
becomes known to Target or Target Shareholders during the Escrow Period. Damages
in each case shall be net of the amount of any insurance proceeds and indemnity
and contribution actually recovered by Target or Target Shareholders.
(b) LIMITATIONS. The maximum liability of Acquiror and Merger
Sub for any breach of a representation, warranty or covenant of Acquiror or
Merger Sub shall be limited to the amount of 10% of the aggregate Merger
Consideration; provided, however, that nothing herein shall limit the liability:
(i) of Acquiror for any breach of representation, warranty or covenant if the
Merger does not close, (ii) of Acquiror or Merger Sub in connection with any
breach of any of the representations and warranties contained in Sections 3.1,
3.2 and 3.3 and (iii) of any officer, director or Acquiror for such person's or
entity's fraud or intentional misrepresentation.
8.9 DAMAGES THRESHOLD. Notwithstanding the foregoing, Acquiror and
Merger Sub shall have any liability for any breach of a representation, warranty
or covenant of Acquiror or Merger Sub unless Damages in the aggregate amount in
excess of $100,000 is determined pursuant to this Section 8 to be payable. In
determining the amount of any Damages attributable to a breach, any materiality
standard contained in a representation, warranty or covenant of Acquiror shall
be disregarded.
SECTION NINE
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
48 hours after being deposited in the
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<PAGE> 52
regular mail as certified or registered mail (airmail if sent internationally)
with postage prepaid, if such notice is addressed to the party to be notified at
such party's address or facsimile number as set forth below, or as subsequently
modified by written notice,
(a) if to Acquiror or Merger Sub, to:
printCafe, Inc.
Forty 24th Street, 5th Floor
Pittsburgh, PA 15222
Attention: Chief Executive Officer
Facsimile No.: (412) 456-1151
Telephone No.: (412) 456-1141
with a copy to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Daniel A. Mathews, Esq.
Facsimile No.: (212) 506-5151
Telephone No.: (212) 506-5050
(b) if to Target, to:
6438 CityWest Parkway
Eden Prairie, MN 55344
Attention: President
Facsimile No.: (612) 944-4729
Telephone No.: (612) 944-6865
with a copy to:
Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center,
33 South Sixth Street,
Minneapolis, MN 55402
Attention: Jeffrey Anderson
Facsimile No.: (612) 333-0066
Telephone No.: (612) 343-3958
(c) if to Target Shareholders, to:
the addresses set forth on the signature pages hereof
9.2 INTERPRETATION. When a reference is made in this Agreement to
Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made
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<PAGE> 53
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. The phrases "the date of this Agreement," "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date first set forth above. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.4 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a)-(c) and (g), 1.7. 1.8, 1.12; and (c) shall not be assigned by operation
of law or otherwise except as otherwise specifically provided.
9.5 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
9.6 REMEDIES CUMULATIVE. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
48
<PAGE> 54
9.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected in
accordance with this Section 9.9 shall be binding upon the parties and their
respective successors and assigns.
[Signature Page Follows]
49
<PAGE> 55
Acquiror, Merger Sub, Target and Target Stockholders have executed this
Agreement as of the date first written above.
TARGET
HAGEN SYSTEMS, INC.
By:
--------------------------------
Name:
--------------------------------
(Print)
Title:
--------------------------------
Address:
--------------------------------
ACQUIROR
PRINTCAFE, INC.
By:
--------------------------------
Name:
--------------------------------
(Print)
Title:
--------------------------------
MERGER SUB:
PRINTCAFE SYSTEMS, INC.
By:
--------------------------------
Name:
--------------------------------
(Print)
Title:
--------------------------------
TARGET STOCKHOLDERS
50
<PAGE> 56
-----------------------------------------
RICHARD J. HAGEN
Address:
-----------------------------------------
STEVEN R. PETERSON
Address:
-----------------------------------------
PATRICIA J. PETERSON
Address:
51
<PAGE> 1
EXHIBIT 10.15
THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
PRINTCAFE, INC.
SUBORDINATED NON-NEGOTIABLE PROMISSORY NOTE
$1,989,990 March 10, 2000
PRINTCAFE, INC., a Delaware corporation (the "Company"), for value
received, hereby promises to pay PATRICIA J. PETERSON (the "Holder"), or
permitted registered assigns, the principal sum equal to ONE MILLION NINE
HUNDRED EIGHTY-NINE THOUSAND NINE HUNDRED NINETY DOLLARS ($1,989,990). This Note
is issued pursuant to the Agreement and Plan of Merger dated as of February 22,
2000 (the "Merger Agreement"), among the Company, Hagen Systems, Inc., a
Minnesota corporation ("Hagen"), the stockholders of Hagen, including the
Holder, and printCafe Systems, Inc., a Delaware corporation wholly-owned by the
Company, and is subject to the provisions thereof. Terms used but not defined
herein shall have the meanings set forth in the Merger Agreement.
THIS NOTE SHALL NOT BE NEGOTIABLE, ASSIGNABLE OR OTHERWISE TRANSFERABLE
WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF THE COMPANY.
1. PRINCIPAL AND INTEREST. This Note shall be payable in three equal successive
instalments on the first, second and third (3rd) anniversaries of the date
hereof upon delivery of a notice (the "Payment Notice") from the Holder to the
Company specifying the time, place and manner of payment. The unpaid principal
amount of this Note shall bear interest at a rate of interest for each quarterly
period commencing on the date hereof equal to the lower of (i) the Prime Rate,
as published in the Wall Street Journal on the first business day of such
quarter or (ii) 9.0% per annum. Interest shall be payable quarterly in arrears
on the same day in each successive February, May, August, and November as the
date hereof (except that if any such date is not a business day, such payment
shall be made on the next succeeding business day), with a final payment on the
final maturity date.
2. SECURITY. Payment and performance of this Note is not secured.
3. PREPAYMENT. The Company may prepay, in whole or in part, the outstanding
amount of this Note at any time or from time to time without penalty or premium.
<PAGE> 2
4. MANDATORY PREPAYMENT. Simultaneously with the consummation of a firmly
underwritten initial public offering registered pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), of shares of common stock of the
Company, the Company shall prepay such portion of the principal of this Note as
is necessary to reduce the remaining principal hereof to 50% of the original
face amount hereof, which prepayment shall be applied to reduce equally each of
the remaining scheduled repayments of principal hereunder. In addition,
simultaneously with the consummation of a subsequent firmly underwritten public
offering by the Company of shares of its common stock pursuant to a registration
statement under the Securities Act which results in aggregate gross cash
proceeds to the Company of at least $125 million, the Company shall prepay in
full the remaining principal outstanding under this Note. Each prepayment shall
be made together with interest accrued on the principal so prepaid.
5. RESTRICTIONS ON TRANSFER.
(a) THIS NOTE SHALL NOT BE NEGOTIABLE, ASSIGNABLE OR OTHERWISE
TRANSFERABLE WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF THE COMPANY.
(b) The Company shall keep at its principal executive office a register
(herein sometimes referred to as the "Note Register"), in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), the Company shall provide for the registration and
transfer of this Note.
(c) Subject to Section 5(a) hereof, whenever this Note shall be
surrendered at the principal executive office of the Company for transfer,
accompanied by (i) a written instrument of transfer in form reasonably
satisfactory to the Company duly executed by the holder or his attorney duly
authorized in writing, (ii) the written opinion, addressed to the Company, of
counsel for the holder of this Note, stating that in the opinion of such counsel
(which opinion and counsel shall be reasonably satisfactory to the Company),
such proposed transfer does not involve any transaction requiring registration
or qualification of such shares under the Securities Act or the securities blue
sky laws of any relevant state of the United States and (iii) a writing duly
executed by the transferee acknowledging that this Note is issued pursuant to
the Merger Agreement and is subject to the provisions thereof and agreeing to be
bound by the terms hereof and thereof, including, without limitation, the
provisions of this Section 5 and Section 8 hereof, the Company shall execute and
deliver in exchange therefor a new Note or Notes, as may be requested by such
holder, in the same aggregate unpaid amount and payable on the same date as the
Note or Notes so surrendered; each such new Note shall be dated as of the date
to which payments have been made on the Note or Notes so surrendered and shall
be in such amount and registered in such name or names as such holder may
designate in writing.
(d) Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note (in case of mutilation), the Company will make and deliver in lieu of
this Note a new Note of like tenor and unpaid amount and dated as of the date
hereof.
2
<PAGE> 3
6. EVENTS AND REMEDIES OF DEFAULT
The occurrence of any of the following shall constitute an "Event of
Default":
(a) if the Company shall fail to pay any amount owing under this Note
when due, and such failure continues for five business days after written notice
to the Company of such default;
(b) if the Company is adjudicated insolvent or bankrupt; or
(c) if the Company admits in writing its inability to pay its debts; or
(d) if the Company shall come under the authority of a custodian,
receiver or trustee for it or for substantially all of its property; or
(e) if the Company makes an assignment for the benefit of creditors, or
suffers proceedings under any law related to bankruptcy, insolvency, liquidation
or the reorganization, readjustment or the release of debtors to be instituted
against it and if contested by it not dismissed or stayed within ninety (90)
days; or
(f) if proceedings under any law related to bankruptcy, insolvency,
liquidation or the reorganization, readjustment or the release of debtors are
instituted or commenced by the Company; or
(g) if any order for relief is entered relating to any of the forgoing
proceedings under subsections (a) through (f); or
(h) the Company shall have dissolved or any proceedings shall have
commenced, or any formal action shall have been taken, with a view to the
dissolution of the Company; or
Upon the occurrence and continuance of an Event of Default, the holder of this
Note shall have the option to (i) demand by written notice full and immediate
payment of the then outstanding balance of this Note and (ii) to protect and
enforce its rights or remedies as may then be available.
7. SUBORDINATION.
(a) General. The Company, for itself, its successors and assigns,
covenants and agrees, and the Holder by its acceptance hereof covenants and
agrees, that this Note shall be subordinated to the extent set forth in this
Section to the prior payment in full of all Senior Debt (as defined below) as
follows:
(i) In the event of an Event of Default specified in Sections
7(b), (e) or (f) hereof, the Holder shall not be entitled to receive any
payment on account of principal of or interest on this Note unless and
until the Senior Debt shall have been paid in full. To that end, the
holders of Senior Debt shall be entitled to receive for application in
payment thereof any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or
deliverable in any such proceedings in respect of this Note.
3
<PAGE> 4
(ii) If any Senior Debt or this Note is declared due and payable
prior to its stated maturity by reason of an Event of Default specified
in Sections 7(a), (c), (d) or (g) hereof or like provisions in
instruments evidencing the Senior Debt, then all of the Senior Debt
shall first be paid in full, before any payment on account of principal
of or interest on this Note may be made.
(iii) If the Company fails to pay any principal of or interest
(or premium, if any) on any Senior Debt when due, under circumstances
when the provisions of clauses (i) and (ii) hereof shall not be
applicable, then all principal of and interest (or premium, if any) on
such Senior Debt then due and payable shall first be paid in full,
before any payment on account of principal of or interest on this Note
may be made.
(iv) The provisions of clauses (i) through (iii) shall not
prohibit the Company from issuing to the Holder securities of the
Company which are subordinate and junior in right of payment to all
Senior Debt then outstanding, on the same terms as set forth in this
Section 8, in exchange for and in satisfaction of the indebtedness
represented by this Note.
(b) "Senior Debt" means all amounts (including any interest accruing
thereon) owed under the following, whether now outstanding or hereafter
incurred, created or assumed:
(i) indebtedness pursuant to the Term Loan Agreement, dated
July, 6, 1999, between the Company and National City Bank secured by a
general security interest in all assets, except intellectual property,
of the Company, in the amount of $900,000.;
(ii) all indebtedness under securities issued pursuant to a
public offering registered under the Securities Act;
(iii) any line or lines of credit or other indebtedness for
borrowed money incurred by the Company on or after the date hereof (A)
for working capital purposes and/or (B) for refinancing, refunding or
replacement of Senior Debt and/or (C) extended by one or more banks; and
(iv) all guaranties by the Company of the principal of and
interest and premium (if any) on any indebtedness of any subsidiary or
affiliate of the Company which constitutes "Senior Debt" pursuant to
clauses (i) through (iii) hereof, which is guaranteed by the Company.
(c) Further Assurances. The Holder hereby agrees to execute and deliver
all documents, and take all actions necessary or desirable, as reasonably
requested by the Company to affect the provisions of the this Section 8,
including, without, executing and delivering intercreditor or other agreements
among or between the Holder and any holder of Senior Debt of the Company or its
subsidiaries or affiliates.
4
<PAGE> 5
8. GENERAL.
(a) Successors and Assigns. This Note and the obligations and rights of
the Company hereunder, shall be binding upon and inure to the benefit of the
Company, the Holder, and their respective successors and assigns.
(b) Changes. Changes in or additions to this Note may be made or
compliance with any term, covenant, agreement, condition or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively) upon written consent of the Company
and the Holder.
(c) Notices. All notices, request, consents and demands shall be made in
writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or the holder hereof at their respective addresses set forth below or to
such other address as may be furnished in writing to the other party hereto:
If to the Holder:
Patricia J. Peterson
c/o Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center,
33 South Sixth Street,
Minneapolis, MN 55402
Attention: Jeffrey Anderson, Esq.
Facsimile No.: (612) 333-0066
Telephone No.: (612) 343-3958
with a copy to:
Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center,
33 South Sixth Street,
Minneapolis, MN 55402
Attention: Jeffrey Anderson, Esq.
Facsimile No.: (612) 333-0066
Telephone No.: (612) 343-3958
If to the Company:
printCafe, Inc.
Forty 24th Street, 5th Floor
Pittsburgh, PA 15222
Attention: President
Facsimile No.: (412) 456-1151
Telephone No.: (412) 456-1141
5
<PAGE> 6
with a copy to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Attention: Daniel A. Mathews, Esq.
Facsimile No.: (212) 506-5151
Telephone No.: (212) 506-5050.
(d) Severability. 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.
(e) Saturdays, Sundays, Holidays. If any date that may at any time be
specified in this Note as a date for the making of any payment under this Note
shall fall on Saturday, Sunday or on a day which in Pittsburgh, Pennsylvania,
shall be a legal holiday, then the date for the making of that payment shall be
the next subsequent say which is not a Saturday, Sunday, or legal holiday.
(f) Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York, without regard to choice of law principles.
[Remainder of this page intentionally left blank]
6
<PAGE> 7
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first above written by the duly authorized representative of the Company.
PRINTCAFE, INC.
By:
---------------------------------
Name:
Title:
ACKNOWLEDGED, ACCEPTED
AND AGREED THIS ___ DAY
OF MARCH, 2000
HOLDER:
PATRICIA J. PETERSON
- ------------------------------------
<PAGE> 1
EXHIBIT 10.16
THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
PRINTCAFE, INC.
SUBORDINATED NON-NEGOTIABLE PROMISSORY NOTE
$1,989,990 March 10, 2000
PRINTCAFE, INC., a Delaware corporation (the "Company"), for value
received, hereby promises to pay STEVEN R. PETERSON (the "Holder"), or permitted
registered assigns, the principal sum equal to ONE MILLION NINE HUNDRED
EIGHTY-NINE THOUSAND NINE HUNDRED NINETY DOLLARS ($1,989,990). This Note is
issued pursuant to the Agreement and Plan of Merger dated as of February 22,
2000 (the "Merger Agreement"), among the Company, Hagen Systems, Inc., a
Minnesota corporation ("Hagen"), the stockholders of Hagen, including the
Holder, and printCafe Systems, Inc., a Delaware corporation wholly-owned by the
Company, and is subject to the provisions thereof. Terms used but not defined
herein shall have the meanings set forth in the Merger Agreement.
THIS NOTE SHALL NOT BE NEGOTIABLE, ASSIGNABLE OR OTHERWISE TRANSFERABLE
WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF THE COMPANY.
1. PRINCIPAL AND INTEREST. This Note shall be payable in three equal successive
instalments on the first, second and third (3rd) anniversaries of the date
hereof upon delivery of a notice (the "Payment Notice") from the Holder to the
Company specifying the time, place and manner of payment. The unpaid principal
amount of this Note shall bear interest at a rate of interest for each quarterly
period commencing on the date hereof equal to the lower of (i) the Prime Rate,
as published in the Wall Street Journal on the first business day of such
quarter or (ii) 9.0% per annum. Interest shall be payable quarterly in arrears
on the same day in each successive February, May, August, and November as the
date hereof (except that if any such date is not a business day, such payment
shall be made on the next succeeding business day), with a final payment on the
final maturity date.
2. SECURITY. Payment and performance of this Note is not secured.
3. PREPAYMENT. The Company may prepay, in whole or in part, the outstanding
amount of this Note at any time or from time to time without penalty or premium.
<PAGE> 2
4. MANDATORY PREPAYMENT. Simultaneously with the consummation of a firmly
underwritten initial public offering registered pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), of shares of common stock of the
Company, the Company shall prepay such portion of the principal of this Note as
is necessary to reduce the remaining principal hereof to 50% of the original
face amount hereof, which prepayment shall be applied to reduce equally each of
the remaining scheduled repayments of principal hereunder. In addition,
simultaneously with the consummation of a subsequent firmly underwritten public
offering by the Company of shares of its common stock pursuant to a registration
statement under the Securities Act which results in aggregate gross cash
proceeds to the Company of at least $125 million, the Company shall prepay in
full the remaining principal outstanding under this Note. Each prepayment shall
be made together with interest accrued on the principal so prepaid.
5. RESTRICTIONS ON TRANSFER.
(a) THIS NOTE SHALL NOT BE NEGOTIABLE, ASSIGNABLE OR OTHERWISE
TRANSFERABLE WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF THE COMPANY.
(b) The Company shall keep at its principal executive office a register
(herein sometimes referred to as the "Note Register"), in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), the Company shall provide for the registration and
transfer of this Note.
(c) Subject to Section 5(a) hereof, whenever this Note shall be
surrendered at the principal executive office of the Company for transfer,
accompanied by (i) a written instrument of transfer in form reasonably
satisfactory to the Company duly executed by the holder or his attorney duly
authorized in writing, (ii) the written opinion, addressed to the Company, of
counsel for the holder of this Note, stating that in the opinion of such counsel
(which opinion and counsel shall be reasonably satisfactory to the Company),
such proposed transfer does not involve any transaction requiring registration
or qualification of such shares under the Securities Act or the securities blue
sky laws of any relevant state of the United States and (iii) a writing duly
executed by the transferee acknowledging that this Note is issued pursuant to
the Merger Agreement and is subject to the provisions thereof and agreeing to be
bound by the terms hereof and thereof, including, without limitation, the
provisions of this Section 5 and Section 8 hereof, the Company shall execute and
deliver in exchange therefor a new Note or Notes, as may be requested by such
holder, in the same aggregate unpaid amount and payable on the same date as the
Note or Notes so surrendered; each such new Note shall be dated as of the date
to which payments have been made on the Note or Notes so surrendered and shall
be in such amount and registered in such name or names as such holder may
designate in writing.
(d) Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note (in case of mutilation), the Company will make and deliver in lieu of
this Note a new Note of like tenor and unpaid amount and dated as of the date
hereof.
2
<PAGE> 3
6. EVENTS AND REMEDIES OF DEFAULT
The occurrence of any of the following shall constitute an "Event of
Default":
(a) if the Company shall fail to pay any amount owing under this Note
when due, and such failure continues for five business days after written notice
to the Company of such default;
(b) if the Company is adjudicated insolvent or bankrupt; or
(c) if the Company admits in writing its inability to pay its debts; or
(d) if the Company shall come under the authority of a custodian,
receiver or trustee for it or for substantially all of its property; or
(e) if the Company makes an assignment for the benefit of creditors, or
suffers proceedings under any law related to bankruptcy, insolvency, liquidation
or the reorganization, readjustment or the release of debtors to be instituted
against it and if contested by it not dismissed or stayed within ninety (90)
days; or
(f) if proceedings under any law related to bankruptcy, insolvency,
liquidation or the reorganization, readjustment or the release of debtors are
instituted or commenced by the Company; or
(g) if any order for relief is entered relating to any of the forgoing
proceedings under subsections (a) through (f); or
(h) the Company shall have dissolved or any proceedings shall have
commenced, or any formal action shall have been taken, with a view to the
dissolution of the Company; or
Upon the occurrence and continuance of an Event of Default, the holder of this
Note shall have the option to (i) demand by written notice full and immediate
payment of the then outstanding balance of this Note and (ii) to protect and
enforce its rights or remedies as may then be available.
7. SUBORDINATION.
(a) General. The Company, for itself, its successors and assigns,
covenants and agrees, and the Holder by its acceptance hereof covenants and
agrees, that this Note shall be subordinated to the extent set forth in this
Section to the prior payment in full of all Senior Debt (as defined below) as
follows:
(i) In the event of an Event of Default specified in Sections
7(b), (e) or (f) hereof, the Holder shall not be entitled to receive any
payment on account of principal of or interest on this Note unless and
until the Senior Debt shall have been paid in full. To that end, the
holders of Senior Debt shall be entitled to receive for application in
payment thereof any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or
deliverable in any such proceedings in respect of this Note.
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<PAGE> 4
(ii) If any Senior Debt or this Note is declared due and payable
prior to its stated maturity by reason of an Event of Default specified
in Sections 7(a), (c), (d) or (g) hereof or like provisions in
instruments evidencing the Senior Debt, then all of the Senior Debt
shall first be paid in full, before any payment on account of principal
of or interest on this Note may be made.
(iii) If the Company fails to pay any principal of or interest
(or premium, if any) on any Senior Debt when due, under circumstances
when the provisions of clauses (i) and (ii) hereof shall not be
applicable, then all principal of and interest (or premium, if any) on
such Senior Debt then due and payable shall first be paid in full,
before any payment on account of principal of or interest on this Note
may be made.
(iv) The provisions of clauses (i) through (iii) shall not
prohibit the Company from issuing to the Holder securities of the
Company which are subordinate and junior in right of payment to all
Senior Debt then outstanding, on the same terms as set forth in this
Section 8, in exchange for and in satisfaction of the indebtedness
represented by this Note.
(b) "Senior Debt" means all amounts (including any interest accruing
thereon) owed under the following, whether now outstanding or hereafter
incurred, created or assumed:
(i) indebtedness pursuant to the Term Loan Agreement, dated
July, 6, 1999, between the Company and National City Bank secured by a
general security interest in all assets, except intellectual property,
of the Company, in the amount of $900,000.;
(ii) all indebtedness under securities issued pursuant to a
public offering registered under the Securities Act;
(iii) any line or lines of credit or other indebtedness for
borrowed money incurred by the Company on or after the date hereof (A)
for working capital purposes and/or (B) for refinancing, refunding or
replacement of Senior Debt and/or (C) extended by one or more banks; and
(iv) all guaranties by the Company of the principal of and
interest and premium (if any) on any indebtedness of any subsidiary or
affiliate of the Company which constitutes "Senior Debt" pursuant to
clauses (i) through (iii) hereof, which is guaranteed by the Company.
(c) Further Assurances. The Holder hereby agrees to execute and deliver
all documents, and take all actions necessary or desirable, as reasonably
requested by the Company to affect the provisions of the this Section 8,
including, without, executing and delivering intercreditor or other agreements
among or between the Holder and any holder of Senior Debt of the Company or its
subsidiaries or affiliates.
4
<PAGE> 5
8. GENERAL.
(a) Successors and Assigns. This Note and the obligations and rights of
the Company hereunder, shall be binding upon and inure to the benefit of the
Company, the Holder, and their respective successors and assigns.
(b) Changes. Changes in or additions to this Note may be made or
compliance with any term, covenant, agreement, condition or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively) upon written consent of the Company
and the Holder.
(c) Notices. All notices, request, consents and demands shall be made in
writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or the holder hereof at their respective addresses set forth below or to
such other address as may be furnished in writing to the other party hereto:
If to the Holder:
Steven R. Peterson
c/o Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center,
33 South Sixth Street,
Minneapolis, MN 55402
Attention: Jeffrey Anderson, Esq.
Facsimile No.: (612) 333-0066
Telephone No.: (612) 343-3958
with a copy to:
Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center,
33 South Sixth Street,
Minneapolis, MN 55402
Attention: Jeffrey Anderson, Esq.
Facsimile No.: (612) 333-0066
Telephone No.: (612) 343-3958
If to the Company:
printCafe, Inc.
Forty 24th Street, 5th Floor
Pittsburgh, PA 15222
Attention: President
Facsimile No.: (412) 456-1151
Telephone No.: (412) 456-1141
5
<PAGE> 6
with a copy to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, NY 10103
Attention: Daniel A. Mathews, Esq.
Facsimile No.: (212) 506-5151
Telephone No.: (212) 506-5050
(d) Severability. 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.
(e) Saturdays, Sundays, Holidays. If any date that may at any time be
specified in this Note as a date for the making of any payment under this Note
shall fall on Saturday, Sunday or on a day which in Pittsburgh, Pennsylvania,
shall be a legal holiday, then the date for the making of that payment shall be
the next subsequent say which is not a Saturday, Sunday, or legal holiday.
(f) Governing Law. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York, without regard to choice of law principles.
[Remainder of this page intentionally left blank]
6
<PAGE> 7
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first above written by the duly authorized representative of the Company.
PRINTCAFE, INC.
By:
---------------------------------
Name:
Title:
ACKNOWLEDGED, ACCEPTED
AND AGREED THIS ___ DAY
OF MARCH, 2000
HOLDER:
STEVEN R. PETERSON
- ------------------------------------
<PAGE> 1
EXHIBIT 10.18
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PRINTCAFE, INC.,
AHP PRINTCAFE, INC.,
AHP SYSTEMS, INC.,
AND
EHUD ARIELI
MARCH 7, 2000
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made and
entered into as of March 7, 2000, by and among (i) printCafe, Inc., a Delaware
corporation ("Acquiror"), (ii) AHP printCafe, Inc., a Delaware corporation
("Merger Sub") and wholly owned subsidiary of Acquiror, (iii) A.H.P. Systems,
Inc., an Illinois corporation ("Target"), and (iv) Ehud Arieli ("Target
Stockholder").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub and Target
Stockholder believe it is in the best interests of their respective companies
and the stockholders of their respective companies that Target and Merger Sub
combine into a single company through the merger of Merger Sub and Target (the
"Merger") and, in furtherance thereof, have approved the Merger. Pursuant to the
Merger, among other things, the outstanding shares of capital stock of Target
(the "Target Capital Stock") shall be converted into shares of the Common Stock,
par value $.0001 per share, of Acquiror, (the "Acquiror Common Stock"), at the
rates set forth herein and the right to receive cash at the rates set forth
herein.
B. Target, Target Stockholder, Acquiror and Merger Sub desire to make
certain representations and warranties and other agreements in connection with
the Merger.
C. The parties hereto intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
AGREEMENT
In consideration of the premises and the mutual representations,
warranties and covenants set forth below, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION ONE
1. THE MERGER.
1.1 THE MERGER At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the
certificate of merger to be filed with the Secretary of State of Delaware
attached hereto as Exhibit A (the "Certificate of Merger") and, the applicable
provisions of the Delaware General Corporation Law ("Delaware Law"), the
certificate of merger to be filed with the Secretary of State of Illinois
attached hereto as Exhibit B (the "Illinois Certificate of Merger"), the
applicable provisions of the Illinois Business Corporation Law ("Illinois Law"),
Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation of the Merger. Target as the surviving corporation after the Merger
is hereinafter sometimes referred to as the "Surviving Corporation."
<PAGE> 3
1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place as soon as
practicable, (and in no event later than five (5) business days after the
satisfaction or waiver of each of the conditions set forth in Section 6 below)
or at such other time as the parties hereto agree (the "Closing Date"). In
connection with the Closing, the parties hereto shall cause the Merger to be
consummated by filing the Certificate of Merger, with the Secretary of State of
the State of Delaware, in accordance with the relevant provisions of Delaware
Law (the time of such filing being the "Effective Time") and shall file the
Illinois Certificate of Merger with the Secretary of State of Illinois, in
accordance with the relevant provisions of Illinois Law. The Closing shall take
place at the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue,
New York, New York, or at such other location as the parties hereto agree.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Delaware Certificate of
Merger, the applicable provisions of Delaware Law, the Illinois Certificate of
Merger and the applicable provisions of Illinois Law. At the Effective Time, all
the property, rights, privileges, powers and franchises of Target and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities, obligations
and duties of Target and Merger Sub shall become the debts, liabilities,
obligations and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation.
(b) At the Effective time, the Bylaws of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors
of Merger Sub immediately prior to the Effective Time shall be the directors of
the Surviving Corporation, and the officers of Merger Sub immediately prior to
the Effective Time, shall be the officers of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and
qualified.
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without
any action on the part of Merger Sub, Target or any of their respective
stockholders, the following shall occur at the Effective Time:
(a) CONVERSION OF TARGET CAPITAL STOCK. All of the
issued and outstanding shares of Common Stock, par value $.01 per share, of
Target (the "Target Common Stock") issued and outstanding immediately prior to
the Effective Time shall be converted and exchanged for (i) three hundred ninety
six thousand five hundred fifty two (396,552) shares of Acquiror Common Stock
(subject to equitable adjustment to reflect any stock split, reverse split,
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<PAGE> 4
stock dividend (including any dividend or distribution of securities convertible
into Acquiror Common Stock), reorganization, recapitalization or other like
change with respect to Acquiror Common Stock occurring after the date of this
Agreement and prior to the Effective Time) and (ii) eight hundred thousand
dollars ($800,000) in cash (the "Cash Consideration" and, together with the
shares to be received under clause (i), the "Merger Consideration"). All shares
of Target Common Stock, when so converted, shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Target Common Stock
shall cease to have any rights with respect thereto, except the right to receive
the Merger Consideration therefor upon the surrender of such certificate in
accordance with Section 1.7, without interest.
(b) CANCELLATION OF TARGET CAPITAL STOCK OWNED BY
ACQUIROR OR TARGET. At the Effective Time, all shares of Target Capital Stock
that are owned by Target as treasury stock, each share of Target Capital Stock
owned by Acquiror or any direct or indirect wholly owned subsidiary of Acquiror
or of Target immediately prior to the Effective Time, in each case, if any,
shall be cancelled and extinguished without any conversion thereof.
(c) CAPITAL STOCK OF MERGER SUB. At the Effective Time,
each issued and outstanding share of common stock of the Merger Sub shall be
converted into one share of common stock of the Surviving corporation.
(d) MAXIMUM CONSIDERATION. In exchange for the
acquisition by Acquiror of all outstanding Target Capital Stock, the maximum
number of shares of Acquiror Common Stock to be issued shall be 396,552 shares
and the maximum aggregate Cash Consideration shall be $800,000. No adjustment
shall be made in the Merger Consideration as a result of any increase or
decrease in the market price of Acquiror Common Stock prior to the Effective
Time.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Orrick, Herrington & Sutcliffe LLP
shall act as exchange agent (the "Exchange Agent") in the Merger.
(b) ACQUIROR TO PROVIDE COMMON STOCK AND CASH. Promptly
after the Effective Time, Acquiror shall make available to the Exchange Agent
for exchange in accordance with this Section 1, through such reasonable
procedures as Acquiror may adopt, (i) the shares of Acquiror Common Stock
issuable pursuant to Section 1.6(a) less the number of shares of Acquiror Common
Stock to be deposited into an escrow fund (the "Escrow Fund") pursuant to the
requirements of Section 8 and (ii) cash in an amount sufficient to permit
payment of the Cash Consideration.
(c) EXCHANGE PROCEDURES. Promptly after the Effective
Time, the Exchange Agent shall, subject to the satisfaction of the conditions
set forth in Section 6.3, deliver or cause to be delivered to the Target
Stockholder in exchange for all of the shares of Target Capital Stock (A) a
certificate or certificates (the "Certificates") representing the number of
whole shares of Acquiror Common Stock to which such holder is entitled pursuant
to Section 1.6(a) hereof, less the number of shares of Acquiror Common Stock to
be deposited in the
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<PAGE> 5
Escrow Fund on such holder's behalf pursuant to Section 8 and (B) cash in the
amount of the Cash Consideration to which such holder is entitled as provided in
Section 1.6(a), less the amount of cash paid to accountants, legal counsel or
other consultants or advisors in connection with Accrued Fees, and the
certificate(s) for Target Capital Stock so surrendered shall forthwith be
cancelled. Until so surrendered, each certificate of Target Capital Stock will
be deemed from and after the Effective Time, for all corporate purposes, to
evidence the right to receive the Merger Consideration.
(d) NO LIABILITY. Notwithstanding anything to the
contrary in this Section 1.7, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to any person for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(f) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time payable (but for the provisions of this Section 1.7(f)) with
respect to such shares of Acquiror Common Stock.
(g) TRANSFERS OF OWNERSHIP. If any certificate for
shares of Acquiror Common Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of such issuance that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK. All
shares of Acquiror Common Stock issued upon the surrender for exchange of shares
of Target Capital Stock in accordance with the terms hereof (including any cash
paid in lieu of fractional shares) shall be deemed to have been issued, and all
cash in the amount of the Cash Consideration shall be deemed to have been paid,
in full satisfaction of all rights pertaining to such shares of Target Capital
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Target Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Section 1.
1.9 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368 of the Code.
4
<PAGE> 6
1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Target and Merger Sub, the officers and directors of
Target and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
1.11 WITHHOLDING. Each of the Exchange Agent, Acquiror, and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Target Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or any provision of state,
local or foreign tax law or under any other applicable legal requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the person to whom
such amounts would otherwise have been paid.
1.12 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such Merger Consideration as may
be required pursuant to Section 1.6; provided, however, that Acquiror may, in
its discretion and as a condition precedent to such exchange, require the owner
of such lost, stolen or destroyed Certificates to deliver a bond in such sum as
Acquiror may reasonably direct as indemnity against any claim that may be made
against Acquiror, the Surviving Corporation or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.
SECTION TWO
2. REPRESENTATIONS AND WARRANTIES OF TARGET AND TARGET STOCKHOLDER.
In this Agreement, any reference to a "Material Adverse Effect"
with respect to any entity or group of entities means any event, change or
effect that, when taken individually or together with all other adverse changes
and effects, is or is reasonably likely to be materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, business as
currently conducted and as proposed to be conducted, operations, results of
operations or prospects of such entity and its subsidiaries, taken as a whole,
or to prevent or materially delay consummation of the Merger or otherwise to
prevent such entity and its subsidiaries from performing their obligations under
this Agreement.
In this Agreement, any reference to a party's "knowledge" means
such party's actual knowledge after due and diligent inquiry of officers,
directors and other employees of such party reasonably believed to have
knowledge of the matter in questions.
Except as disclosed in a document dated as of the date of this
Agreement and delivered by Target and Target Stockholder to Acquiror prior to
the execution and delivery of this Agreement and referring to the
representations and warranties in this Agreement (the
5
<PAGE> 7
"Target Disclosure Schedule"), Target and Target Stockholder represent and
warrant to Acquiror and Merger Sub as follows:
2.1 ORGANIZATION; SUBSIDIARIES. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the requisite corporate power and
authority and all necessary government approvals to own, lease and operate its
properties and to carry on its business as now being conducted and as proposed
to be conducted, except where the failure to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect on Target. Target is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a Material
Adverse Effect on Target. Section 2.1 of Target Disclosure Schedule sets forth
each jurisdiction where Target is qualified to do business. There are no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of Target,
or otherwise obligating Target to issue, transfer, sell, purchase, redeem or
otherwise acquire any such securities. Target has never had, nor does it
currently have, any subsidiaries, nor has it ever owned, nor does it currently
own, directly or indirectly, any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, limited liability company, joint
venture or other business association or entity
2.2 ARTICLES OF INCORPORATION AND BYLAWS. Target has delivered
to Acquiror a true and correct copy of the Articles of Incorporation and Bylaws
or other charter documents, as applicable, of Target, each as amended to date.
Target is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents.
2.3 CAPITAL STRUCTURE. The authorized capital stock of Target
consists of 10,000 shares of voting Common Stock and no shares of Preferred
Stock, of which there were issued and outstanding as of the date hereof 1,000
shares of voting Common Stock. There are no other outstanding shares of capital
stock or voting securities or nonvoting securities and no outstanding
commitments to issue any shares of capital stock or voting or nonvoting
securities after the date hereof. There is not now, and since the inception of
Target there has not been, any stock option plan or other securities based
employee incentive program for Target employees, officers, directors or
consultants. All outstanding shares of Target Capital Stock are duly authorized,
validly issued, fully paid and non-assessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Articles of Incorporation or Bylaws of Target or
any agreement to which Target is a party or by which it is bound. All
outstanding shares of Target Common Stock were issued in compliance with all
applicable federal and state securities laws. Except (i) for the rights created
pursuant to this Agreement, (ii) as set forth in this Section 2.3, there are no
options, warrants, calls, rights, commitments, agreements or arrangements of any
character to which Target is a party or by which Target is bound relating to the
issued or unissued capital stock of Target or obligating Target to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
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repurchased or redeemed, any shares of capital stock of Target or obligating
Target to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. There are no contracts, commitments or agreements relating to
voting, purchase or sale of Target's capital stock (i) between or among Target
and any of its stockholders and (ii) to the best of Target's knowledge, between
or among any of Target's stockholders, except for the stockholders delivering
Irrevocable Proxies (as defined below).
2.4 AUTHORITY. Target has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Target, subject only to the
approval of the Merger by Target's stockholders as contemplated by Section
6.1(a). Target's Board of Directors has unanimously approved the Merger and this
Agreement. This Agreement has been duly executed and delivered by Target and
assuming due authorization, execution and delivery by Acquiror and Merger Sub,
constitutes the valid and binding obligation of Target enforceable against
Target in accordance with its terms. Target Stockholder has the requisite
capacity to enter into this Agreement and to consummate the transaction
contemplated hereby. This Agreement has been duly executed and delivered by
Target Stockholder and constitutes a valid and binding obligation enforceable
against him in accordance with its terms.
2.5 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by
Target does not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Articles of Incorporation or Bylaws of
Target, as amended, or (ii) any material mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Target, or the Target Stockholder in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger, together with the required officers' certificates, as
provided in Section 1.2, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of
1933, as amended (the "Securities Act"), applicable state securities laws and
the securities laws of any foreign country; and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Target and would not prevent,
or materially alter or delay any of the transactions contemplated by this
Agreement.
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2.6 FINANCIAL STATEMENTS. Section 2.6 of the Target Disclosure
Schedule includes a true, correct and complete copy of Target's unaudited
financial statements (balance sheet, statement of operations and statement of
cash flows) as at, and for each of the nine months ended December 31, 1999, and
the accounting work papers of the Target attached to the Target Disclosure
Schedule for the month ended February, 29, 2000, respectively, prepared by
Stewart G. Cohen and Company (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles (except that the unaudited financial statements do not
have notes thereto) applied on a consistent basis throughout the periods
indicated and with each other. The Financial Statements accurately set out and
describe the financial condition and operating results of Target as of the
dates, and for the periods, indicated therein, subject to normal year-end audit
adjustments. Target maintains and will continue to maintain a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES; . Set forth on Annex I
hereto are the material obligations and liabilities of Target of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth or
adequately provided for in the balance sheet for the nine-month period ended
December 31, 1999 (the "Target Balance Sheet"), (ii) those incurred in the
ordinary course of business and (iii) those incurred in connection with the
execution of this Agreement. Section 2.7 of the Target Disclosure Schedule sets
forth a list of all personal guarantees of Target Stockholder in connection with
obligations and liabilities of Target (the "Personal Guarantees").
2.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section
2.8 of the Target Disclosure Schedule, since the date of the Target Balance
Sheet (the "Target Balance Sheet Date") there has not been, occurred or arisen
any:
(a) transaction by Target except in the ordinary course
of business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of
Incorporation or Bylaws of Target;
(c) capital expenditure or commitment by Target in any
individual amount exceeding $5,000, or in the aggregate, exceeding $20,000;
(d) destruction of, damage to, or loss of any assets
(including, without limitation, intangible assets), business or customer of
Target (whether or not covered by insurance) which would constitute a Material
Adverse Effect;
(e) labor trouble or claim of wrongful discharge or
other unlawful labor practice or action;
(f) change in accounting methods or practices (including
any change in depreciation or amortization policies or rates, any change in
policies in making or reversing accruals, or any change in capitalization of
software development costs) by Target or any revaluation by Target of any of its
assets;
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(g) revaluation by Target of its assets;
(h) declaration, setting aside, or payment of a dividend
or other distribution in respect to the capital stock of Target, or any direct
or indirect redemption, purchase or other acquisition by Target of any of its
capital stock, except repurchases of Target Common Stock from terminated Target
employees at the original per share purchase price of such shares;
(i) increase in the salary or other compensation payable
or to become payable by Target to any officers, directors, employees or advisors
of Target, except in the ordinary course of business consistent with past
practice, or the declaration, payment, or commitment or obligation of any kind
for the payment by Target of a bonus or other additional salary or compensation
to any such person except as otherwise contemplated by this Agreement, or other
than as set forth in Section 2.16 below, the establishment of any bonus,
insurance, deferred compensation, pension, retirement, profit sharing, stock
option (including without limitation, the granting of stock options, stock
appreciation rights, performance awards), stock purchase or other employee
benefit plan;
(j) sale, lease, license of other disposition of any of
the assets or properties of Target, except in the ordinary course of business
and not in excess of $20,000 in the aggregate;
(k) termination or material amendment of any material
contract, agreement or license (including any distribution agreement) to which
Target is a party or by which it is bound;
(l) loan by Target to any person or entity, or guaranty
by Target of any loan, except for (x) travel or similar advances made to
employees in connection with their employment duties in the ordinary course of
business, consistent with past practices and (y) trade payables not in excess of
$20,000 in the aggregate and in the ordinary course of business, consistent with
past practices;
(m) waiver or release of any right or claim of Target,
including any write-off or other compromise of any account receivable of Target,
in excess of $20,000 in the aggregate;
(n) the commencement or notice or threat of commencement
of any lawsuit or proceeding against or, to the Target's or Target's officers'
or directors' knowledge, investigation of Target or its affairs;
(o) notice of any claim of ownership by a third party of
Target's Intellectual Property (as defined in Section 2.13 below) or of
infringement by Target of any third party's Intellectual Property rights;
(p) issuance or sale by Target of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
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(q) change in pricing or royalties set or charged by
Target to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property to Target;
(r) to the knowledge of Target and the Target
Stockholder, event or condition of any character that has or could reasonably be
expected to have a Material Adverse Effect on the Company; or
(s) agreement by Target, or any officer or employee of
Target on behalf of Target to do any of the things described in the preceding
clauses (a) through (r) (other than negotiations with Acquiror and its
representatives regarding the transactions contemplated by this Agreement).
2.9 LITIGATION. There is no private or governmental action,
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Target,
threatened against Target or any of its properties or any of its officers or
directors (in their capacities as such) that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on Target. There
is no judgment, decree or order against Target or, to the best knowledge of
Target, any of its directors or officers (in their capacities as such), that
could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on Target. All litigation to which Target is a party
(or, to the knowledge of Target, threatened to become a party) is disclosed in
the Target Disclosure Schedule.
2.10 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
Schedule 2.10, there is no agreement, judgment, injunction, order or decree
binding upon Target which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any current or future business practice
of Target, any acquisition of property by Target or the overall conduct of
business by Target as currently conducted or as proposed to be conducted by
Target. Except as set forth on Schedule 2.10, Target has not entered into any
agreement under which Target is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.11 PERMITS; COMPANY PRODUCTS; REGULATION.
(a) Target is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders necessary for Target, to own, lease and
operate its properties or to carry on its business as it is now being conducted
(the "Target Authorizations") and no suspension or cancellation of any Target
Authorization is pending or, to the best of Target's knowledge, threatened,
except where the failure to have, or the suspension or cancellation of, any
Target Authorization would not have a Material Adverse Effect on Target. Target
is not in conflict with, or in default or violation of, (i) any laws applicable
to Target or by which any property or asset of Target is bound or affected, (ii)
any Target Authorization, or (iii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Target is a party or by which Target or any property or
asset of Target is bound or affected, except for any
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such conflict, default or violation that would not, individually or in the
aggregate, have a Material Adverse Effect on Target.
(b) Except as would not have a Material Adverse Effect
on Target, there have been no written notices, citations or decisions by any
governmental or regulatory body that any product produced, manufactured,
marketed or distributed at any time by Target (the "Products") is defective or
fails to meet any applicable standards promulgated by any such governmental or
regulatory body. To the best knowledge of Target, Target has complied in all
material respects with the laws, regulations, policies, procedures and
specifications with respect to the design, manufacture, labeling, testing and
inspection of the Products. Except as disclosed in Section 2.11(b) of the Target
Disclosure Schedule, there have been no recalls, field notifications or seizures
ordered or, to Target's knowledge, threatened by any such governmental or
regulatory body with respect to any of the Products.
(c) Target has obtained, in all countries where Target
is marketing or has marketed its Products, all applicable licenses,
registrations, approvals, clearances and authorizations required by local, state
or federal agencies in such countries regulating the safety, effectiveness and
market clearance of the Products currently or previously marketed by Target in
such countries, except for any such failures as would not, individually or in
the aggregate, have a Material Adverse Effect on Target. Target has identified
and made available for examination by Acquiror all information relating to
regulation of its Products, including licenses, registrations, approvals and
permits. Target does not keep regulatory information or documents in any
location outside of the United States.
2.12 TITLE TO PROPERTY.
(a) Target has good and marketable title to all of its
properties, interests in properties and assets, real and personal, reflected in
the Target Balance Sheet or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the Target Balance Sheet Date in the ordinary course of business), or with
respect to leased properties and assets, valid leasehold interests in, free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) the lien of current taxes not yet due and payable, (ii)
such imperfections of title, liens and easements as do not and will not
materially detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair business operations
involving such properties, and (iii) liens securing debt which is reflected on
the Target Balance Sheet. The plants, property and equipment of Target that are
used in the operations of its business are in good operating condition and
repair. All properties used in the operations of Target are reflected in the
Target Balance Sheet to the extent United States generally accepted accounting
principles require the same to be reflected. Section 2.12(a) of the Target
Disclosure Schedule sets forth a true, correct and complete list of all real
property owned or leased by Target, the name of the lessor, the date of the
lease and each amendment thereto and the aggregate annual rental and other fees
payable under such lease. Such leases are in good standing, are valid and
effective in accordance with their respective terms, and there is not under any
such leases any existing default or event of default (or event which with notice
or lapse of time, or both, would constitute a default).
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(b) Section 2.12(b) of the Target Disclosure Schedule
also sets forth a true, correct and complete list of all equipment (the
"Equipment") owned or leased by Target, and such Equipment is, taken as a whole,
(i) adequate for the conduct of Target's business, consistent with its past
practice, and (ii) in good operating condition (except for ordinary wear and
tear).
2.13 INTELLECTUAL PROPERTY.
(a) Target owns, or is licensed or otherwise possesses
legally enforceable rights to use all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, copyrights, and
any applications for any of the foregoing, maskworks, net lists, schematics,
industrial models, inventions, technology, know-how, trade secrets, inventory,
ideas, algorithms, processes, computer software programs or applications (in
both source code and object code form), and tangible or intangible proprietary
information or material, including, without limitation, the eSchedule Software
(as defined below in Schedule 2.29 hereof) in development and the Other Keren
Software (as defined below in Schedule 2.29 hereof), (collectively, the
"Intellectual Property") that are used or proposed to be used in the business of
Target as currently conducted or as proposed to be conducted by Target, except
to the extent that the failure to have such rights have not had and could not
reasonably be expected to have a Material Adverse Effect on Target.
(b) Section 2.13 of the Target Disclosure Schedule lists
(i) all patents and patent applications and all registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and maskworks, included in the Intellectual Property, including the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, (ii) all licenses, sublicenses and other agreements as to which
Target is a party and pursuant to which any person is authorized to use any
Intellectual Property, and (iii) all licenses, sublicenses and other agreements
as to which Target is a party and pursuant to which Target is authorized to use
any third party patents, trademarks or copyrights, including software ("Third
Party Intellectual Property Rights") which are incorporated in, are, or form a
part of any Target product that is material to its business. Target is not in
violation of any license, sublicense or agreement described in Section 2.13 of
the Target Disclosure Schedule. The execution and delivery of this Agreement by
Target and the consummation of the transactions contemplated hereby, will
neither cause Target to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Except as set forth in Section 2.13 of the Target Disclosure
Schedule, Target is the sole and exclusive owner or licensee of, with all right,
title and interest in and to (free and clear of any liens), the Intellectual
Property, and has sole and exclusive rights (and is not contractually obligated
to pay any compensation to any third party in respect thereof) to the use
thereof or the material covered thereby in connection with the services or
products in respect of which Intellectual Property is being used.
(c) There is no material unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Target,
any trade secret material to Target or any Intellectual Property right of any
third party to the extent licensed by or through Target, by any third party,
including any employee or former employee of Target. Target has not
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entered into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
contained in purchase orders arising in the ordinary course of business.
(d) Target is not nor will be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights, the breach of which would have a Material Adverse Effect on Target.
(e) All patents, registered trademarks, service marks
and copyrights held by Target are valid and existing and there is no assertion
or claim (or basis therefor) challenging the validity of any Intellectual
Property of Target. Target has not been sued in any suit, action or proceeding
which involves a claim of infringement of any patents, trademarks, service
marks, copyrights or violation of any trade secret or other proprietary right of
any third party. Neither the conduct of the business of Target as currently
conducted or contemplated nor the manufacture, sale, licensing or use of any of
the products of Target as now manufactured, sold or licensed or used, nor the
use in any way of the Intellectual Property in the manufacture, use, sale or
licensing by Target of any products currently proposed, infringes on or will
infringe or conflict with, in any way, any license, trademark, trademark right,
trade name, trade name right, industrial model, invention, service mark or
copyright (except for patents and patent rights, which shall be to the best
knowledge of the Target) of any third party that, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on Target. All
registered trademarks, service marks and copyrights held by Target are valid and
existing. To Target's knowledge, no third party is challenging the ownership by
Target, or the validity or effectiveness of, any of the Intellectual Property.
Target has not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party. There are no pending, or to the
best of Target's knowledge, threatened interference, re-examinations,
oppositions or nullities involving any patents, patent rights or applications
therefor of Target, except such as may have been commenced by Target. There is
no breach or violation of or threatened or actual loss of rights under any
license agreement to which Target is a party.
(f) Target owns all Intellectual Property developed by
consultants, if any, and employees, if any, who contributed to the creation or
development of the Intellectual Property by operation of law.
(g) All Intellectual Property not otherwise protected by
patents, patent applications or copyright ("Confidential Information") has had
its confidentiality protected and preserved.
2.14 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean
any federal, state or local laws, ordinances, codes, regulations, rules,
policies and orders, as each may be
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amended from time to time, that are intended to assure the protection of the
environment, or that classify, regulate, call for the remediation of, require
reporting with respect to, or list or define air, water, groundwater, solid
waste, hazardous or toxic substances, materials, wastes, pollutants or
contaminants; which regulate the manufacture, handling, transport, use,
treatment, storage or disposal of Hazardous Materials or materials containing
Hazardous Materials; or which are intended to assure the protection, safety and
good health of employees, workers or other persons, including the public.
(ii) "Hazardous Materials" shall mean any toxic
or hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws; petroleum and petroleum products including crude
oil and any fractions thereof; natural gas, synthetic gas, and any mixtures
thereof; radon; asbestos; and any other pollutant or contaminant
(iii) "Property" shall mean all real property
leased or owned by Target either currently or in the past.
(iv) "Facilities" shall mean all buildings and
improvements on the Property of Target.
(b) Target represents and warrants as follows: (i) no
methylene chloride or asbestos is contained in or has been used at or released
from the Facilities; (ii) all Hazardous Materials and wastes have been disposed
of in accordance with all Environmental and Safety Laws; (iii) Target has
received no notice (verbal or written) of any noncompliance of the Facilities or
of its past or present operations with Environmental and Safety Laws; (iv) no
notices, administrative actions or suits are pending or threatened relating to
Hazardous Materials or a violation of any Environmental and Safety Laws; (v)
Target is not a potentially responsible party under the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), or any state
analog statute, arising out of events occurring prior to the Closing Date; (vi)
there has not been in the past, and are not now, any contamination, disposal,
spilling, dumping, incineration, discharge, storage, treatment or handling of
Hazardous Materials on, under or migrating to or from the Facilities or Property
(including without limitation, soils and surface and ground waters); (vii) there
have not been in the past, and are not now, any underground tanks or underground
improvements at, on or under the Property including without limitation,
treatment or storage tanks, sumps, or water, gas or oil wells; (viii) there are
no polychlorinated biphenyls ("PCBs") deposited, stored, disposed of or located
on the Property or Facilities or any equipment on the Property containing PCBs
at levels in excess of 50 parts per million; (ix) there is no formaldehyde on
the Property or in the Facilities, nor any insulating material containing urea
formaldehyde in the Facilities; (x) the Facilities and Target's uses and
activities therein have at all times complied with all Environmental and Safety
Laws; (xi) Target has all the permits and licenses required to be issued and are
in full compliance with the terms and conditions of those permits; and (xii)
Target is not liable for any off-site contamination nor under any Environmental
and Safety Laws.
2.15 TAXES.
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(a) For purposes of this Section 2.15 and other
provisions of this Agreement relating to Taxes, the following definitions shall
apply:
(i) The term "Taxes" shall mean all taxes,
however denominated, including any interest, penalties or other additions to tax
that may become payable in respect thereof, (A) imposed by any federal,
territorial, state, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include, without limiting
the generality of the foregoing, all income or profits taxes (including but not
limited to, federal, state and foreign income taxes), payroll and employee
withholding taxes, unemployment insurance contributions, social security taxes,
sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross
receipts taxes, withholding taxes, business license taxes, occupation taxes,
real and personal property taxes, stamp taxes, environmental taxes, transfer
taxes, workers' compensation, Pension Benefit Guaranty Corporation premiums and
other governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which are required to be paid, withheld or
collected, (B) any liability for the payment of amounts referred to in (A) as a
result of being a member of any affiliated, consolidated, combined or unitary
group, or (C) any liability for amounts referred to in (A) or (B) as a result of
any obligations to indemnify another person.
(ii) The term "Returns" shall mean all reports,
estimates, declarations of estimated tax, information statements and returns
required to be filed in connection with any Taxes, including information returns
with respect to backup withholding and other payments to third parties.
(b) All Returns required to be filed by or on behalf of
Target have been duly filed on a timely basis and such Returns are true,
complete and correct. All Taxes shown to be payable on such Returns or on
subsequent assessments with respect thereto, and all payments of estimated Taxes
required to be made by or on behalf of Target under Section 6655 of the Code or
comparable provisions of state, local or foreign law, have been paid in full on
a timely basis, and no other Taxes are payable by Target with respect to items
or periods covered by such Returns (whether or not shown on or reportable on
such Returns). Target has withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and backup
withholding in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. There are no liens on any of the
assets of Target with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that Target is contesting in good faith through
appropriate proceedings. Target has not been at any time a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns for a period for which the statute of limitations for
any Tax potentially applicable as a result of such membership has not expired.
(c) The amount of Target's liabilities for unpaid Taxes
for all periods through the date of the Financial Statements do not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
reflected on the Financial Statements, and the Financial Statements properly
accrue in accordance with generally accepted accounting principles ("GAAP") all
liabilities for Taxes of Target payable after the date of the Financial
Statements attributable to transactions and events occurring prior to such date.
No liability for Taxes of
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Target has been incurred (or prior to Closing will be incurred) since such date
other than in the ordinary course of business.
(d) Acquiror has been furnished by Target true and
complete copies of (i) relevant portions of income tax audit reports, statements
of deficiencies, closing or other agreements received by or on behalf of Target
relating to Taxes, and (ii) all federal, state and foreign income or franchise
tax returns and state sales and use tax Returns for or including Target for all
periods since later of Target's inception, or five full years preceding date of
agreement.
(e) No audit of the Returns of or including Target by a
government or taxing authority is in process, threatened or, to Target's
knowledge, pending (either in writing or orally, formally or informally). No
deficiencies exist or have been asserted (either in writing or orally, formally
or informally) or are expected to be asserted with respect to Taxes of Target,
and Target has not received notice (either in writing or orally, formally or
informally) nor does it expect to receive notice that it has not filed a Return
or paid Taxes required to be filed or paid. Target is not a party to any action
or proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened (either in writing or orally, formally or informally)
against Target or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of Target. Target has
disclosed on its federal and state income and franchise tax returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662 or comparable provisions of
applicable state tax laws.
(f) Target is not (nor have it ever been) party to any
tax sharing agreement. Since the date of its inception, Target has not been a
distributing corporation or a controlled corporation in a transaction described
in Section 355(a) of the Code.
(g) Target is not, nor has it been, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Target is not a "consenting corporation" under Section 341(f) of the Code.
Target has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to Target pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. Target has not
agreed to, nor is it required to make, other than by reason of the Merger, any
adjustment under Code Section 481(a) by reason of, a change in accounting
method, and Target will not otherwise have any income reportable for a period
ending after the Closing Date attributable to a transaction or other event
(e.g., an installment sale) occurring prior to the Closing Date with respect to
which Target received the economic benefit prior to the Closing Date. Target is
not, nor has it been, a "reporting corporation" subject to the information
reporting and record maintenance requirements of Section 6038A and the
regulations thereunder.
(h) The Target Disclosure Schedule contains accurate and
complete information regarding Target's net operating losses for federal and
each state tax purposes. Target has no net operating losses and credit
carryovers or other tax attributes currently subject to limitation under
Sections 382, 383, or 384 of the Code.
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2.16 EMPLOYEE BENEFIT PLANS.
(a) Schedule 2.16 lists, with respect to Target, and any
trade or business (whether or not incorporated) which is treated as a single
employer with Target (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), (ii) each loan to a non-officer employee, loans to officers
and directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements, (iii) all contracts and agreements
relating to employment and all severance agreements, with any of the directors,
officers or employees of Target (other than, in each case, any such contract or
agreement that is terminable by Target at will or without penalty or other
adverse consequence), (iv) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (v) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of Target and that do not generally apply to all employees, and (vi) any current
or former employment or executive compensation or severance agreements, written
or otherwise, as to which unsatisfied obligations of Target remain for the
benefit of, or relating to, any present or former employee, consultant or
director of Target (together, the "Target Employee Plans").
(b) Target has furnished to Acquiror a copy of each of
the Target Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and, to the extent still in its possession, any
material employee communications relating thereto) and has, with respect to each
Target Employee Plan which is subject to ERISA reporting requirements, provided
copies of the Form 5500 reports filed for the last three plan years. Any Target
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all amendments to
the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or
has applied to the Internal Revenue Service for such a determination letter
prior to the expiration of the requisite period under applicable Treasury
Regulations or Internal Revenue Service pronouncements in which to apply for
such determination letter and to make any amendments necessary to obtain a
favorable determination. Target has also furnished Acquiror with the most recent
Internal Revenue Service determination letter issued with respect to each such
Target Employee Plan, and nothing has occurred since the issuance of each such
letter which could reasonably be expected to cause the loss of the tax-qualified
status of any Target Employee Plan subject to Code Section 401(a).
(c) Except as set forth in Section 2.16(c) of the Target
Disclosure Schedule, (i) none of the Target Employee Plans promises or provides
retiree medical or other retiree welfare or life insurance benefits to any
person; (ii) there has been no "prohibited transaction," as such term is defined
in Section 406 of ERISA and Section 4975 of the Code, with respect to any Target
Employee Plan, which could reasonably be expected to have, in the aggregate, a
Material Adverse Effect; (iii) each Target Employee Plan has been administered
in accordance with its terms and in compliance with the requirements prescribed
by any and all
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statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and Target and each ERISA
Affiliate have performed all obligations required to be performed by them under,
are not in any material respect in default under or violation of, and have no
knowledge of any material default or violation by any other party to, any of the
Target Employee Plans; (iv) neither Target nor any ERISA Affiliate is subject to
any liability or penalty under Sections 4976 through 4980 of the Code or Title I
of ERISA with respect to any of the Target Employee Plans; (v) all material
contributions required to be made by Target or ERISA Affiliate to any Target
Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each Target Employee Plan for the
current plan years; (vi) with respect to each Target Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Target Employee Plan
is covered by, and neither Target nor any ERISA Affiliate has incurred or
expects to incur any direct or indirect liability under, arising out of or by
operation of Title IV of ERISA in connection with the termination of, or an
employee's withdrawal from, any Target Employee Plan or other retirement plan or
arrangement, and no fact or event exists that could give rise to any such
liability, or under Section 412 of the Code; (viii) Target has not incurred any
liability under, and have complied in all respects with, the Worker Adjustment
Retraining Notification Act, (the "WARN Act")and no fact or event exists that
could give rise to liability under such act; and (ix) no compensation paid or
payable to any employee of Target has been, or will be, non-deductible by reason
of application of Section 162(m) of the Code. With respect to each Target
Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Target has prepared in good faith and timely
filed all requisite governmental reports (which were true and correct as of the
date filed) and has properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Target Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the best
knowledge of Target is threatened, against or with respect to any such Target
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither Target nor any ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan, Target
and each of its United States subsidiaries have complied with (i) the applicable
health care continuation and notice provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") and the proposed regulations
thereunder and (ii) the applicable requirements of the Family Leave Act of 1993
and the regulations thereunder, except to the extent that such failure to comply
would not, in the aggregate, have a Material Adverse Effect.
(e) The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee or other
service provider of Target, or any other ERISA Affiliate to severance benefits
or any other payment (including, without limitation, unemployment compensation,
golden parachute or bonus), except as expressly
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provided in this Agreement, or (ii) accelerate the time of payment or vesting of
any such benefits, or increase the amount of compensation due any such employee
or service provider.
(f) There has been no amendment to, written
interpretation or announcement (whether or not written) by Target, any ERISA
Affiliate relating to, or change in participation or coverage under, any Target
Employee Plan which would materially increase the expense of maintaining such
Plan above the level of expense incurred with respect to that Plan for the most
recent fiscal year included in Target's financial statements.
2.17 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of Target, (ii)
materially increase any benefits otherwise payable by Target, or (iii) result in
the acceleration of the time of payment or vesting of any such benefits.
2.18 EMPLOYEE MATTERS. Target is in compliance in all material
respects with all currently applicable federal, state, local and foreign laws
and regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. There are
no pending claims against Target under any workers compensation plan or policy
or for long term disability. Target does not have any material obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder. There are no controversies pending or, to the knowledge of Target,
threatened, between Target and any of its employees, which controversies have or
could reasonably be expected to have a Material Adverse Effect on Target. Target
is not a party to any collective bargaining agreement or other labor unions
contract nor does Target know of any activities or proceedings of any labor
union or other group to organize any such employees.
2.19 MATERIAL CONTRACTS.
(a) Subsections (i) through (ix) of Section 2.19(a) of
the Target Disclosure Schedule contain a list of all contracts and agreements to
which Target is a party and that are material to the business, results of
operations, or condition (financial or otherwise), of Target (such contracts,
agreements and arrangements as are required to be set forth in Section 2.19(a)
of the Target Disclosure Schedule being referred to herein collectively as the
"Material Contracts"). Material Contracts shall include, without limitation, the
following and shall be categorized in the Target Disclosure Schedule as follows:
(i) each contract and agreement (other than
routine purchase orders and pricing quotes in the ordinary course of business
covering a period of less than 1 year) for the purchase of inventory, spare
parts, other materials or personal property with any supplier or for the
furnishing of services to Target under the terms of which Target: (A) paid or
otherwise gave consideration of more than $10,000 in the aggregate during the
calendar year ended December 31, 1999 , (B) is likely to pay or otherwise give
consideration of more than $10,000 in the aggregate during the calendar year
ended December 31, 2000, (C) is likely to pay or otherwise give consideration of
more than $10,000 in the aggregate over the remaining term of
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such contract, or (D) cannot be cancelled by Target without penalty or further
payment of less than $10,000;
(ii) each customer contract and agreement (other
than routine purchase orders, pricing quotes with open acceptance and other
tender bids, in each case, entered into in the ordinary course of business and
covering a period of less than one year) to which Target is a party which (A)
involved consideration of more than $10,000 in the aggregate during the calendar
year ended December 31, 1999, (B) is likely to involve consideration of more
than $10,000 in the aggregate during the calendar year ended December 31, 2000,
(C) is likely to involve consideration of more than $10,000 in the aggregate
over the remaining term of the contract, or (D) cannot be cancelled by Target
without penalty or further payment of less than $10,000;
(iii) (A) all distributor, manufacturer's
representative, broker, franchise, agency and dealer contracts and agreements to
which Target is a party (specifying on a matrix, in the case of distributor
agreements, the name of the distributor, product, territory, termination date
and exclusivity provisions) and (B) all sales promotion, market research,
marketing and advertising contracts and agreements to which Target is a party
which: (1) involved consideration of more than $10,000 in the aggregate during
the calendar year ended December 31, 1999, (2) are likely to involve
consideration of more than $10,000 in the aggregate during the calendar year
ended December 31, 2000, or (3) are likely to involve consideration of more than
$10,000 in the aggregate over the remaining term of the contract;
(iv) all management contracts with independent
contractors or consultants (or similar arrangements) to which Target is a party
and which (A) involved consideration or more than $10,000 in the aggregate
during the calendar year ended December 31, 1999, (B) are likely to involve
consideration of more than $10,000 in the aggregate during the calendar year
ended December 31, 2000, or (C) are likely to involve consideration of more than
$10,000 in the aggregate over the remaining term of the contract;
(v) all contracts and agreements (excluding
routine checking account overdraft agreements involving petty cash amounts)
under which Target has created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) indebtedness or under which Target has imposed (or
may impose) a security interest or lien on any of their respective assets,
whether tangible or intangible, to secure indebtedness;
(vi) all contracts and agreements that limit the
ability of Target or, after the Effective Time, Acquiror or any of its
affiliates, to compete in any line of business or with any person or in any
geographic area or during any period of time, or to solicit any customer or
client;
(vii) all contracts and agreements between or
among Target, on the one hand, and any affiliate of Target (other than a wholly
owned subsidiary), on the other hand:
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(viii) all contracts and agreements to which
Target is a party under which it has agreed to supply products to a customer at
specified prices, whether directly or through a specific distributor,
manufacturer's representative or dealer; and
(ix) all other contracts or agreements (A) which
are material to Target or the conduct of its business, (B) the absence of which
would have a Material Adverse Effect on Target, or (C) which are believed by
Target to be of unique value even though not material to the business of Target.
(b) Except as would not, individually or in the
aggregate, have a Material Adverse Effect on Target, each Target license, each
Material Contract and each other material contract or agreement of Target which
would not have been required to be disclosed in Section 2.19(a) of the Target
Disclosure Schedule had such contract or agreement been entered into prior to
the date of this Agreement, is a legal, valid and binding agreement, and none of
the Target licenses or Material Contracts is in default by its terms or has been
cancelled by the other party; Target is not in receipt of any claim of default
under any such agreement; and Target does not anticipate any termination or
change to, or receipt of a proposal with respect to, any such agreement as a
result of the Merger or otherwise. Target has furnished Acquiror with true and
complete copies of all such agreements together with all amendments, waivers or
other changes thereto.
2.20 INTERESTED PARTY TRANSACTIONS. Target is not indebted to
any director, officer, employee or agent of Target (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to Target.
2.21 INSURANCE. Target has policies of insurance and bonds of
the type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Target. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and Target are
otherwise in compliance with the terms of such policies and bonds. Target has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.22 COMPLIANCE WITH LAWS. Target has complied with, are not in
violation of, and have not received any notices of violation with respect to,
any federal, state, local or foreign statute, law or regulation with respect to
the conduct of its business, or the ownership or operation of its business,
except for such violations or failures to comply as could not reasonably be
expected to have a Material Adverse Effect on Target.
2.23 MINUTE BOOKS. The minute books of Target made available to
Acquiror contain a complete summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation of
Target through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
2.24 BROKERS' AND FINDERS' FEES. Target has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or
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investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.25 VOTE REQUIRED. Except for any stockholder approval that has
been duly obtained, the signature by Target Stockholder on this Agreement is the
only action of the holders of any of Target's capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
2.26 BOARD APPROVAL. The Board of Directors of Target has
unanimously (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the stockholders of Target and is on terms
that are fair to such stockholders and (iii) recommended that the stockholders
of Target approve this Agreement and the Merger.
2.27 ACCOUNTS RECEIVABLE.
(a) Target has made available to Acquiror a list of all
accounts receivable of Target and each Subsidiary reflected on the Financial
Statements ("Accounts Receivable") along with a range of days elapsed since
invoice.
(b) All Accounts Receivable of Target arose in the
ordinary course of business and are carried at values determined in accordance
with GAAP consistently applied. No person has any lien on any of such Accounts
Receivable and no request or agreement for deduction or discount has been made
with respect to any of such Accounts Receivable.
(c) There is no inventory of Target on the date hereof.
2.28 CUSTOMERS AND SUPPLIERS. Except as set forth on Schedule
2.28, as of the date hereof, no customer during the 12-month period preceding
the date hereof, and no supplier of Target, has cancelled or otherwise
terminated, or made any written threat to Target to cancel or otherwise
terminate its relationship with Target, or has at any time on or after the
Target Balance Sheet Date decreased materially its services or supplies to
Target in the case of any such supplier, or its usage of the services or
products of Target in the case of such customer, and to Target's knowledge, no
such supplier or customer intends to cancel or otherwise terminate its
relationship with Target or to decrease materially its services or supplies to
Target or its usage of the services or products of Target, as the case may be.
From and after the date hereof, no customer during the twelve (12) month period
preceding the Closing Date, has cancelled or otherwise terminated, or made any
written threat to Target to cancel or otherwise terminate, for any reason,
including without limitation the consummation of the transactions contemplated
hereby, its relationship with Target, and to Target's knowledge, no such
customer intends to cancel or otherwise terminate its relationship with Target
or to decrease materially its usage of the services or products of Target.
Target has not knowingly breached, so as to provide a benefit to Target that was
not intended by the parties hereto, any agreement with, or engaged in any
fraudulent conduct with respect to, any customer or supplier of Target.
2.29 ESCHEDULE; OTHER KEREN SOFTWARE. Except for liens securing
debt which is reflected on the Target Balance Sheet, Target owns, free and clear
of all liens and encumbrances, the software programs, systems and applications
developed and/or in
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development by Target for the scheduling of production of printing companies in
the graphic arts industry (the "eSchedule Software"). Schedule 2.29 of the
Target Disclosure Schedule, describes the rights and limitations associated with
the software programs, systems and applications developed by Isys (the "Other
Keren Software") and Greycon (the "Keren Scheduling Software").
2.30 THIRD PARTY CONSENTS. Except as set forth in Section 2.30
of the Target Disclosure Schedule, no consent or approval is needed from any
third party in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.
2.31 CONTINGENT SALES; MATERIAL COMPLAINTS; PRODUCTS IN
DEVELOPMENT. Target has made no sales to customers that are contingent upon
providing future enhancements of existing products, to add features not
presently available on existing products or to otherwise enhance the performance
of its existing products (other than beta or similar arrangements pursuant to
which Target's customers from time to time test or evaluate products). The
products Target has delivered to customers substantially comply with published
specifications for such products and Target has not received material complaints
from customers about its products that remain unresolved. Section 2.31 of the
Target Disclosure Schedule accurately sets forth a complete list of products in
development (exclusive of mere enhancements to and additional features for
existing products).
2.32 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Schedule, or certificate furnished by Target pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
2.33 INVESTOR REPRESENTATION. (a) Target Stockholder, either
alone or together with its purchaser representative, has such knowledge and
experience in financial and business matters that Target Stockholder is capable
of evaluating the merits and risks of the acquisition of the shares of Acquiror
Common Stock to be issued to him pursuant to the terms and conditions of this
Agreement (the "Consideration Shares") and, by reason of his financial and
business experience (either alone or together with any purchaser
representative), Target Stockholder has the capacity to protect his interest in
connection with the acquisition of the Consideration Shares. Target Stockholder
is financially able to bear the economic risk of the investment, including the
total loss thereof.
(b) Target Stockholder has received and reviewed all
information he considers necessary or appropriate for deciding whether to
purchase the Consideration Shares. Target Stockholder further represents that he
has had an opportunity to ask questions and receive answers from the Acquiror
and its officers and employees regarding the terms and conditions of acquisition
of the Consideration Shares and regarding the business, financial affairs and
other aspects of the Acquiror and has further had the opportunity to obtain any
information (to the extent the Acquiror possesses or can acquire such
information without unreasonable effort or expense) which Target
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Stockholder deems necessary to evaluate the investment and to verify the
accuracy of information otherwise provided to Target Stockholder.
(c) Target Stockholder acknowledges that the
Consideration Shares have not been registered under the Securities Act, or
qualified under applicable blue sky laws or any other applicable blue sky laws
in reliance, in part, on the representations and warranties herein. Such shares
are being acquired by Target Stockholder for investment purposes for his own
account only and not for sale or with a view to distribution of all or any part
of such Acquired Shares; provided, however, that the disposition of the Target
Stockholder's property shall remain at all times within such Target
Stockholder's control.
(d) Target Stockholder understands that the
Consideration Shares are "restricted securities" under the federal securities
laws in that such securities will be acquired from the Acquiror in a transaction
not involving a public offering, and that under such laws and applicable
regulations such securities may be resold only upon registration or without
registration under the Securities Act only in certain limited circumstances in
each case in compliance with applicable securities laws and that otherwise such
securities must be held indefinitely. Target Stockholder understands that the
Consideration Shares will bear transfer restriction legends to such effect.
SECTION THREE
3. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB.
Except as disclosed in a document dated as of the date of this
Agreement and delivered by Acquiror to Target prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub
hereby jointly and severally represent and warrant to Target and Target
Stockholder as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Acquiror and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Acquiror
and Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Acquiror. Acquiror has delivered a true and correct copy of
the Certificate of Incorporation and Bylaws or other charter documents, as
applicable, of Acquiror and Merger Sub, each as amended to date, to Target.
Neither Acquiror nor any of its subsidiaries is in violation of any material
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents.
3.2 CAPITAL STRUCTURE.
(a) Except as disclosed in Section 3.2 of the Acquiror
Disclosure Schedule, the authorized capital stock of Acquiror consists of (i)
150,000,000 shares of Common Stock, $0.0001 par value, of which (A) 118,750,000
have been designated Class A Common
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Stock, 5,886,656 shares of which were issued and outstanding as of the close of
business on the day immediately preceding the Closing Date (the "Capitalization
Date"), and (B) 31,250,000 have been designated Class B Common Stock, none of
which were issued and outstanding as of the close of business on the
Capitalization Date and (ii) 46,165,082 shares of Preferred Stock, $0.0001 par
value, of which (A) 2,500,000 shares have been designated Series A Preferred
Stock, 2,455,798 of which were issued and outstanding as of the closing of
business on the Capitalization Date, (B) 10,250,000 shares have been designated
Series A-1 Preferred Stock, 9,725,096 of which were issued and outstanding as of
the closing of business on the Capitalization Date, (C) 31,250,000 have been
designated Series B Preferred Stock, 31,186,312 of which were issued and
outstanding as of the closing of business on the Capitalization Date, (D)
2,015,082 have been designated Series C Preferred Stock, 1,765,082 which were
issued and outstanding as of the closing of business on the Capitalization Date,
and (E) 150,000 have been designated Series C-1 Preferred Stock, all of which
were issued and outstanding as of the closing of business on the Capitalization
Date. As of the close of business on the Capitalization Date, the Acquiror has
reserved 382,215 shares of Class A Common Stock and 516,976 shares of Series A-1
Preferred Stock (collectively, "Option Stock") for issuance to officers,
directors, employees and consultants of the Acquiror pursuant to its 1999
Revised Stock Plan duly adopted by the Board of Directors and approved by the
Acquiror's stockholders (the "1999 Revised Stock Plan"), and the Acquiror has
reserved 2,500,000 shares of Common Stock for issuance to officers, directors,
employees and consultants of the Acquiror pursuant to its 2000 Incentive Stock
Plan duly adopted by the Board of Directors and approved by the Acquiror's
stockholders (the "2000 Incentive Stock Plan" and, together with the 1999
Revised Stock Plan, the "Stock Plans"). Of such reserved shares of Option Stock
under the 1999 Revised Stock Plan, no shares have been issued pursuant to
restricted stock purchase agreements, options to purchase 382,215 shares of
Class A Common Stock and 516,976 shares of Series A-1 Preferred Stock have been
granted and are currently outstanding, and no shares of Class A Common Stock
remain available for issuance to officers, directors, employees and consultants
pursuant to the 1999 Revised Stock Plan. Of such reserved shares of Class A
Common Stock under the 2000 Incentive Stock Plan, no shares have been issued
pursuant to restricted stock purchase agreements, options to purchase 175,000
shares of Class A Common Stock have been granted and are currently outstanding,
and 2,325,000 shares of Class A Common Stock remain available for issuance to
officers, directors, employees and consultants pursuant to the 2000 Incentive
Stock Plan. Other than as contemplated under this Agreement or as set forth in
the Acquiror Disclosure Schedule, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Acquiror or Merger
Sub is a party or by which either of them is bound obligating Acquiror or Merger
Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Acquiror or obligating Acquiror or Merger Sub to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. The shares of
Acquiror Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and non-assessable.
(b) The authorized capital stock of Merger Sub consists
of 100 shares of Acquiror Common Stock all of which are issued and outstanding
and are held by Acquiror. All outstanding shares of Acquiror and Merger Sub have
been duly authorized, validly issued, fully paid and are nonassessable and free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof. There are no options, warrants,
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calls, rights, commitments or agreements of any character to which Acquiror or
Merger Sub is a party or by which either of them is bound obligating Acquiror or
Merger Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Merger Sub or obligating Acquiror or Merger Sub to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement.
3.3 AUTHORITY. Acquiror and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Acquiror and Merger
Sub (other than, with respect to the Merger, the filing and recordation of
appropriate merger documents as required by Delaware Law). This Agreement has
been duly executed and delivered by Acquiror and Merger Sub and constitutes the
valid and binding obligations of Acquiror and Merger Sub.
3.4 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Acquiror or Merger Sub, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or Merger Sub or their properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or Merger Sub in connection with the execution
and delivery of this Agreement by Acquiror and Merger Sub or the consummation by
Acquiror and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of appropriate merger documents as required by Delaware Law and
Illinois, (ii) any filings as may be required under applicable state securities
laws and the securities laws of any foreign country and (iii) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a Material Adverse Effect on Acquiror and would
not prevent, materially alter or delay any the transactions contemplated by this
Agreement.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet heretofore provided to Target for the period ended December 31,
1999 (the "Acquiror Balance Sheet"), (ii) those incurred in the ordinary course
of business and not required to be set forth in the Acquiror Balance Sheet under
United States generally accepted accounting principles, and (iii) those incurred
in the ordinary course of business since the Acquiror Balance Sheet Date and
consistent with past practice.
3.6 ABSENCE OF CERTAIN CHANGES. Since the date of the Acquiror
Balance Sheet (the "Acquiror Balance Sheet Date"), Acquiror has conducted its
business in the ordinary
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course in a manner consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material Adverse
Effect to Acquiror; (ii) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Acquiror, or any
direct or indirect redemption, purchase or other acquisition by Acquiror of any
of its shares of capital stock; (iii) any material amendment or change to
Acquiror's Certificate of Incorporation or Bylaws; or (iv) any negotiation or
agreement by Acquiror to do any of the things described in the preceding clauses
(i) through (iii) (other than negotiations with Target and its representatives
regarding the transactions contemplated by this Agreement).
3.7 LITIGATION. There is no private or governmental action,
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Acquiror or any
of its subsidiaries, threatened against Acquiror or any of its subsidiaries or
any of their respective properties or any of their respective officers or
directors (in their capacities as such) that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on Acquiror.
There is no judgment, decree or order against Acquiror or any of its
subsidiaries or, to the knowledge of Acquiror or any of its subsidiaries, any of
their respective directors or officers (in their capacities as such) that could
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on Acquiror.
3.8 GOVERNMENTAL AUTHORIZATION. Each of Acquiror and its
subsidiaries has obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity that is required for the operation of Acquiror's or any of
its subsidiaries' business ("Acquiror Authorizations"), and all of such Acquiror
Authorizations are in full force and effect, except where the failure to obtain
or have any of such Acquiror Authorizations could not reasonably be expected to
have a Material Adverse Effect on Acquiror.
3.9 COMPLIANCE WITH LAWS. Each of Acquiror and its subsidiaries
has complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not reasonably be expected to have a Material Adverse Effect on Acquiror.
3.10 BROKER'S AND FINDERS' FEES. Acquiror has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
3.11 ACCOUNTING AND TAX MATTERS. Neither Acquiror nor any of its
subsidiaries nor, to the knowledge of Acquiror, any of their respective
affiliates or agents is aware of any agreement, plan or other circumstance that
would prevent the Merger from constituting a transaction under Section 368(a) of
the Code.
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SECTION FOUR
4. CONDUCT PRIOR TO THE EFFECTIVE TIME.
4.1 CONDUCT OF BUSINESS OF TARGET AND ACQUIROR. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of Target and Acquiror
agrees (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its and its subsidiaries'
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay and to cause its subsidiaries to pay
debts and Taxes when due subject in the case of Taxes of Target or any of its
Subsidiaries, to Acquiror's consent to the filing of material Tax Returns if
applicable, to pay or perform other obligations when due, and to use all
reasonable efforts consistent with past practice and policies to preserve intact
its and its subsidiaries' present business organization, keep available the
services of its and its subsidiaries' present officers and key employees and
preserve its and its subsidiaries' relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it
or its subsidiaries, to the end that its and its subsidiaries' goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Each of Target and
Acquiror agrees to promptly notify the other of any event or occurrence not in
the ordinary course of its or its subsidiaries' business, and of any event which
could have a Material Adverse Effect. Without limiting the foregoing, except as
expressly contemplated by this Agreement, Target shall not do, cause or permit
any of the following, or allow, cause or permit any of its Subsidiaries to do,
cause or permit any of the following, without the prior written consent of
Acquiror:
(a) CHARTER DOCUMENTS. Cause or permit any amendments to
its Articles of Incorporation or Bylaws;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay
any dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its Subsidiaries;
(c) STOCK OPTION PLANS, ETC. Accelerate, amend or change
the period of exercisability or vesting of options or other rights granted under
its stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans; or
(d) OTHER. Take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(a) through (c) above, or any
action which would make any of its representations or warranties contained in
this Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.2 CONDUCT OF BUSINESS OF TARGET. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective
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Time, except as expressly contemplated by this Agreement, Target shall not do,
cause or permit any of the following, or allow, cause or permit any of its
Subsidiaries to do, cause or permit any of the following, without the prior
written consent of Acquiror:
(a) MATERIAL CONTRACTS. Enter into any material contract
or commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its Material Contracts, other than in the ordinary course of business
consistent with past practice;
(b) ISSUANCE OF SECURITIES. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement; provided, however, that Target
may, in the ordinary course of business consistent with past practice, grant
options for the purchase of Target Common Stock under the Target Stock Option
Plan;
(c) INTELLECTUAL PROPERTY. Transfer to any person or
entity any rights to its Intellectual Property;
(d) EXCLUSIVE RIGHTS. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(e) DISPOSITIONS. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material,
individually or in the aggregate, to its and its Subsidiaries' business, taken
as a whole, except in the ordinary course of business consistent with past
practice;
(f) INDEBTEDNESS. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(g) LEASES. Enter into operating lease;
(h) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in
an amount in excess of $5,000 in any one case or $20,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;
(i) CAPITAL EXPENDITURES. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course of
business and consistent with past practice;
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(j) INSURANCE. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
(k) TERMINATION OR WAIVER. Terminate or waive any right
of substantial value, other than in the ordinary course of business;
(l) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES.
Adopt or amend any employee benefit or stock purchase or option plan, or hire
any new director level or officer level employee (except that it may hire a
replacement for any current director level or officer level employee if it first
provides Acquiror advance notice regarding such hiring decision), pay any
special bonus or special remuneration to any employee or director, or increase
the salaries or wage rates of its employees;
(m) SEVERANCE ARRANGEMENT. Grant any severance or
termination pay (i) to any director or officer or (ii) to any other employee
except payments made pursuant to standard written agreements outstanding on the
date of this Agreement;
(n) LAWSUITS. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(o) ACQUISITIONS. Acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to its and its Subsidiaries' business, taken as a whole;
(p) TAXES. Other than in the ordinary course of
business, make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Tax Return
or any amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any extension
or waiver of the limitation period applicable to any claim or assessment in
respect of Taxes;
(q) NOTICES. Target shall give all notices and other
information required to be given to the employees of Target, any collective
bargaining unit representing any group of employees of Target, and any
applicable government authority under the WARN Act, the National Labor Relations
Act, the Internal Revenue Code, COBRA, and other applicable law in connection
with the transactions provided for in this Agreement;
(r) REVALUATION. Other than as set forth in the Target
Balance Sheet, revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business; or
(s) OTHER. Take or agree in writing or otherwise to
take, any of the actions described in Sections 4.2(a) through (r) above, or any
action which would make any of its
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representations or warranties contained in this Agreement untrue or incorrect or
prevent it from performing or cause it not to perform its covenants hereunder.
4.3 NO SOLICITATION. Target and its Subsidiaries and the
officers, directors, employees or other agents of Target and its Subsidiaries
and Target Stockholder will not, directly or indirectly, (i) take any action to
solicit, initiate, encourage or approve any Takeover Proposal (as defined below)
or (ii) engage in negotiations with, or disclose any nonpublic information
relating to Target or any of it Subsidiaries to, or afford access to the
properties, books or records of Target or any of its Subsidiaries to, any person
that has advised Target that it may be considering making, or that has made, a
Takeover Proposal. For purposes of this Agreement, "Takeover Proposal" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Target or any of its Subsidiaries or the
acquisition of any significant equity interest in, or a significant portion of
the assets of, Target or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
SECTION FIVE
5. ADDITIONAL AGREEMENTS.
5.1 BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties to
this Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.2 CONSENTS; COOPERATION.
(a) Each of Acquiror and Target shall use its reasonable
best efforts to promptly (i) obtain from any Governmental Entity any consents,
licenses, permits, waivers, approvals, authorizations or orders required to be
obtained or made by Acquiror or Target or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereunder, including those
required under HSR, and (ii) make all necessary filings, and thereafter make any
other required submissions, with respect to this Agreement and the Merger
required under the Securities Act and the Exchange Act and any other applicable
federal, state or foreign securities laws.
(b) From the date of this Agreement until the earlier of
the Effective Time or the termination of this Agreement, each party shall
promptly notify the other party in writing of any pending or, to the knowledge
of such party, threatened action, proceeding or investigation by any
Governmental Entity or any other person (i) challenging or seeking material
damages in connection with this Agreement or the transactions contemplated
hereunder or (ii) seeking to restrain or prohibit the consummation of the Merger
or the transactions contemplated hereunder or otherwise limit the right of
Acquiror or its subsidiaries to own or operate all or any portion of the
businesses or assets of Target or its subsidiaries.
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(c) Each of Acquiror and Target shall give or cause to
be given any required notices to third parties, and use its reasonable best
efforts to obtain all consents, waivers and approvals from third parties (i)
necessary, proper or advisable to consummate the transactions contemplated
hereunder, (ii) disclosed or required to be disclosed in the Target Disclosure
Schedule or the Acquiror Disclosure Schedule, or (iii) required to prevent a
Material Adverse Effect on Target or Acquiror from occurring prior or after the
Effective Time. In the event that Acquiror or Target shall fail to obtain any
third party consent, waiver or approval described in this Section 5.2(c), it
shall use its reasonable best efforts, and shall take any such actions
reasonably requested by the other party, to minimize any adverse effect upon
Acquiror and Target, their respective subsidiaries and their respective
businesses resulting (or which could reasonably be expected to result after the
Effective Time) from the failure to obtain such consent, waiver or approval.
(d) Each of Acquiror and Target will, and will cause
their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.3 ACCESS TO INFORMATION.
(a) Target shall afford Acquiror and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of Target's and
its Subsidiaries' properties, books, contracts, commitments and records, and
(ii) all other information concerning the business, properties and personnel of
Target and its Subsidiaries as Acquiror may reasonably request. Target agrees to
provide to Acquiror and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. Acquiror shall
afford Target and its accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to (i) all of Acquiror's and its subsidiaries' properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Acquiror and its subsidiaries as
Target may reasonably request. Acquiror agrees to provide to Target and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) Subject to compliance with applicable law, from the
date hereof until the Effective Time, each of Acquiror and Target shall confer
on a regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations.
(c) No information or knowledge obtained in any
investigation pursuant to this Section 5.3 shall affect or be deemed to modify
any representation or warranty
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contained herein or the conditions to the obligations of the parties hereto to
consummate the Merger.
5.4 CONFIDENTIALITY. Any information concerning any party hereto
disclosed to any other party hereto or nay party's affiliates or representatives
in connection with this Agreement or the transactions contemplated hereby, which
has not been publicly disclosed shall be kept strictly confidential by such
party, its affiliates and/or representatives. Each party hereto shall keep, and
shall cause its affiliates and/or representatives to keep, such confidential
information in strict confidence.
5.5 PUBLIC DISCLOSURE. Unless otherwise permitted by this
Agreement, Acquiror and Target shall consult with each other before issuing any
press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law.
5.6 FIRPTA. Target Stockholder shall, prior to the Closing Date,
provide Acquiror with a properly executed certificate with respect to the
Foreign Investment and Real Property Tax Act of 1980 ("FIRPTA") in the form
attached hereto as Exhibit C ("FIRPTA Certificate").
5.7 STATE STATUTES. If any state takeover law shall become
applicable to the transactions contemplated by this Agreement, Acquiror and its
Board of Directors or Target and its Board of Directors, as the case may be,
shall use their reasonable best efforts to grant such approvals and take such
actions as are necessary so that the transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effects of such state takeover law on
the transactions contemplated by this Agreement.
5.8 BLUE SKY LAWS. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
5.9 MAINTENANCE OF TARGET INDEMNIFICATION OBLIGATIONS.
(a) Subject to and following the Effective Time, the
Surviving Corporation shall, and Acquiror shall cause the Surviving Corporation
to, indemnify and hold harmless the Indemnified Target Parties (as defined
below) to the extent provided in the Bylaws or Articles of Incorporation of
Target, in each case as in effect as of the date of this Agreement. The
Surviving Corporation shall, and Acquiror shall cause the Surviving Corporation
to, keep in effect such provisions, which shall not be amended except as
required by applicable law or to make changes permitted by applicable law that
would enlarge the rights to indemnification
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available to the Indemnified Target Parties and changes to provide for
exculpation of director and officer liability to the fullest extent permitted by
applicable law. For purposes of this Section 5.9, "Indemnified Target Parties"
shall mean the individuals who were officers, directors, employees and agents of
Target on or prior to the Effective Time.
(b) Subject to and following the Effective Time,
Acquiror and the Surviving Corporation shall be jointly and severally obligated
to pay the reasonable expenses, including reasonable attorney's fees, that may
be incurred by any Indemnified Target Party in enforcing the rights provided in
this Section 5.9 and shall make any advances of such expenses to the Indemnified
Target Party that would be available under the Bylaws or Articles of
Incorporation of Target (in each case as in effect as of the date of this
Agreement) with regard to the advancement of indemnifiable expenses, subject to
the undertaking of such party to repay such advances in the event that it is
ultimately determined that such party is not entitled to indemnification.
(c) The provisions of this Section 5.9 shall be in
addition to any other rights available to the Indemnified Target Parties, shall
survive the Effective Time of the Merger, and are expressly intended for the
benefit of the Indemnified Target Parties.
5.10 TERMINATION OF 401(k) PLAN. Prior to the Closing, Target
shall terminate the AHP 401(k) Plan.
5.11. RESTRICTIONS ON TRANSFER.
(a) The securities to be issued to Target Stockholder
pursuant to the Merger, and any securities issued as a dividend or otherwise
distributed thereon (collectively, "Acquiror Securities"), shall not be sold,
transferred, assigned, pledged, encumbered or otherwise disposed of (each, a
"Transfer7.2(a)") except upon the conditions specified in this Agreement, which
conditions are intended to insure compliance with the provisions of the Act. The
Stockholder shall observe and comply with the Act and the rules and regulations
promulgated by the Securities and Exchange Commission ("SEC") thereunder as now
in effect or hereafter enacted or promulgated, and as from time to time amended,
in connection with any Transfer of Securities beneficially owned by the
Stockholder.
(b) Each certificate representing Acquiror Securities
issued to the Target Stockholder and each certificate for such Acquiror
Securities issued to subsequent transferees of any such certificate shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES OR "BLUE-SKY" LAWS. THESE SECURITIES MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF
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SUCH REGISTRATION OR AN EXEMPTION THEREFROM. ADDITIONALLY, THE
TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN SECTION 5 OF THE AGREEMENT AND PLAN OF MERGER AMONG
PRINTCAFE, INC., AHP SYSTEMS, INC., PRINTCAFE SYSTEMS, INC. AND
EHUD ARIELI AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID
OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES
OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF PRINTCAFE, INC."
(c) prior to any Transfer of any Acquiror Securities,
the Target Stockholder or permitted transferee will give written notice to the
Acquiror of such Stockholder's intention to effect such Transfer and to comply
in all other respects with the provisions of this Agreement. Each such notice
shall describe the manner and circumstances of the proposed Transfer and, if
requested by the Acquiror, shall be accompanied by the written opinion,
addressed to the Acquiror, of counsel for the holder of such Acquiror
Securities, stating that in the opinion of such counsel (which opinion and
counsel shall be reasonably satisfactory to the Acquiror) such proposed transfer
does not involve a transaction requiring registration or qualification of such
Securities under the Act or the securities or "blue-sky" laws of any relevant
state of the United States. The holder thereof shall thereupon be entitled to
Transfer such Acquiror Securities in accordance with the terms of the notice
delivered by it to the Acquiror. Each certificate or other instrument evidencing
the securities issued upon the Transfer of any such Securities (and each
certificate or other instrument evidencing any untransferred balance of such
Acquiror Securities) shall bear the legend set forth in Section 5(b) hereof
unless (x) in such opinion of counsel of Acquiror registration of any future
Transfer is not required by the applicable provisions of the Securities Act or
(y) Acquiror shall have waived the requirement of such legends. The Stockholder
shall not Transfer any Securities until such opinion of counsel has been given
(unless waived by the Acquiror or unless such opinion is not required in
accordance with the provisions of Section 5).
(d) Notwithstanding the foregoing provisions of Section
5(a) through (c) hereof, the restrictions imposed by Section 5(c) upon the
transferability of Acquiror Securities shall cease and terminate when (i) any
such shares are sold or otherwise disposed of pursuant to an effective
registration statement under the Act, (ii) pursuant to Section 5(c), the
securities so transferred are not required to bear the legend set forth in
Section 5(b) or (iii) the holder of such Acquiror Securities has met the
requirements for Transfer of such Acquiror Securities pursuant to subparagraph
(k) of Rule 144. Whenever the restrictions imposed by this Agreement shall
terminate, as herein provided, the holder of Acquiror Securities as to which
such restrictions have terminated shall be entitled to receive from the
Acquiror, without expense, a new certificate not bearing the restrictive legend
set forth in Section 5(b) hereof and not containing any other reference to the
restrictions imposed by Section 5(b) hereof; provided that the restrictions set
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forth in Section 8 of this Agreement, which are expressly incorporated by
reference herein and made a part hereof, shall survive in accordance with their
terms.
The Target Stockholder understands and agrees that the
Acquiror, at its discretion, may cause stop transfer orders to be placed with
its transfer agent with respect to certificates for Acquiror Securities owned by
the Stockholder, in the event of a proposed transfer in violation or breach of
this Agreement or that is or may otherwise be unlawful.
5.12 ASSUMPTION OF PERSONAL GUARANTEES. Acquiror, or any parent
or affiliate of Acquiror, shall assume the Personal Guarantees of Target
Stockholder and Acquiror shall indemnify Target Stockholder and hold Target
Stockholder harmless from any claims arising solely and directly in connection
with the assumption of such Personal Guarantees.
SECTION SIX
6. CONDITIONS TO THE MERGER.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to consummate
and effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction on or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, by agreement of
all the parties hereto:
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal. In the event an injunction or other order shall have been issued, each
party agrees to use its reasonable diligent efforts to have such injunction or
other order lifted.
(b) GOVERNMENTAL APPROVAL. Acquiror, Target and Merger
Sub and their respective subsidiaries shall have timely obtained from each
Governmental Entity all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several transactions
contemplated hereby, including, without limitation, such approvals, waivers and
consents as may be required under the Securities Act and under any state
securities laws.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The
obligations of Target to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Target:
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(a) REPRESENTATIONS, WARRANTIES AND COVENANTS (i) Each
of the representations and warranties of Acquiror and Merger Sub in this
Agreement that is expressly qualified by a reference to materiality shall be
true in all respects as so qualified, and each of the representations and
warranties of Acquiror and Merger Sub in this Agreement that is not so qualified
shall be true and correct in all material respects, on and as of the Effective
Time as though such representation or warranty had been made on and as of such
time (except that those representations and warranties which address matters
only as of a particular date shall remain true and correct as of such date), and
(ii) Acquiror and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.
(b) CERTIFICATES OF ACQUIROR.
(i) COMPLIANCE CERTIFICATE OF ACQUIROR. Target
shall have been provided with a certificate executed on behalf of Acquiror by
its President or its Chief Financial Officer to the effect that, as of the
Effective Time, each of the conditions set forth in Sections 6.2(a) has been
satisfied with respect to Acquiror.
(ii) CERTIFICATE OF SECRETARY OF ACQUIROR.
Target shall have been provided with a certificate executed by the Secretary or
Assistant Secretary of Acquiror certifying:
(A) Resolutions duly adopted by the Board of
Directors and the stockholders of Acquiror authorizing the execution of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and
(B) the incumbency of the officers of
Acquiror executing this Agreement and all agreements and documents contemplated
hereby.
(c) CERTIFICATES OF MERGER SUB.
(i) COMPLIANCE CERTIFICATE OF MERGER SUB. Target
shall have been provided with a certificate executed on behalf of Merger Sub by
its President or its Chief Financial Officer to the effect that, as of the
Effective Time, each of the conditions set forth in Section 6.2(a) has been
satisfied with respect to Merger Sub.
(ii) CERTIFICATE OF SECRETARY OF MERGER SUB.
Target shall have been provided with a certificate executed by the Secretary or
Assistant Secretary of Merger Sub certifying:
(A) Resolutions duly adopted by the Board of
Directors and the sole stockholder of Merger Sub authorizing the execution of
this Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and
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(B) the incumbency of the officers of Merger
Sub executing this Agreement and all agreements and documents contemplated
hereby.
(d) LEGAL OPINION. Target shall have received a legal
opinion from Acquiror's legal counsel substantially in the form of Exhibit D
hereto.
(e) NO MATERIAL ADVERSE CHANGES. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror and its subsidiaries,
taken as a whole.
(f) GOOD STANDING. Target shall have received a
certificate or certificates of the Secretary of State of the State of Delaware
and any applicable franchise tax authority of such state, certifying as of a
date no more than five (5) business days prior to the Effective Time that each
of Acquiror and Merger Sub has filed all required reports, paid all required
fees and taxes and is, as of such date, in good standing and authorized to
transact business as a domestic corporation.
(g) EMPLOYMENT AGREEMENT. The Acquiror shall cause
printCafe Systems, Inc. to deliver to Target an executed copy of the Employment
Agreement between printCafe Systems, Inc. and the Acquiror, substantially in the
form of Exhibit E attached hereto.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND
MERGER SUB. The obligations of Acquiror and Merger Sub to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) Each
of the representations and warranties of Target in this Agreement that is
expressly qualified by a reference to materiality shall be true in all respects
as so qualified, and each of the representations and warranties of Target in
this Agreement that is not so qualified shall be true and correct in all
material respects, on and as of the Effective Time as though such representation
or warranty had been made on and as of such time (except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date), and (ii) Target shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
it as of the Effective Time.
(b) NO MATERIAL ADVERSE CHANGES. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target and its subsidiaries,
taken as a whole.
(c) CERTIFICATES OF TARGET.
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(i) COMPLIANCE CERTIFICATE OF TARGET. Acquiror
and Merger Sub shall have been provided with a certificate executed on behalf of
Target by its President or its Chief Financial Officer to the effect that, as of
the Effective Time, each of the conditions set forth in Section 6.3(a) and (b)
above has been satisfied.
(ii) CERTIFICATE OF SECRETARY OF TARGET.
Acquiror and Merger Sub shall have been provided with a certificate executed by
the Secretary of Target certifying:
(A) Resolutions duly adopted by the Board of
Directors and the stockholders of Target authorizing the execution of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
(B) The Articles of Incorporation and Bylaws
of Target, as in effect immediately prior to the Effective Time, including all
amendments thereto; and
(C) the incumbency of the officers of Target
executing this Agreement and all agreements and documents contemplated hereby.
(d) THIRD PARTY CONSENTS. Acquiror shall have been
furnished with evidence satisfactory to it that Target has obtained those
consents, waivers, approvals or authorizations of those Governmental Entities
and third parties whose consent or approval are required in connection with the
Merger.
(e) LEGAL OPINION. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form of Exhibit F.
(f) GOOD STANDING. Acquiror shall have received a
certificate or certificates of the Secretary of State of the State of Illinois
and any applicable franchise tax authority of such state, certifying as of a
date no more than five (5) business days prior to the Effective Time that each
of Target has filed all required reports, paid all required fees and taxes and
is, as of such date, in good standing and authorized to transact business as a
domestic corporation.
(g) FIRPTA NOTIFICATION LETTER. Target Stockholder
shall, prior to the Closing Date, provide Acquiror with a properly executed
FIRPTA Certificate.
(h) NON-COMPETITION AGREEMENTS. Target Stockholder shall
have executed a Non-Competition Agreement substantially in the form attached
hereto as Exhibit G.
(i) GOOD STANDING. Acquiror shall have received a
certificate or certificates of the Secretary of State of the State of Illinois
and any applicable franchise tax authority of such state, certifying as of a
date no more than 5 business days prior to the Effective Time that Target and
has filed all required reports, paid all required fees and taxes and is, as of
such date, in good standing and authorized to transact business as a domestic
corporation.
(j) RELEASE. Target shall deliver to Acquiror a release
from the Stockholder in the from of Exhibit H attached hereto.
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(k) PLAN TERMINATION. Target shall have terminated the
AHP 401(k) Plan and delivered evidence of such termination to Acquiror.
(l) ACCRUED FEES. Target Stockholder shall have paid any
and all accrued and unpaid liabilities (the "Accrued Fees") owed to (i)
accountants for Target and/or Target Stockholder in excess of $200,000 (the
"Stewart Cohen Payment"), (ii) legal counsel, other than (A) reasonable fees and
expenses incurred solely and directly in connection with this Agreement and the
transactions contemplated herein, which fees and expenses shall not exceed
$150,000 and (B) fees and expenses incurred in the ordinary course of business,
consistent with past practice. Accountants for Target owed accrued and unpaid
fees and expenses shall have executed and delivered a release substantially in
the form attached hereto as Exhibit I.
(m) RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. Target
Stockholder shall deliver to Acquiror an executed copy of the Second Amended and
Restated Right of First Refusal and Co-Sale Agreement among the Acquiror and
certain stockholders of the Acquiror, substantially in the form of Exhibit J
attached hereto.
(n) VOTING AGREEMENT. Target Stockholder shall deliver
to Acquiror an executed copy of the Second Amended and Restated Voting Agreement
among the Acquiror and certain stockholders of the Acquiror, substantially in
the form of Exhibit K attached hereto.
(o) TARGET COMMON STOCK CERTIFICATES. The Target
Stockholder shall deliver to Acquiror for cancellation the stock certificates,
in form suitable for transfer, evidencing all the issued and outstanding shares
of Target Common Stock endorsed in blank or with an executed blank stock
transfer power attached.
SECTION SEVEN
7. TERMINATION, AMENDMENT AND WAIVER.
7.1 TERMINATION. At any time prior to the Effective Time,
whether before or after approval of the matters presented in connection with the
Merger by the stockholders of Target, this Agreement may be terminated and the
Merger may be abandoned:
(a) by mutual consent duly authorized by the Boards of
Directors of each of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of
the terminating party,
(i) the Effective Time shall not have occurred
on or before March 9, 2000 (or such later date as may be agreed upon in writing
by the parties hereto); or
(ii) there shall be any applicable federal or
state law that makes consummation of the Merger illegal or otherwise prohibited
or if any court of competent jurisdiction or Governmental Entity shall have
issued an order, decree, ruling or taken any other action restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable.
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(c) by Acquiror, if Target shall materially breach any
of its representations, warranties or obligations hereunder and such breach
shall not have been cured within 2 business days of receipt by Target of written
notice of such breach, provided that Acquiror is not in material breach of any
of its representations, warranties or obligations hereunder, and provided
further, that no cure period shall be required for a breach which by its nature
cannot be cured;
(d) by Target, if Acquiror shall materially breach any
of its representations, warranties or obligations hereunder and such breach
shall not have been cured within 2 business days following receipt by Acquiror
of written notice of such breach, provided that Target is not in material breach
of any of its representations, warranties or obligations hereunder, and provided
further, that no cure period shall be required for a breach which by its nature
cannot be cured.
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror, Merger
Sub or Target or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from the breach
by a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that, the provisions of Section 5.4
(Confidentiality), Section 7.3 (Expenses) and this Section 7.2 shall remain in
full force and effect and survive any termination of this Agreement.
7.3 EXPENSES . Whether or not the Merger is consummated, all
actual costs and expenses incurred solely and directly in connection with the
letter of intent, this Agreement and the transactions contemplated herein
including, without limitation, filing fees and the fees and expenses of
advisors, accountants, legal counsel and financial printers, shall be paid by
Acquiror, with such costs and expenses to be paid at Closing; provided, however,
that the Target Stockholder shall bear all accrued and unpaid costs and expenses
of (i) accountants to the Target and/or the Target Stockholder in excess of
$200,000 and (ii) legal counsel to the Target and/or the Target Stockholder in
excess in $150,000. Upon the Closing, Acquiror shall also pay (i) upon receipt
of an invoice therefor, the legal fees and expenses of Shefsky & Froelich Ltd.
in an amount not to exceed $17,000 and (ii) the Stewart Cohen Payment.
7.4 AMENDMENT. The boards of directors of the parties hereto may
cause this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the stockholders of
Target or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Capital Stock, (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the stockholders of Target or Merger Sub.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time
any party may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered
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pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party.
SECTION EIGHT
8. ESCROW AND INDEMNIFICATION.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to
be performed prior to the Effective Time, and all representations and warranties
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the consummation of the Merger and continue until the twelve (12)
month anniversary of the Closing Date (the "Escrow Termination Date"), except
for (A) the representations and warranties contained in Section 2.14, Section
2.15 and Section 2.16 hereof, and (B) the obligation to pay the Accrued Fees,
each of which shall survive the Closing Date until 30 days after the expiration
of the applicable statue of limitations, giving effect to any extension thereof
(the "Special Indemnity Termination Date"); provided that if any claims for
indemnification have been asserted with respect to any such representations and
warranties prior to the Escrow Termination Date or, with respect to the
representations and warranties contained in Sections 2.14, 2.15 and/or 2.16
hereof, the Special Indemnity Termination Date, the representations and
warranties on which any such claims are based shall continue in effect until
final resolution of any claims; provided further, that Fraud Claims (as defined
below) shall survive in accordance with the applicable statute of limitations
related to such representations and warranties or such Fraud Claims. All
covenants to be performed after the Effective Time shall continue indefinitely.
"Fraud Claim" shall mean any claim, demand, suit or cause of action otherwise
available to the Indemnified Persons based upon an allegation or allegations
that the Target and/or the Target Stockholder had an intent to defraud or made a
willful or intentional misrepresentation or willful omission of a material fact
in connection with this Agreement, including the Exhibits and Schedules attached
hereto, or any of the agreements referred to herein.
8.2 ESCROW FUND. As soon as practicable after the Effective
Time, one hundred thousand (100,000) of the Consideration Shares to be issued in
the Merger (together with any stock dividends or stock distributions or any
securities of Acquiror issued in respect thereof (including, without limitation,
any shares issued pursuant to any stock dividend, stock split, reverse stock
split, combination or reclassification thereof)) shall, without any act of any
stockholder of Target, be registered in the name of, and be deposited with,
Merger Sub as escrow agent (the "Escrow Agent"), such deposit to constitute the
escrow fund (the "Escrow Fund"), to be governed by the terms set forth herein.
In the event that any Damages (as defined below) arise, the Escrow Fund shall be
available to compensate the Indemnified Persons (defined below) pursuant to the
indemnification obligations of the stockholders of the Target pursuant to
Section 8.3.
8.3 INDEMNIFICATION TARGET AND TARGET STOCKHOLDER.
(a) INDEMNIFIED DAMAGES. Subject to the limitations set
forth in this Section 8, from and after the Effective Time, Target (in the event
that Merger does not Close)
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and Target Stockholder shall jointly and severally protect, defend, indemnify
and hold harmless Acquiror and the Surviving Corporation and their respective
affiliates, officers, directors, employees, representatives and agents
(Acquiror, Surviving Corporation and each of the foregoing persons or entities
is hereinafter referred to individually as an "Indemnified Person" and
collectively as "Indemnified Persons") from and against any and all losses,
costs, damages, liabilities, fees (including without limitation attorneys'
fees)and expenses (collectively, the "Damages"), that any of the Indemnified
Persons incurs by reason of or in connection with any claim, demand, action or
cause of action alleging misrepresentation, breach of, or default in connection
with, any of the representations, warranties, covenants or agreements of Target
contained in this Agreement, including any exhibits or schedules attached
hereto, and the Certificate of Merger, which becomes known to Acquiror during
the Escrow Period or, with respect to the representations and warranties
contained in Sections 2.14, 2.15 and/or 2.16 hereof, the Special Indemnity
Termination Date. Damages in each case shall be net of the amount of any
insurance proceeds and indemnity and contribution actually recovered by Acquiror
or the Surviving Corporation.
(b) LIMITATIONS. The maximum liability of Target
Stockholder for any breach of a representation, warranty or covenant of Target
or Target Stockholder contained in this Agreement, including all Exhibits and
Schedules attached hereto, shall be limited to the amount of the Escrow Fund;
provided, however, that nothing herein, including the termination of the Escrow
Fund on the Escrow Termination Date shall limit the liability: (i) of Target for
any breach of representation, warranty or covenant if the Merger does not close,
(ii) of Target or Target Stockholder in connection with any breach of any of the
representations and warranties contained in Sections 2.1, 2.3, 2.4, 2.14, 2.15
and 2.16, (iv) of any officer, director or Target Stockholder in connection with
a Fraud Claim and (v) of Target Stockholder in connection with the failure to
pay any Accrued Fees.
8.4 DAMAGES THRESHOLD. Notwithstanding the foregoing, Acquiror
may not receive any amount from the Escrow Fund unless and until a certificate
signed by an officer of Acquiror (an "Officer's Certificate") identifying
Damages has been delivered to the Escrow Agent and such amount is determined
pursuant to this Section 8 to be payable, in which case Acquiror shall receive a
proportional amount of escrowed shares and escrowed cash from the Escrow Fund
equal in value to the full amount of such Damages without deduction. In
determining the amount of any Damages attributable to a breach, any materiality
standard contained in any representation, warranty or covenant of Target and
Target Stockholder shall be disregarded.
8.5 ESCROW PERIOD. Subject to the following requirements, the
Escrow Fund shall remain in existence until the Escrow Termination Date (the
"Escrow Period"). Upon the expiration of the Escrow Period, the Escrow Fund
shall terminate; provided, however, that the the number of escrowed shares in
the Escrow Fund, which, in the reasonable judgment of Acquiror, subject to the
objection of Target Stockholder and the subsequent arbitration of the claim in
the manner provided herein, are necessary to satisfy any unsatisfied claims
specified in any Officer's Certificate delivered to the Escrow Agent prior to
the expiration of such Escrow Period with respect to facts and circumstances
existing on or prior to the Escrow Termination Date shall remain in the Escrow
Fund (and the Escrow Fund shall remain in existence) until such claims have been
resolved. As soon as all such claims have been resolved, the Escrow Agent
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shall deliver to Target Stockholder all escrowed cash, escrowed shares and other
property remaining in the Escrow Fund and not required to satisfy such claims.
8.6 METHOD OF ASSERTING CLAIMS. In the event any Parent
Indemnified Person (the "Claiming Person") asserts a right of indemnity against
the Target Stockholder under this Section 8, Acquiror or Merger Sub shall
execute and deliver to the Target Stockholder a written notice to such effect (a
"Notice of Claim"; and the right of indemnity asserted in a Notice of Claim
being hereinafter referred to as a "Claim") and instruct the Escrow Agent to
deliver that portion of the Escrow Fund the Fair Market Value (as defined below)
of which shall equal the amount of the Claim to such Claiming Person.
8.7 CASH PAYMENTS. Upon receipt of a Notice of Claim, Target
Stockholder shall have the right and option to elect to make a cash payment
within five (5) business days of receipt of the Notice of Claim. In the event
the Target Stockholder makes a cash payment to the Indemnified Person in
settlement of any Claim asserted in a Notice of Claim, then the Escrow Agent
shall release a number of shares of escrowed shares in the Escrow Fund to the
Target Stockholder in an amount equal to the quotient of (A) the total amount of
the cash payment divided by (B) the Fair Market Value per share. Target
Stockholder shall have no right or entitlement to replace escrowed shares with
cash, other than in connection with a Notice of Claim and only up to the total
amount of such Claim.
8.8 DEFINITION OF "FAIR MARKET VALUE". For purposes of this
Section 8, "Fair Market Value" shall mean (i) (A) if the Common Stock of the
Acquiror is not then traded on a national securities exchange, the average of
the closing prices quoted on the National Association of Securities Dealers,
Inc. Automated Quotation National Market System, if applicable, or the average
of the last bid and asked prices of the Common Stock quoted in the
over-the-counter-market or (B) if the Common Stock is then traded on a national
securities exchange, the average of the high and low prices of the Common Stock
listed on the principal national securities exchange on which the Common Stock
is so traded, in each case for the five (5) trading days immediately preceding
the date of the Notice of Claim or, if such date is not a business day on which
shares are traded, the next immediately preceding trading day or (ii) in all
other circumstances, the fair market value per share of Common Stock as
determined by the Acquiror's Board of Directors.
8.9 INDEMNIFICATION ACQUIROR.
(a) INDEMNIFIED DAMAGES. Subject to the limitations set
forth in this Section 8, from and after the Effective Time, Acquiror shall
protect, defend, indemnify and hold harmless Target (in the event that Merger
does not Close) Target Stockholders and their respective affiliates, officers,
directors, employees, representatives and agents (Target, Target Stockholders
and each of the foregoing persons or entities is hereinafter referred to
individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all losses, costs, damages, liabilities, fees
(including without limitation attorneys' fees) and expenses (collectively, the
"Damages"), that any of the Indemnified Persons incurs by reason of or in
connection with any claim, demand, action or cause of action alleging
misrepresentation, breach of, or default in connection with, any of the
representations, warranties, covenants or agreements of Acquiror and Merger Sub
contained in this Agreement, including any exhibits or
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schedules attached hereto, and the Certificate of Merger, which becomes known to
Target or Target Shareholders during the Escrow Period. Damages in each case
shall be net of the amount of any insurance proceeds and indemnity and
contribution actually recovered by Target or Target Shareholders.
(b) LIMITATIONS. The maximum liability of Acquiror and
Merger Sub for any breach of a representation, warranty or covenant of Acquiror
or Merger Sub shall be limited to the amount of $400,000 in the aggregate;
provided, however, that nothing herein shall limit the liability of any officer,
director or Acquiror for such person's or entity's fraud or intentional
misrepresentation.
SECTION NINE
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below, or as subsequently modified by written
notice,
(a) if to Acquiror or Merger Sub, to:
printCafe, Inc.
Fourty 24th Street, 5th Floor
Pittsburgh, PA 15222
Attention: President
Facsimile No.: (412) 456-1151
Telephone No.: (412) 456-1141
with a copy to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Daniel A. Mathews, Esq.
Facsimile No.: (212) 506-5151
Telephone No.: (212) 506-5050
(b) if to Target or Target Stockholder, to:
A.H.P. Systems, Inc.
3166 Des Plaines Avenue
Des Plaines, Illinois 60018
Attention: Ehud Arieli
Facsimile No.: 847-296-0626
Telephone No.: 847-296-6040
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with a copy to:
Robert I. Wertheimer, P.C.
707 Skokie Blvd., Suite 555
Northbrook, IL 60062
Attention: Robert I. Wertheimer, Esq.
email: [email protected]
Facsimile No.: 847-480-5282
Telephone No.: 847-480-5280
and to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago, Illinois 60611
Attention: Michael J. Schaller, Esq.
Facsimile No.: (312) 527-5921
Telephone No.: (312) 527-4000
9.2 INTERPRETATION. When a reference is made in this Agreement
to Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to
this Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement," "the date hereof," and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to the date first set
forth above. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.4 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST.
This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules, including the Target Disclosure Schedule and the
Acquiror Disclosure Schedule (a) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties hereto
with respect to the subject matter hereof, except for the Confidentiality
Agreement, which shall continue in full force and effect, and shall survive any
termination of this Agreement or the Closing, in accordance with its terms; (b)
are not intended to confer upon any other person any rights or remedies
hereunder, except as set forth in Sections 1.6(a)-(c) and (g), 1.7. 1.8, 1.12;
and (c) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided.
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9.5 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties hereto agree to
renegotiate such provision in good faith, in order to maintain the economic
position enjoyed by each party as close as possible to that under the provision
rendered unenforceable. In the event that the parties hereto cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
9.6 REMEDIES CUMULATIVE. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
9.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties hereto or their
respective successors and assigns. Any amendment or waiver effected in
accordance with this Section 9.9 shall be binding upon the parties hereto and
their respective successors and assigns.
[Signature Page Follows]
47
<PAGE> 49
Acquiror, Merger Sub, Target and Target Stockholder have executed this
Agreement as of the date first written above.
PRINTCAFE, INC.
By:
---------------------------------
Name:
-------------------------------
(Print)
Title:
------------------------------
AHP PRINTCAFE, INC.
By:
---------------------------------
Name:
-------------------------------
(Print)
Title:
------------------------------
A.H.P. SYSTEMS, INC.
By:
---------------------------------
Name:
-------------------------------
(Print)
Title:
------------------------------
------------------------------------
EHUD ARIELI
<PAGE> 1
EXHIBIT 10.21
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into
as of this 8th day of November 1999 (the "EFFECTIVE DATE") by and among PROGRAPH
SYSTEMS, INC., a Pennsylvania corporation (the "COMPANY"), and WILLIAM GUTTMAN
(the "PURCHASER").
WHEREAS, the Purchaser desires to purchase 1,654,702 shares of
the Company's common stock (the "COMMON STOCK") (such number of shares owned by
the Purchaser and any shares of capital stock of the Company acquired by the
Purchaser as a result of any subdivision, combination or reclassification of
outstanding shares of Common Stock into a greater or smaller number of shares,
recapitalization, reorganization, reclassification of shares, stock dividend or
like event (collectively, "RECAPITALIZATION EVENTS"), being hereinafter referred
to as the "SHARES");
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, the parties hereto hereby agree as follows:
1. PURCHASE OF SHARES. As of the Effective Date and subject to
the terms and conditions of this Agreement, Purchaser hereby purchases from the
Company, and Company hereby sells to Purchaser, an aggregate of 1,654,702 shares
of the Company's common stock at an aggregate purchase price of $380,581.16 (the
"PURCHASE PRICE") or $0.23 per Share (the "PURCHASE PRICE PER SHARE").
2. PAYMENT OF PURCHASE PRICE; CLOSING.
(a) DELIVERIES BY PURCHASER. Purchaser hereby delivers to
the Company the full Purchase Price by signing and delivery the form of
promissory note attached as Exhibit A (the "PROMISSORY NOTE"). Purchaser also
hereby delivers to the Company two (2) copies of the Pledge Agreement in the
form of Exhibit B (the "PLEDGE AGREEMENT") a blank Stock Power and Assignment
Separate from Stock Certificate in the form of Exhibit C attached hereto (the
"STOCK POWERS"), both executed by Purchaser.
(b) DELIVERIES BY THE COMPANY. Upon its receipt of the
entire Purchase Price and all the documents to be executed and delivered by
Purchaser to the Company under Section 2(a), the Company will issue a duly
executed stock certificate evidencing the Shares registered in Purchaser's name
in accordance with Section 14 with such certificate to be placed in escrow as
provided in the Pledge Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Company that:
(a) Purchase for Own Account for Investment. Purchaser is
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the
<PAGE> 2
Securities Act of 1933, as amended (the "1933 ACT"). Purchaser has no present
intention of selling or otherwise disposing of all or any portion of the Shares
and no one other than Purchaser has any beneficial ownership of any of the
Shares.
(b) Access to Information. Purchaser has had access to all
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(c) Understanding of Risks. Purchaser is fully aware of:
(i) the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualification and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares.
(d) Purchaser's Qualifications. Purchaser has a
preexisting personal or business relationship with the Company and/or certain of
its officers and/or directors of a nature and duration sufficient to make
Purchaser aware of the character, business acumen and general business and
financial circumstances of the Company and/or such officers and directors. By
reason of Purchaser's business or financial experience, Purchaser is capable of
evaluating the merits and risks of this investment, has the ability to protect
Purchaser's own interests in this transaction and is financially capable of
bearing a total loss of this investment. Purchaser is an "accredited investor"
as defined under Rule 501 promulgated under the Securities Act of 1933, as
amended.
(e) No General Solicitation. At no time was Purchaser
presented with or solicited by any publicly issued or circulated newspaper,
mail, radio, television or other form of general advertising or solicitation in
connection with the offer, sale and purchase of the Shares.
(f) Compliance with Securities Laws. Purchaser understands
and acknowledges that, in reliance upon the representations and warranties made
by Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act, but instead are being issued
under an exemption or exemptions from the registration and qualification
requirements of the 1933 Act or applicable state securities laws which impose
certain restrictions on Purchaser's ability to transfer the Shares.
(g) Restrictions on Transfer. Purchaser understands that
Purchaser may not transfer any Shares unless such Shares are registered under
the 1933 Act or qualified under the Law or unless, in the opinion of counsel to
the Company, exemptions from such registration and qualification requirements
are available. Purchaser understands that only the Company may file a
registration statement with the SEC and that the Company is under no obligation
to do so with respect to the Shares. Purchaser has also been advised that
exemptions
2
<PAGE> 3
from registration and qualification may not be available or may not permit
Purchaser to transfer all or any of the Shares in the amounts or at the time
proposed by Purchaser.
(h) Rule 144. In addition, Purchaser has been advised that
SEC Rule 144 promulgated under the 1933 Act, which permits certain limited sales
of unregistered securities, is not presently available with respect to the
Shares and, in any event, currently requires that the Shares be held for a
minimum of one year, and in certain cases two years, after they have been
purchased and paid for (within the meaning of Rule 144), before they may be
resold under Rule 144. Purchaser understands that Rule 144 may indefinitely
restrict transfer of the Shares so long as Purchaser remains an "affiliate" of
the Company and "current public information" about the Company (as defined in
Rule 144) is not publicly available.
4. RIGHTS AS STOCKHOLDER. Subject to the terms and conditions of
this Agreement, Purchaser will have all of the rights of a stockholder of the
Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercise(s) the repurchase
options hereunder. Upon an exercise of any right to repurchase hereunder,
Purchaser will have no further rights as a holder of the Shares so purchased
upon such exercise, except the right to receive payment for the Shares so
purchased in accordance with the provisions of this Agreement, and Purchaser
will promptly surrender the stock certificate(s) evidencing the Shares so
purchased to the Company for transfer or cancellation.
5. RESTRICTIVE LEGEND AND STOP-TRANSFER ORDERS.
(a) LEGEND. Purchaser understands and agrees that the
Company will place the legend set forth below or a
similar legend on any stock certificate(s) evidencing
the Shares, together with any other legends that may be
required by state or federal securities laws, the
Company's Articles of Incorporation or Bylaws, any other
agreement between Purchaser and the Company or any
agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
(b) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in
order to insure compliance with the restrictions imposed
by this Agreement, the Company may issue appropriate
"stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it
may make appropriate notations to the same effect in its
own records.
3
<PAGE> 4
(c) REFUSAL TO TRANSFER. The Company will not be required
(i) to transfer on its books any Shares that have been
sold or otherwise transferred in violation of any of the
provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay
dividends, to any purchaser or other transferee to whom
such Shares have been so transferred.
6. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with
any registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or such
managing underwriters, as the case may be, for a period of time (not to exceed
180 days) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
managing underwriters may specify for employee-shareholders generally.
7. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and the
transfer of the Shares will be subject to and conditioned upon compliance by the
Company and Purchaser with all applicable state and federal laws and regulations
and with all applicable requirements of any stock exchange or automated
quotation system on which the Company's common stock may be listed or quoted at
the time of such issuance or transfer.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its
rights under this Agreement, including its rights to repurchase Shares
hereunder. This Agreement will be binding upon and inure to the benefit of the
successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Agreement will be binding upon Purchaser and Purchaser's
heirs, executors, administrators, successors and assigns.
9. GOVERNING LAW; SEVERABILITY. This Agreement will be governed
by and construed in accordance with the internal laws of the Commonwealth of
Pennsylvania, excluding that body of laws pertaining to conflict of laws. If any
provision of this Agreement is determined by a court of law to be illegal or
unenforceable, then such provision will be enforced to the maximum extent
possible and the other provisions will remain fully effective and enforceable.
10. NOTICES. Any notice required or permitted hereunder will be
given in writing and will be deemed effectively given upon personal delivery,
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested), one (1) business day after its
deposit with any return receipt express courier (prepaid), or one (1) business
day after transmission by telecopier, addressed to the other party at its
address (or facsimile number, in the case of transmission by telecopier) as
shown below its signature to this Agreement, or to such other address as such
party may designate in writing from time to time to the other party.
11. FURTHER INSTRUMENTS. The parties agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
4
<PAGE> 5
12. HEADINGS. The captions and headings of this Agreement are
included for ease of reference only and will be disregarded in interpreting or
construing this Agreement. All references herein to Sections will refer to
Sections of this Agreement.
13. ENTIRE AGREEMENT, AMENDMENT. This Agreement, together with
Employment Agreement and Proprietary Information and Inventions Assignment
Agreement, and all its Exhibits, constitutes the entire agreement and
understanding of the parties with respect to the subject matter of this
Agreement, and supersedes all prior understandings and agreements, whether oral
or written, between the parties hereto with respect to the specific subject
matter hereof. This Agreement may not be modified, amended, terminated or any
provision hereof waived in whole or in part except by a written agreement signed
by the Company and the Purchaser
14. TITLE TO SHARES. The exact spelling of the name(s) under
which Purchaser will take title to the Shares is:
WILLIAM GUTTMAN
15. WAIVERS. No waiver hereunder shall be deemed a waiver of any
subsequent breach or default of the same or a similar nature.
16. HEADINGS. Headings are for convenience only and are not
deemed to be part of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed by the
undersigned as of the date and year first above written.
COMPANY:
PROGRAPH SYSTEMS, INC.
By
-------------------------------
Marc Olin, President
PURCHASER:
---------------------------------
WILLIAM GUTTMAN
I, ________________, spouse of William Guttman, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
-----------------------------------
Spouse of William Guttman
6
<PAGE> 7
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A: Promissory Note
Exhibit B: Pledge Agreement
Exhibit C: Stock Power and Assignment Separate from Stock Certificate
</TABLE>
<PAGE> 8
EXHIBIT C
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of ____________, 1999 and Pledge Agreement dated as of
__________, 1999 (the "Agreements"), the undersigned hereby sells, assigns and
transfers unto _______________, ___________ shares of the common stock of
Prograph Systems, Inc., a Pennsylvania corporation (the "Company"), standing in
the undersigned's name on the books of the Company represented by Certificate
No(s). ___ delivered herewith, and does hereby irrevocably constitute and
appoint the Secretary of the Company as the undersigned's attorney-in-fact, with
full power of substitution, to transfer said stock on the books of the Company.
THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENTS.
Dated:______________________
PURCHASER
-------------------------------
(Signature)
-------------------------------
(Please Print Name)
-------------------------------
(Spouse's Signature, if any)
-------------------------------
(Please Print Spouse's Name)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
<PAGE> 1
EXHIBIT 10.22
SECURED PROMISSORY NOTE
$380,581.16 Pittsburgh, Pennsylvania
Dated as of November 8, 1999
FOR VALUE RECEIVED, the undersigned, WILLIAM GUTTMAN ("Borrower"),
promises to pay to the order of PROGRAPH SYSTEMS, INC., a Pennsylvania
corporation (the "Company"), the principal sum of THREE HUNDRED EIGHTY THOUSAND,
FIVE HUNDRED AND EIGHTY-ONE Dollars and SIXTEEN Cents ($380,581.16) with
interest from the date hereof on the unpaid balance as specified herein. The
entire unpaid balance of principal and interest shall be immediately due and
payable, without notice, on the earlier to occur of (1) Five (5) years from date
of this note, (2) breach of the Pledge Agreement dated the date hereof between
the Company and Borrower, or (3) a date specified in a written notice provided
by Borrower to the Company setting forth a date for repayment at least 5
business days after the date of such notice.
The interest rate on this note shall be an annual rate of interest equal
to six percent (6%), compounded semiannually. Interest shall be computed on the
basis of a year of 365 days and the actual number of days elapsed, except that
interest shall not be computed on the day of full repayment of this note.
Interest not paid when due shall earn interest at the rate specified above.
If payment is not made when due, and if action is instituted on this
note, the undersigned agrees to pay the Company reasonable attorneys' fees and
costs of suit, as fixed by court in connection with the collection of the
outstanding amounts due under this note.
The undersigned shall have the right to prepay all or any part of the
unpaid principal amount of this note, without premium, at any time prior to the
maturity hereof.
-1-
<PAGE> 2
This note is originally secured by a pledge of shares of Common Stock of
the Company pursuant to a Pledge Agreement of even date herewith, which is on
file with the Secretary of the Company.
If one or more of the provisions hereof shall be declared or held to be
invalid, illegal, or unenforceable in any respect in any jurisdiction, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby and any such declaration or
holding shall not invalidate or render unenforceable such provision in any other
jurisdiction.
In case the note shall become mutilated or defaced, or be destroyed,
lost or stolen, the Borrower shall execute and deliver a new note of like
principal amount in exchange and substitution for the mutilated or defaced note,
or in lieu of and in substitution for the destroyed, lost or stolen note. In the
case of a mutilated or defaced note, the Company shall surrender such note to
the Borrower. In the case of any destroyed, lost or stolen note, the Company
shall furnish to the Borrower evidence to its satisfaction of the destruction,
loss or theft of such note.
Notwithstanding anything to the contrary herein, in the event the value
of the Shares secured by the Pledge Agreement is insufficient to pay the full
amount due and owing hereunder, the Company may seek reimbursement from Borrower
for any deficiency, but only up to the sum of (i) 30% of the original principal
balance of this note, plus (ii) all interest accrued from the date of this note
to the due date as determined pursuant to the first paragraph of this note.
This note shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania, without regard to Pennsylvania choice of
law provisions.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this
note as of the date and year first above written.
-------------------------------
William Guttman
-3-
<PAGE> 1
EXHIBIT 10.26
SECURED PROMISSORY NOTE
$87,826.42 Pittsburgh, Pennsylvania
Dated as of November 8, 1999
FOR VALUE RECEIVED, the undersigned, MARC OLIN ("Borrower"), promises to
pay to the order of PROGRAPH SYSTEMS, INC., a Pennsylvania corporation (the
"Company"), the principal sum of EIGHTY SEVEN THOUSAND, EIGHT HUNDRED AND
TWENTY-SIX DOLLARS AND FORTY-TWO CENTS ($87,826.42) with interest from the date
hereof on the unpaid balance as specified herein. The entire unpaid balance of
principal and interest shall be immediately due and payable, without notice, on
the earlier to occur of (1) Five (5) years from date of this note, (2) breach of
the Pledge Agreement dated the date hereof between the Company and Borrower, or
(3) a date specified in a written notice provided by Borrower to the Company
setting forth a date for repayment at least 5 business days after the date of
such notice.
The interest rate on this note shall be an annual rate of interest equal
to six percent (6%), compounded semiannually. Interest shall be computed on the
basis of a year of 365 days and the actual number of days elapsed, except that
interest shall not be computed on the day of full repayment of this note.
Interest not paid when due shall earn interest at the rate specified above.
If payment is not made when due, and if action is instituted on this
note, the undersigned agrees to pay the Company reasonable attorneys' fees and
costs of suit, as fixed by court in connection with the collection of the
outstanding amounts due under this note.
The undersigned shall have the right to prepay all or any part of the
unpaid principal amount of this note, without premium, at any time prior to the
maturity hereof.
-1-
<PAGE> 2
This note is originally secured by a pledge of shares of Common Stock of
the Company pursuant to a Pledge Agreement of even date herewith, which is on
file with the Secretary of the Company.
If one or more of the provisions hereof shall be declared or held to be
invalid, illegal, or unenforceable in any respect in any jurisdiction, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby and any such declaration or
holding shall not invalidate or render unenforceable such provision in any other
jurisdiction.
In case the note shall become mutilated or defaced, or be destroyed,
lost or stolen, the Borrower shall execute and deliver a new note of like
principal amount in exchange and substitution for the mutilated or defaced note,
or in lieu of and in substitution for the destroyed, lost or stolen note. In the
case of a mutilated or defaced note, the Company shall surrender such note to
the Borrower. In the case of any destroyed, lost or stolen note, the Company
shall furnish to the Borrower evidence to its satisfaction of the destruction,
loss or theft of such note.
Notwithstanding anything to the contrary herein, in the event the value
of the Shares secured by the Pledge Agreement is insufficient to pay the full
amount due and owing hereunder, the Company may seek reimbursement from Borrower
for any deficiency, but only up to the sum of (i) 30% of the original principal
balance of this note, plus (ii) all interest accrued from the date of this note
to the due date as determined pursuant to the first paragraph of this note.
To secure the payment of said amount, I, the undersigned, hereby
authorize, irrevocably, any attorney of any court of record, to appear for me in
such court, in term, time or vacation, at any time hereafter, and confess a
judgment without process in favor of the holder of this Note for such amount as
may appear to be unpaid thereon, whether due or not, together with costs, and to
waive
-2-
<PAGE> 3
and release all heirs which may interfere in any such proceedings and to consent
to immediate execution upon such judgment; hereby ratifying and confirming all
that my said attorney may do by virtue hereof.
This note shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania, without regard to Pennsylvania choice of
law provisions.
IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this
note as of the date and year first above written.
-------------------------------
Marc Olin
-3-
<PAGE> 1
EXHIBIT 10.28
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into
as of this 8th day of November 1999 (the "EFFECTIVE DATE") by and among PROGRAPH
SYSTEMS, INC., a Pennsylvania corporation (the "COMPANY"), and MARC OLIN (the
"PURCHASER").
WHEREAS, the Purchaser desires to purchase 381,854 shares of the
Company's common stock (the "COMMON STOCK") (such number of shares owned by the
Purchaser and any shares of capital stock of the Company acquired by the
Purchaser as a result of any subdivision, combination or reclassification of
outstanding shares of Common Stock into a greater or smaller number of shares,
recapitalization, reorganization, reclassification of shares, stock dividend or
like event (collectively, "RECAPITALIZATION EVENTS"), being hereinafter referred
to as the "SHARES");
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, the parties hereto hereby agree as follows:
1. PURCHASE OF SHARES. As of the Effective Date and subject to
the terms and conditions of this Agreement, Purchaser hereby purchases from the
Company, and Company hereby sells to Purchaser, an aggregate of 381,854 shares
of the Company's common stock at an aggregate purchase price of $87,826.42 (the
"PURCHASE PRICE") or $0.23 per Share (the "PURCHASE PRICE PER SHARE").
2. PAYMENT OF PURCHASE PRICE; CLOSING.
(a) DELIVERIES BY PURCHASER. Purchaser hereby delivers to
the Company the full Purchase Price by signing and delivery the form of
promissory note attached as Exhibit A (the "PROMISSORY NOTE"). Purchaser also
hereby delivers to the Company two (2) copies of the Pledge Agreement in the
form of Exhibit B (the "PLEDGE AGREEMENT") a blank Stock Power and Assignment
Separate from Stock Certificate in the form of Exhibit C attached hereto (the
"STOCK POWERS"), both executed by Purchaser.
(b) DELIVERIES BY THE COMPANY. Upon its receipt of the
entire Purchase Price and all the documents to be executed and delivered by
Purchaser to the Company under Section 2(a), the Company will issue a duly
executed stock certificate evidencing the Shares registered in Purchaser's name
in accordance with Section 14 with such certificate to be placed in escrow as
provided in the Pledge Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Company that:
(a) Purchase for Own Account for Investment. Purchaser is
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act of 1933, as amended (the "1933
ACT"). Purchaser has no present intention of selling or otherwise disposing of
all or any portion of the Shares and no one other than Purchaser has any
beneficial ownership of any of the Shares.
<PAGE> 2
(b) Access to Information. Purchaser has had access to all
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(c) Understanding of Risks. Purchaser is fully aware of:
(i) the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualification and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares.
(d) Purchaser's Qualifications. Purchaser has a
preexisting personal or business relationship with the Company and/or certain of
its officers and/or directors of a nature and duration sufficient to make
Purchaser aware of the character, business acumen and general business and
financial circumstances of the Company and/or such officers and directors. By
reason of Purchaser's business or financial experience, Purchaser is capable of
evaluating the merits and risks of this investment, has the ability to protect
Purchaser's own interests in this transaction and is financially capable of
bearing a total loss of this investment. Purchaser is an "accredited investor"
as defined under Rule 501 promulgated under the Securities Act of 1933, as
amended.
(e) No General Solicitation. At no time was Purchaser
presented with or solicited by any publicly issued or circulated newspaper,
mail, radio, television or other form of general advertising or solicitation in
connection with the offer, sale and purchase of the Shares.
(f) Compliance with Securities Laws. Purchaser understands
and acknowledges that, in reliance upon the representations and warranties made
by Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act, but instead are being issued
under an exemption or exemptions from the registration and qualification
requirements of the 1933 Act or applicable state securities laws which impose
certain restrictions on Purchaser's ability to transfer the Shares.
(g) Restrictions on Transfer. Purchaser understands that
Purchaser may not transfer any Shares unless such Shares are registered under
the 1933 Act or qualified under the Law or unless, in the opinion of counsel to
the Company, exemptions from such registration and qualification requirements
are available. Purchaser understands that only the Company may file a
registration statement with the SEC and that the Company is under no obligation
to do so with respect to the Shares. Purchaser has also been advised that
exemptions from registration and qualification may not be available or may not
permit Purchaser to transfer all or any of the Shares in the amounts or at the
time proposed by Purchaser.
(h) Rule 144. In addition, Purchaser has been advised that
SEC Rule 144 promulgated under the 1933 Act, which permits certain limited sales
of unregistered securities, is not presently available with respect to the
Shares and, in any event, currently requires that the Shares be held for a
minimum of one year, and in certain cases two years, after
2
<PAGE> 3
they have been purchased and paid for (within the meaning of Rule 144), before
they may be resold under Rule 144. Purchaser understands that Rule 144 may
indefinitely restrict transfer of the Shares so long as Purchaser remains an
"affiliate" of the Company and "current public information" about the Company
(as defined in Rule 144) is not publicly available.
4. RIGHTS AS STOCKHOLDER. Subject to the terms and conditions of
this Agreement, Purchaser will have all of the rights of a stockholder of the
Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercise(s) the repurchase
options hereunder. Upon an exercise of any right to repurchase hereunder,
Purchaser will have no further rights as a holder of the Shares so purchased
upon such exercise, except the right to receive payment for the Shares so
purchased in accordance with the provisions of this Agreement, and Purchaser
will promptly surrender the stock certificate(s) evidencing the Shares so
purchased to the Company for transfer or cancellation.
5. RESTRICTIVE LEGEND AND STOP-TRANSFER ORDERS.
(a) LEGEND. Purchaser understands and agrees that the
Company will place the legend set forth below or a
similar legend on any stock certificate(s) evidencing
the Shares, together with any other legends that may be
required by state or federal securities laws, the
Company's Articles of Incorporation or Bylaws, any other
agreement between Purchaser and the Company or any
agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
(b) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in
order to insure compliance with the restrictions imposed
by this Agreement, the Company may issue appropriate
"stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it
may make appropriate notations to the same effect in its
own records.
(c) REFUSAL TO TRANSFER. The Company will not be required
(i) to transfer on its books any Shares that have been
sold or otherwise transferred in violation of any of the
provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay
dividends, to any purchaser or other transferee to whom
such Shares have been so transferred.
6. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with
any registration of the Company's securities under the 1933 Act that, upon the
request of the
3
<PAGE> 4
Company or the underwriters managing any registered public offering of the
Company's securities, Purchaser will not sell or otherwise dispose of any Shares
without the prior written consent of the Company or such managing underwriters,
as the case may be, for a period of time (not to exceed 180 days) after the
effective date of such registration requested by such managing underwriters and
subject to all restrictions as the Company or the managing underwriters may
specify for employee-shareholders generally.
7. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and the
transfer of the Shares will be subject to and conditioned upon compliance by the
Company and Purchaser with all applicable state and federal laws and regulations
and with all applicable requirements of any stock exchange or automated
quotation system on which the Company's common stock may be listed or quoted at
the time of such issuance or transfer.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its
rights under this Agreement, including its rights to repurchase Shares
hereunder. This Agreement will be binding upon and inure to the benefit of the
successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Agreement will be binding upon Purchaser and Purchaser's
heirs, executors, administrators, successors and assigns.
9. GOVERNING LAW; SEVERABILITY. This Agreement will be governed
by and construed in accordance with the internal laws of the Commonwealth of
Pennsylvania, excluding that body of laws pertaining to conflict of laws. If any
provision of this Agreement is determined by a court of law to be illegal or
unenforceable, then such provision will be enforced to the maximum extent
possible and the other provisions will remain fully effective and enforceable.
10. NOTICES. Any notice required or permitted hereunder will be
given in writing and will be deemed effectively given upon personal delivery,
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested), one (1) business day after its
deposit with any return receipt express courier (prepaid), or one (1) business
day after transmission by telecopier, addressed to the other party at its
address (or facsimile number, in the case of transmission by telecopier) as
shown below its signature to this Agreement, or to such other address as such
party may designate in writing from time to time to the other party.
11. FURTHER INSTRUMENTS. The parties agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
12. HEADINGS. The captions and headings of this Agreement are
included for ease of reference only and will be disregarded in interpreting or
construing this Agreement. All references herein to Sections will refer to
Sections of this Agreement.
13. ENTIRE AGREEMENT, AMENDMENT. This Agreement, together with
Employment Agreement and Proprietary Information and Inventions Assignment
Agreement, and all its Exhibits, constitutes the entire agreement and
understanding of the parties with respect to the subject matter of this
Agreement, and supersedes all prior understandings and agreements, whether oral
or written, between the parties hereto with respect to the specific subject
matter hereof. This Agreement may not be modified, amended, terminated or any
provision hereof
4
<PAGE> 5
waived in whole or in part except by a written agreement signed by the Company
and the Purchaser
14. TITLE TO SHARES. The exact spelling of the name(s) under
which Purchaser will take title to the Shares is:
MARC OLIN
15. WAIVERS. No waiver hereunder shall be deemed a waiver of any
subsequent breach or default of the same or a similar nature.
16. HEADINGS. Headings are for convenience only and are not
deemed to be part of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed by the
undersigned as of the date and year first above written.
COMPANY:
PROGRAPH SYSTEMS, INC.
By
-------------------------------
William Guttman, CEO
PURCHASER:
---------------------------------
MARC OLIN
I, ________________, spouse of Marc Olin, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
---------------------------------
Spouse of Marc Olin
6
<PAGE> 7
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A: Promissory Note
Exhibit B: Pledge Agreement
Exhibit C: Stock Power and Assignment Separate from Stock Certificate
</TABLE>
7
<PAGE> 8
EXHIBIT C
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of November 8, 1999 and Pledge Agreement dated as of November
8, 1999 (the "Agreements"), the undersigned hereby sells, assigns and transfers
unto _______________, ___________ shares of the common stock of Prograph
Systems, Inc., a Pennsylvania corporation (the "Company"), standing in the
undersigned's name on the books of the Company represented by Certificate No(s).
___ delivered herewith, and does hereby irrevocably constitute and appoint the
Secretary of the Company as the undersigned's attorney-in-fact, with full power
of substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENTS.
Dated:______________________
PURCHASER
-------------------------------
(Signature)
-------------------------------
(Please Print Name)
-------------------------------
(Spouse's Signature, if any)
-------------------------------
(Please Print Spouse's Name)
INSTRUCTION: Please do not fill in any blanks other than the signature line.
8
<PAGE> 1
EXHIBIT 10.30
SECURED PROMISSORY NOTE
$36,535.73 Pittsburgh, Pennsylvania
Dated as of November 8, 1999
FOR VALUE RECEIVED, the undersigned, RONALD HYLAND ("Borrower"),
promises to pay to the order of PROGRAPH SYSTEMS, INC., a Pennsylvania
corporation (the "Company"), the principal sum of THIRTY SIX THOUSAND, FIVE
HUNDRED AND THIRTY-FIVE Dollars and SEVENTY THREE Cents ($36,535.73) with
interest from the date hereof on the unpaid balance as specified herein. The
entire unpaid balance of principal and interest shall be immediately due and
payable, without notice, on the earlier to occur of (1) Five (5) years from date
of this NOTE, (2) breach of the Pledge Agreement dated the date hereof between
the Company and Borrower, or (3) a date specified in a written notice provided
by Borrower to the Company setting forth a date for repayment at least 5
business days after the date of such notice.
The interest rate on this note shall be an annual rate of interest equal
to six percent (6%), compounded semiannually. Interest shall be computed on the
basis of a year of 365 days and the actual number of days elapsed, except that
interest shall not be computed on the day of full repayment of this note.
Interest not paid when due shall earn interest at the rate specified above.
If payment is not made when due, and if action is instituted on this
note, the undersigned agrees to pay the Company reasonable attorneys' fees and
costs of suit, as fixed by court in connection with the collection of the
outstanding amounts due under this note.
The undersigned shall have the right to prepay all or any part of the
unpaid principal amount of this note, without premium, at any time prior to the
maturity hereof.
-1-
<PAGE> 2
This note is originally secured by a pledge of shares of Common Stock of
the Company pursuant to a Pledge Agreement of even date herewith, which is on
file with the Secretary of the Company.
If one or more of the provisions hereof shall be declared or held to be
invalid, illegal, or unenforceable in any respect in any jurisdiction, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby and any such declaration or
holding shall not invalidate or render unenforceable such provision in any other
jurisdiction.
In case the note shall become mutilated or defaced, or be destroyed,
lost or stolen, the Borrower shall execute and deliver a new note of like
principal amount in exchange and substitution for the mutilated or defaced note,
or in lieu of and in substitution for the destroyed, lost or stolen note. In the
case of a mutilated or defaced note, the Company shall surrender such note to
the Borrower. In the case of any destroyed, lost or stolen note, the Company
shall furnish to the Borrower evidence to its satisfaction of the destruction,
loss or theft of such note.
Notwithstanding anything to the contrary herein, in the event the value
of the Shares secured by the Pledge Agreement is insufficient to pay the full
amount due and owing hereunder, the Company may seek reimbursement from Borrower
for any deficiency, but only up to the sum of (i) 30% of the original principal
balance of this note, plus (ii) all interest accrued from the date of this note
to the due date as determined pursuant to the first paragraph of this note.
This note shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania, without regard to Pennsylvania choice of
law provisions.
IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this
note as of the date and year first above written.
-2-
<PAGE> 3
-------------------------------
Ronald Hyland
-3-
<PAGE> 1
EXHIBIT 10.33
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into
as of this 22nd day of December 1999 (the "EFFECTIVE DATE") by and among
PROGRAPH SYSTEMS, INC., a Pennsylvania corporation (the "COMPANY"), and JOSEPH
J. WHANG (the "PURCHASER").
WHEREAS, the Purchaser desires to purchase 1,018,278 shares of
the Company's common stock (the "COMMON STOCK") (such number of shares owned by
the Purchaser and any shares of capital stock of the Company acquired by the
Purchaser as a result of any subdivision, combination or reclassification of
outstanding shares of Common Stock into a greater or smaller number of shares,
recapitalization, reorganization, reclassification of shares, stock dividend or
like event (collectively, "RECAPITALIZATION EVENTS"), being hereinafter referred
to as the "SHARES");
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, the parties hereto hereby agree as follows:
1. PURCHASE OF SHARES. As of the Effective Date and subject to
the terms and conditions of this Agreement, Purchaser hereby purchases from the
Company, and Company hereby sells to Purchaser, an aggregate of 1,018,278 shares
of the Company's common stock at an aggregate purchase price of $1,048,826.34
(the "PURCHASE PRICE") or $1.03 per Share (the "PURCHASE PRICE PER SHARE").
2. PAYMENT OF PURCHASE PRICE; CLOSING.
(a) DELIVERIES BY PURCHASER. Purchaser hereby delivers to
the Company the full Purchase Price by signing and delivery the form of
promissory note attached as Exhibit A (the "PROMISSORY NOTE"). Purchaser also
hereby delivers to the Company two (2) copies of the Pledge Agreement in the
form of Exhibit B (the "PLEDGE AGREEMENT") a blank Stock Power and Assignment
Separate from Stock Certificate in the form of Exhibit C attached hereto (the
"STOCK POWERS"), both executed by Purchaser.
(b) DELIVERIES BY THE COMPANY. Upon its receipt of the
entire Purchase Price and all the documents to be executed and delivered by
Purchaser to the Company under Section 2(a), the Company will issue a duly
executed stock certificate evidencing the Shares registered in Purchaser's name
in accordance with Section 14 with such certificate to be placed in escrow as
provided in the Pledge Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Company that:
(a) Purchase for Own Account for Investment. Purchaser is
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act of 1933, as amended (the "1933
ACT"). Purchaser has no present intention of selling or otherwise disposing of
all or any portion of the Shares and no one other than Purchaser has any
beneficial ownership of any of the Shares.
<PAGE> 2
(b) Access to Information. Purchaser has had access to all
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
(c) Understanding of Risks. Purchaser is fully aware of:
(i) the highly speculative nature of the investment in the Shares; (ii) the
financial hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (e.g., that Purchaser may not be
able to sell or dispose of the Shares or use them as collateral for loans); (iv)
the qualification and backgrounds of the management of the Company; and (v) the
tax consequences of investment in the Shares.
(d) Purchaser's Qualifications. Purchaser has a
preexisting personal or business relationship with the Company and/or certain of
its officers and/or directors of a nature and duration sufficient to make
Purchaser aware of the character, business acumen and general business and
financial circumstances of the Company and/or such officers and directors. By
reason of Purchaser's business or financial experience, Purchaser is capable of
evaluating the merits and risks of this investment, has the ability to protect
Purchaser's own interests in this transaction and is financially capable of
bearing a total loss of this investment. Purchaser is an "accredited investor"
as defined under Rule 501 promulgated under the Securities Act of 1933, as
amended.
(e) No General Solicitation. At no time was Purchaser
presented with or solicited by any publicly issued or circulated newspaper,
mail, radio, television or other form of general advertising or solicitation in
connection with the offer, sale and purchase of the Shares.
(f) Compliance with Securities Laws. Purchaser understands
and acknowledges that, in reliance upon the representations and warranties made
by Purchaser herein, the Shares are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act, but instead are being issued
under an exemption or exemptions from the registration and qualification
requirements of the 1933 Act or applicable state securities laws which impose
certain restrictions on Purchaser's ability to transfer the Shares.
(g) Restrictions on Transfer. Purchaser understands that
Purchaser may not transfer any Shares unless such Shares are registered under
the 1933 Act or qualified under the Law or unless, in the opinion of counsel to
the Company, exemptions from such registration and qualification requirements
are available. Purchaser understands that only the Company may file a
registration statement with the SEC and that the Company is under no obligation
to do so with respect to the Shares. Purchaser has also been advised that
exemptions from registration and qualification may not be available or may not
permit Purchaser to transfer all or any of the Shares in the amounts or at the
time proposed by Purchaser.
(h) Rule 144. In addition, Purchaser has been advised that
SEC Rule 144 promulgated under the 1933 Act, which permits certain limited sales
of unregistered securities, is not presently available with respect to the
Shares and, in any event, currently requires that the Shares be held for a
minimum of one year, and in certain cases two years, after
2
<PAGE> 3
they have been purchased and paid for (within the meaning of Rule 144), before
they may be resold under Rule 144. Purchaser understands that Rule 144 may
indefinitely restrict transfer of the Shares so long as Purchaser remains an
"affiliate" of the Company and "current public information" about the Company
(as defined in Rule 144) is not publicly available.
4. RIGHTS AS STOCKHOLDER. Subject to the terms and conditions of
this Agreement, Purchaser will have all of the rights of a stockholder of the
Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes of
the Shares or the Company and/or its assignee(s) exercise(s) the repurchase
options hereunder. Upon an exercise of any right to repurchase hereunder,
Purchaser will have no further rights as a holder of the Shares so purchased
upon such exercise, except the right to receive payment for the Shares so
purchased in accordance with the provisions of this Agreement, and Purchaser
will promptly surrender the stock certificate(s) evidencing the Shares so
purchased to the Company for transfer or cancellation.
5. RESTRICTIVE LEGEND AND STOP-TRANSFER ORDERS.
(a) LEGEND. Purchaser understands and agrees that the
Company will place the legend set forth below or a
similar legend on any stock certificate(s) evidencing
the Shares, together with any other legends that may be
required by state or federal securities laws, the
Company's Articles of Incorporation or Bylaws, any other
agreement between Purchaser and the Company or any
agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
(b) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in
order to insure compliance with the restrictions imposed
by this Agreement, the Company may issue appropriate
"stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it
may make appropriate notations to the same effect in its
own records.
(c) REFUSAL TO TRANSFER. The Company will not be required
(i) to transfer on its books any Shares that have been
sold or otherwise transferred in violation of any of the
provisions of this Agreement or (ii) to treat as owner
of such Shares, or to accord the right to vote or pay
dividends, to any purchaser or other transferee to whom
such Shares have been so transferred.
6. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with
any registration of the Company's securities under the 1933 Act that, upon the
request of the
3
<PAGE> 4
Company or the underwriters managing any registered public offering of the
Company's securities, Purchaser will not sell or otherwise dispose of any Shares
without the prior written consent of the Company or such managing underwriters,
as the case may be, for a period of time (not to exceed 180 days) after the
effective date of such registration requested by such managing underwriters and
subject to all restrictions as the Company or the managing underwriters may
specify for employee-shareholders generally.
7. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and the
transfer of the Shares will be subject to and conditioned upon compliance by the
Company and Purchaser with all applicable state and federal laws and regulations
and with all applicable requirements of any stock exchange or automated
quotation system on which the Company's common stock may be listed or quoted at
the time of such issuance or transfer.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its
rights under this Agreement, including its rights to repurchase Shares
hereunder. This Agreement will be binding upon and inure to the benefit of the
successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Agreement will be binding upon Purchaser and Purchaser's
heirs, executors, administrators, successors and assigns.
9. GOVERNING LAW; SEVERABILITY. This Agreement will be governed
by and construed in accordance with the internal laws of the Commonwealth of
Pennsylvania, excluding that body of laws pertaining to conflict of laws. If any
provision of this Agreement is determined by a court of law to be illegal or
unenforceable, then such provision will be enforced to the maximum extent
possible and the other provisions will remain fully effective and enforceable.
10. NOTICES. Any notice required or permitted hereunder will be
given in writing and will be deemed effectively given upon personal delivery,
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested), one (1) business day after its
deposit with any return receipt express courier (prepaid), or one (1) business
day after transmission by telecopier, addressed to the other party at its
address (or facsimile number, in the case of transmission by telecopier) as
shown below its signature to this Agreement, or to such other address as such
party may designate in writing from time to time to the other party.
11. FURTHER INSTRUMENTS. The parties agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
12. HEADINGS. The captions and headings of this Agreement are
included for ease of reference only and will be disregarded in interpreting or
construing this Agreement. All references herein to Sections will refer to
Sections of this Agreement.
13. ENTIRE AGREEMENT, AMENDMENT. This Agreement, together with
Employment Agreement and Proprietary Information and Inventions Assignment
Agreement, and all its Exhibits, constitutes the entire agreement and
understanding of the parties with respect to the subject matter of this
Agreement, and supersedes all prior understandings and agreements, whether oral
or written, between the parties hereto with respect to the specific subject
matter hereof. This Agreement may not be modified, amended, terminated or any
provision hereof
4
<PAGE> 5
waived in whole or in part except by a written agreement signed by the Company
and the Purchaser
14. TITLE TO SHARES. The exact spelling of the name(s) under
which Purchaser will take title to the Shares is:
JOSEPH WHANG
15. WAIVERS. No waiver hereunder shall be deemed a waiver of any
subsequent breach or default of the same or a similar nature.
16. HEADINGS. Headings are for convenience only and are not
deemed to be part of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been executed by the
undersigned as of the date and year first above written.
COMPANY:
PROGRAPH SYSTEMS, INC.
By
-------------------------------
Marc Olin, President
PURCHASER:
---------------------------------
JOSEPH WHANG
I, ________________, spouse of Joseph Whang, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
---------------------------------
Spouse of Joseph Whang
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A: Promissory Note
Exhibit B: Pledge Agreement
Exhibit C: Stock Power and Assignment Separate from Stock Certificate
</TABLE>
6
<PAGE> 7
EXHIBIT C
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of December 22 1999 and Pledge Agreement dated as of December
22, 1999 (the "Agreements"), the undersigned hereby sells, assigns and transfers
unto _______________, ___________ shares of the common stock of Prograph
Systems, Inc., a Pennsylvania corporation (the "Company"), standing in the
undersigned's name on the books of the Company represented by Certificate No(s).
___ delivered herewith, and does hereby irrevocably constitute and appoint the
Secretary of the Company as the undersigned's attorney-in-fact, with full power
of substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENTS.
Dated:______________________
PURCHASER
-------------------------------
(Signature)
-------------------------------
(Please Print Name)
-------------------------------
(Spouse's Signature, if any)
-------------------------------
(Please Print Spouse's Name)
<PAGE> 1
EXHIBIT 10.34
SECURED PROMISSORY NOTE
$1,048,826.34 Pittsburgh, Pennsylvania
Dated as of December 22, 1999
FOR VALUE RECEIVED, the undersigned, JOSEPH WHANG ("Borrower"), promises
to pay to the order of PROGRAPH SYSTEMS, INC., a Pennsylvania corporation (the
"Company"), the principal sum of One Million, Forty Eight Thousand, Eight
Hundred Twenty-six Dollars and thirty-four Cents ($1,048,826.34) with interest
from the date hereof on the unpaid balance as specified herein. The entire
unpaid balance of principal and interest shall be due and payable, on the
earlier to occur of (1) Five (5) years from date of this note, (2) breach of the
Pledge Agreement dated the date hereof between the Company and Borrower, or (3)
a date specified in a written notice provided by Borrower to the Company setting
forth a date for repayment at least 5 business days after the date of such
notice.
The interest rate on this note shall be an annual rate of interest equal
to six percent (6%), compounded semiannually. Interest shall be computed on the
basis of a year of 365 days and the actual number of days elapsed, except that
interest shall not be computed on the day of full repayment of this note.
Interest not paid when due shall earn interest at the rate specified above.
If payment is not made when due, and if action is instituted on this
note, the undersigned agrees to pay the Company reasonable attorneys' fees and
costs of suit, as fixed by court in connection with the collection of the
outstanding amounts due under this note.
The undersigned shall have the right to prepay all or any part of the
unpaid principal amount of this note, without premium, at any time prior to the
maturity hereof.
-1-
<PAGE> 2
This note is originally secured by a pledge of shares of Common Stock of
the Company pursuant to a Pledge Agreement of even date herewith, which is on
file with the Secretary of the Company.
If one or more of the provisions hereof shall be declared or held to be
invalid, illegal, or unenforceable in any respect in any jurisdiction, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby and any such declaration or
holding shall not invalidate or render unenforceable such provision in any other
jurisdiction.
In case the note shall become mutilated or defaced, or be destroyed,
lost or stolen, the Borrower shall execute and deliver a new note of like
principal amount in exchange and substitution for the mutilated or defaced note,
or in lieu of and in substitution for the destroyed, lost or stolen note. In the
case of a mutilated or defaced note, the Company shall surrender such note to
the Borrower. In the case of any destroyed, lost or stolen note, the Company
shall furnish to the Borrower evidence to its satisfaction of the destruction,
loss or theft of such note.
Notwithstanding anything to the contrary herein, in the event the value
of the Shares secured by the Pledge Agreement is insufficient to pay the full
amount due and owing hereunder, the Company may seek reimbursement from Borrower
for any deficiency, plus all interest accrued from the date of this note to the
due date as determined pursuant to the first paragraph of this note.
This note shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania, without regard to Pennsylvania choice of
law provisions.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this
note as of the date and year first above written.
-------------------------------
Joseph Whang
-3-
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 10, 2000 in the Registration Statement (Form S-1)
and related Prospectus of printCafe, Inc. for the registration of its common
stock.
Pittsburgh, Pennsylvania
March 10, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Seattle, Washington
March 8, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated December 28, 1998, relating to the financial statements of nth
degree Software, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the headings "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
Seattle, Washington
March 9, 2000
<PAGE> 1
EXHIBIT 23.4
[DYLEWSKY & GOLDBERG, LLC LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 22, 2000, in the Registration Statement (Form
S-1) and related Prospectus of printCafe, Inc. for the registration of its
common stock.
Dylewsky & Goldberg CPAS, LLC
Stamford, Connecticut
March 8, 2000
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of printCafe, Inc.
on Form S-1 of our report dated February 11, 2000, relating to the financial
statements of Hagen Systems, Inc. for the years ended December 31, 1999 and
1998 and to the reference to our Firm under the caption "Experts" in the
Prospectus.
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
March 7, 2000
<PAGE> 1
EXHIBIT 23.6
[BRIDGMAN VALIANTE & VILLARD, PC LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 4, 2000 (except for Note 14, as to which the
date is February 7, 2000), in the Registration Statement (Form S-1) and related
Prospectus of printCafe, Inc. for the registration of its common stock.
/s/ Bridgman Valiante & Villard, PC
Lebanon, New Hampshire
March 8, 2000
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
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