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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT #1
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (fee required)
For the fiscal year ended March 31, 1996
Commission File No. 0-14747
XYVISION, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
04-2751102
(STATE OR OTHER JURISDICTION
(I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)
IDENTIFICATION NO.)
101 EDGEWATER DRIVE, WAKEFIELD, MA 01880-1291
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 245-4100
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON STOCK $.03 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates on May
31, 1996 was $1,888,878.
As of May 31, 1996, the registrant had 8,844,099 shares of Xyvision, Inc.
Common Stock, $.03 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed pursuant
to Regulation 14A not later than 120 days after the end of the fiscal year
(March 31, 1996) are incorporated by reference in Part III.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Revenues increased 3% from $23,865,000 in fiscal 1994 to $24,559,000 in
fiscal 1995 and decreased 9% from $24,559,000 in fiscal 1995 to $22,414,000
in fiscal 1996. In fiscal 1995 systems revenues increased 5% from fiscal
1994, due primarily to the increased volume from the Contex Prepress Systems
European and Pacific Rim/Asia markets. In fiscal 1996 systems revenues
decreased 17% from fiscal 1995 due primarily to reduced sales of Contex
Prepress Systems in domestic markets. Service revenues decreased 1% from
fiscal 1994 to fiscal 1995. This decrease was primarily due to reduced
publishing maintenance from the Company's domestic markets. In fiscal 1996
service revenues increased 6%. This increase was primarily due to increased
international maintenance, training and integration service revenues in both
the Contex and Publishing business groups. Customer concerns over the
Company's financial condition have also had a negative impact on revenues.
Gross margins decreased from 50% of revenues in fiscal 1994 to 49% of
revenues in fiscal 1995 and decreased further to 45% of revenues in fiscal
1996. Systems margins decreased from 63% of revenues in fiscal 1994 to 58% of
revenues in fiscal 1995 and decreased further to 55% of revenues in fiscal
1995. The decrease in fiscal 1995 was the result of higher amortization of
capitalized software development costs. The decrease in fiscal 1996 was the
result of a combination of decreased operational efficiencies resulting from
the need for senior management to focus on the restructuring effort and a
higher content of hardware sales in the European markets for the Contex
division. Service margins increased from 29% of revenues in fiscal 1994 to
33% of revenues in fiscal 1995 and decreased to 32% of revenues in fiscal
1996. The increase in service margins in fiscal 1995 was due to careful
control of expenses. The decrease in service margins in fiscal 1996 was the
result of a higher proportion of third party training and consulting
expenses.
Research and development expenses, including capitalized software
development costs, were $4,586,000, $4,410,000 and $4,512,000 for fiscal
1994, 1995 and 1996, respectively. These amounts represented 19%, 18%, and
20% of revenues, respectively. Capitalized software costs were $1,389,000,
$1,413,000 and $1,087,000 in fiscal 1994, 1995 and 1996, respectively. The
decrease in research and development expenditures from fiscal 1994 to fiscal
1995 was primarily due to the completion of major projects and cost control
efforts. The increase in research and development expenditures from fiscal
1995 to fiscal 1996 was mainly the result of increased headcount and its
associated costs. Research and development costs, excluding capitalized
software development costs, were 13%, 12% and 15% of revenues during fiscal
1994, 1995 and 1996, respectively.
Marketing, general and administrative expenses decreased from $8,618,000
(or 36% of revenues) in fiscal 1994 to $8,208,000 (or 33% of revenues) in
fiscal 1995. Fiscal 1996 expenses increased to $11,152,000 (or 50% of
revenues). The decrease from fiscal 1994 to fiscal 1995 was primarily a
result of the Company's continuing cost awareness and containment efforts.
During fiscal 1996 significant increases occurred in payroll, travel and
trade show expenses, primarily in Europe, reflecting the Company's strategy
to grow its international markets. The increase in fiscal 1996 expenses also
reflects increases to the Company's bad debts allowances, primarily for the
Contex business group.
During fiscal 1996, the Company incurred restructuring charges of
$500,000. Included in the charge were approximately $385,000 of severance and
employee benefits for the December 1995 workforce reduction, a $70,000
write-off of equipment associated with the staff reduction and a write-down
of $45,000 for capital assets not expected to contribute to future
operations.
Interest income was $3,000, $9,000 and $7,000 in fiscal 1994, 1995 and
1996, respectively. The low amount of interest income in each of the fiscal
years was due to the Company's low level of cash available for investing.
Interest expense from third parties was $256,000, $284,000 and $424,000 in
fiscal 1994, 1995 and 1996, respectively. Interest expense from third parties
includes the interest obligation on the Debentures and the quarterly interest
payments on the 4% Promissory Notes. The increases in the interest expense
were primarily due to the impact of the program to exchange 15% Promissory
Notes for equity securities and 4% Promissory Notes (also, please see Note 9
of the Notes to Consolidated Financial Statements). Interest expense related
to the Company's credit line with a shareholder was $317,000, $244,000 and
$384,000 in fiscal 1994, 1995 and 1996, respectively.
During fiscal 1994, the Company entered into exchange transactions with
investors holding a total of $1,425,000 principal amount of Debentures. As a
result of these transactions, the Company realized an extraordinary gain of
2
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$780,000, or $.10 per share. These Debentureholders exchanged their
Debentures for (i) an unsecured, unsubordinated promissory note of the
Company, in a principal amount equal to 30% of the principal amount of the
Debentures delivered for exchange, which bears interest (payable at maturity)
at 15% per year (compounded annually and matures 30 months from issuance, and
(ii) 107,095 shares of common stock of the Company per $1,000,000 principal
amount of Debentures exchanged.
During fiscal 1995 and 1996, the Company entered into agreements to
restructure an additional $30,000 and $25,000, respectively, of Debentures on
substantially the same terms as those described above. The Company did not
recognize an extraordinary gain on these transactions. As a result of the 15%
Promissory Note exchange program described in Note 9 to the consolidated
financial statements, the Company declared dividends of $35,000 and $86,000
during fiscal 1995 and fiscal 1996, respectively, on the Series B Preferred
Stock.
Net income allocable to common stockholders was $301,000 and $286,000 for
fiscal 1994 and 1995, respectively. The Company recorded a net loss allocable
to common stockholders of $5,793,000 for fiscal 1996.
The Company believes inflation has not had a material effect on its
results of operations to date.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents of $332,000,
which is an increase of $158,000 from the previous fiscal year end.
Approximately $981,000 of cash was used by operations and approximately
$1,368,000 of cash was used in investing activities in fiscal 1996. The
Company plans to continue its aggressive efforts of managing working capital.
In fiscal 1996 the Company invested $1,368,000 in capital assets,
including $1,087,000 of capitalized software costs, reflecting the Company's
continuing commitment to its product development programs. The Company
anticipates it will continue to invest in capital assets as required to
support its product development efforts and general business needs in future
periods.
At March 31, 1996, the Company had a $4,000,000 line of credit with Tudor
Trust, a shareholder in the Company. The line, which is payable on demand, is
secured by substantially all of the assets of the Company and has been used
for working capital and general business purposes. Interest on the line of
credit is payable monthly. The line of credit is scheduled to expire on
December 31, 1997. On March 31, 1996, $3,400,000 was outstanding under this
credit line.
Late in fiscal 1996, management of the Company concluded that, due
principally to the significant losses from operations in the third and fourth
quarters of fiscal 1996 (which amounted to approximately $1.8 million and
$2.5 million, respectively), the Company's $4,000,000 credit line would be
insufficient to finance the Company's cash needs during the first quarter of
fiscal 1997. Accordingly, after investigating a number of alternative sources
of financing, the Company entered into an amendment to its line of credit
agreement with Tudor Trust, effective as of May 31, 1996, pursuant to which
(a) Tudor Trust agreed to (i) increase the maximum loan amount to $5,000,000,
(ii) reduce the interest rate on the line of credit from 10% to 8% per annum,
(iii) eliminate any borrowing covenants or conditions that would prevent the
Company from accessing the full $5,000,000 of available credit, and (iv)
eliminate the requirement for the issuance of additional warrants to Tudor
Trust under the line of credit (which were issuable on a quarterly basis),
and (b) in consideration therefor, the Company issued to Tudor Trust warrants
for 10,000,000 shares of common stock of the Company at an exercise price of
$.10 per share (representing the fair market value of the common stock of the
Company as of the date of warrant issuance). In connection with this line of
credit amendment, Tudor Trust exercised warrants for the purchase of
2,092,500 shares of common stock of the Company, for an aggregate purchase
price of $200,000.
At the beginning of fiscal 1992, the Company had outstanding $22,410,000
of Debentures. This was a significant amount of debt for the Company and
represented an annual cash interest payment obligation of $1,344,600. During
fiscal 1992, the Company began a program to restructure its financial
position, specifically, these Debentures.
Since March 10, 1992, the Company has consummated restructuring
transactions with the holders of a total of $18,790,000 principal amount of
Debentures. Substantially all of these transactions involved the exchange of
outstanding Debentures for (i) an unsecured, unsubordinated promissory note
of Xyvision in a principal amount equal to 30% of the principal amount of the
Debentures delivered for exchange, bearing interest (payable at a
3
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maturity) at 15% per year (compounded annually) and maturing 30 months from
issuance and (ii) 107,095 shares of common stock of Xyvision per $1,000,000
principal amount of Debentures. As of June 28, 1996, a total of $3,620,000
principal amount of Debentures remained outstanding. Of such Debentures, the
Company has identified the holders of $2,260,000 principal amount, leaving
$1,360,000 principal amount of Debentures unidentified.
During the course of its attempts to restructure the Debentures and
negotiate transactions with Debentureholders, the Company did not make the
interest payment due on the Debentures on May 5 of 1992, 1993, 1994, 1995, or
1996. Under the terms of the Indenture covering the Debentures, the Trustee
or the holders of not less than 25% of the then outstanding principal amount
of Debentures have the right to accelerate the maturity date of the remaining
Debentures. To date (June 28, 1996), such acceleration has neither occurred
nor been threatened.
The Company continues to negotiate in good faith with as many of the
remaining Debentureholders as possible. However, despite the progress that
has been made, the Company can still give no assurance about the outcome of
the Debenture restructuring efforts and does not expect the matter to be
resolved in the near future. If the Company is unable to enter into
restructuring transactions with the remaining Debentureholders, and such
Debentureholders seek to pursue legal remedies against the Company, the
Company may have to seek protection under applicable laws, including the
Bankruptcy Code, while it develops, analyzes and completes alternative
restructuring strategies.
In addition, as of June 28, 1996, the Company had issued promissory notes
in an aggregate principal amount of $5,742,000 in connection with the
Debenture exchange transactions described above, the interest on which
accrues at a rate of 15% per year and is $2,346,000 payable at maturity. Such
15% Promissory Notes in an aggregate principal amount of $4,542,000 were to
mature on September 30, 1994, and the remainder of these 15% Promissory Notes
were to mature at various dates between September 30, 1994 and February 28,
1997. In order to relieve itself of the payment obligations on the Promissory
Notes, in fiscal 1995 the Company began a program to restructure the
Promissory Notes. To date, the Company has closed exchange transactions with
15% Promissory Note holders of an aggregate principal amount of $5,634,000
and accrued interest of $2,320,000 in which, in exchange for the delivery of
a 15% Promissory Note (including all rights to receive any interest accrued
thereon) for cancellation, the Company issued (i) a new Promissory Note that
matures 30 months from the date of issuance and bears interest at 4% per
annum, (ii) one share of common stock for each $10.00 of principal amount of
15% Promissory Note delivered and (iii) one share of Series B Preferred Stock
for each $10.00 of interest due on the 15% Promissory Note delivered. The
Series B Preferred Stock accrues a cumulative dividend in the amount of $.40
per share per annum, whether or not declared and has a liquidation reference
of $12.50 per share, plus any dividends declared or accrued but unpaid. Each
share of Series B Preferred Stock is convertible into two shares of common
stock, subject to adjustment for certain events as defined in the Series B
Preferred Stock Agreement. Additionally, holders of outstanding shares of
Series B Preferred Stock are entitled to voting rights equivalent to the
rights attributable to the whole shares of common stock into which the Series
B Preferred are convertible. The exchange transactions were completed
assuming a fair value of $10 per share of Series B Preferred Stock. At March
31, 1996, 15% Promissory Notes in an aggregate principle amount of $239,000
and accrued interest of $101,000 were overdue. As of June 28, 1996, 15%
Promissory Notes in an aggregate principle amount of $60,000 and accrued
interest of $26,000 were overdue. The Company may seek to restructure the
remaining 15% Promissory Notes.
Tudor Trust and Saltzman Partners, both of whom are significant
stockholders of the Company and own a significant portion of the outstanding
Debentures and/or 4% Promissory Notes, have presented to the Company the
following proposal relating to the exchange of Debentures and 4% Promissory
Notes for common stock of the Company: they, along with certain other holders
of the Debentures, would exchange their Debentures for such number of shares
of common stock of the Company as is equal to the sum of the principal amount
of the Debentures exchanged plus the accrued interest thereon, divided by
$3.33; and they, along with certain other holders of the 4% Promissory Notes,
would exchange their 4% Promissory Notes for such number of shares of common
stock of the Company as is equal to the principal amount of the 4% Promissory
Notes exchanged divided by $2.00 (any accrued but unpaid interest would be
paid in cash at the time of such exchange). The consummation of the exchange
transaction for the Debentures would be contingent upon the participation in
such exchange by the holders of at least 50% of the principal amount of the
outstanding Debentures; and the consummation of the exchange transaction for
the 4% Promissory Notes would be contingent upon the participation in such
exchange by the holders of at least 75% of the principal amount of the
outstanding 4% Promissory Notes. Together, Tudor Trust and Saltzman Partners
currently own approximately 40% of the principal amount of the outstanding
Debentures and
4
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46% of the principal amount of the outstanding 4% Promissory Notes. The Board
of Directors of the Company has voted to accept the terms of the exchange
proposal made by Tudor Trust and Saltzman Partners and to proceed with such
exchange transactions, assuming the requisite number of holders of the
Debentures and 4% Promissory Notes agree to the terms of such exchanges.
While the Company believes that such exchange transactions would be very
beneficial to the Company and its stockholders and would significantly
improve the Company's balance sheet and liquidity position, there can be no
assurance that such exchange transactions will be consummated.
The Company anticipates that its cash requirements for the first part of
fiscal 1997 will be satisfied from its present cash balances, cash flow from
existing operations, and its credit line, assuming the continued forbearance
by the Debentureholders. Despite the progress made during the past fiscal
year, the Company can give no assurance on the outcome of its debt
restructuring efforts. The above uncertainties raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recovery and
classifications of recorded asset amounts or the amounts and classifications
of liabilities that might be necessary should the Company be unable to
continue as a going concern.
The Company's long term liquidity needs cannot reasonably be determined at
this time principally because these needs are dependent, in a large part,
upon the outcome of the Company's attempt to convert into equity its
outstanding Debentures and 4% Promissory Notes and the ability of the Company
to obtain financing to repay or otherwise restructure the remaining
outstanding 15% Promissory Notes. While the Company remains confident about
its future, it can give no assurance regarding the ultimate success of its
strategy.
5
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF XYVISION, INC.:
We have audited the accompanying consolidated balance sheets of Xyvision,
Inc. as of March 31, 1996 and 1995, and the related consolidated statements
of operations, changes in stockholders' deficit and cash flows for each of
the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our report.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred a loss
from operations in fiscal 1996 and has a working capital deficit and a
stockholders' deficit at March 31, 1996 and 1995. On May 5, 1996, 1995, 1994,
1993, and 1992, the Company elected not to make the interest payment that was
due on its 6% Convertible Subordinated Debentures. Under the terms of the
Indenture covering the debentures, the Trustee or the holders of not less
than 25% of the outstanding principal amount of the debentures have the right
to accelerate the maturity date of the remaining debentures. As of June 28,
1996, no such acceleration had occurred. The Company's attainment of
profitable operations and sufficient additional financing, as well as the
continued forbearance of its Debentureholders, cannot be determined at this
time. These uncertainties raise substantial doubt about the Company's ability
to continue as a going concern. Management's actions in regard to these
matters are described in Note 2. The financial statements do not include any
adjustments relating to the recovery and classifications of recorded asset
amounts or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Because of the significance of the uncertainties referred to in the
preceding paragraph, we are unable to express, and we do not express, an
opinion on the consolidated financial statements referred to above.
COOPERS & LYBRAND, L.L.P.
Boston, Massachusetts
June 28, 1996
6
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XYVISION, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 332,021 $ 174,289
Accounts receivable: Trade, less allowance for doubtful
accounts of $938,000 at March 31, 1996 and $711,000 in
1995 5,888,849 7,860,775
Inventories 376,702 188,251
Other current assets 756,040 1,173,339
Total current assets 7,353,612 9,396,654
Property and equipment, net 724,089 1,217,799
Other assets, net, principally capitalized software costs 2,203,003 2,522,159
Total assets $ 10,280,704 $ 13,136,612
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to shareholder $ 3,400,000 $ 1,100,000
Current portion of long-term debt 4,063,597 5,175,906
Accounts payable and accrued expenses 3,587,539 3,664,855
Other current liabilities 3,053,408 2,656,157
Total current liabilities 14,104,544 12,596,918
Long-term debt 5,420,500 4,655,255
Total liabilities 19,525,044 17,252,173
Commitments and contingencies -- --
Stockholders' deficit:
Series preferred stock, $1.00 par value; 2,700,000 shares
authorized; no shares issued -- --
Series B Preferred Stock, $1.00 par value: 300,000 shares
authorized; 222,943 issued in March, 1996 and 189,875
issued in March, 1995 (aggregate liquidation preference
of $2,786,788 and $2,373,438, respectively) 222,943 189,875
Common stock, $.03 par value; 20,000,000 shares authorized;
9,300,037 issued in 1996 and 9,218,962 issued in 1995 279,001 276,569
Additional paid-in capital 41,262,004 41,176,900
Accumulated deficit (49,599,009) (43,806,103)
(7,835,061) (2,162,759)
Less: Treasury stock, at cost; 477,865 shares in March,
1996 and 573,325 shares in March, 1995 1,172,137 1,458,517
Receivable from employee stock ownership plan 237,142 494,285
Total stockholders' deficit (9,244,340) (4,115,561)
Total liabilities and stockholders' deficit $ 10,280,704 $ 13,136,612
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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XYVISION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
- --------------------------------------------------- -------------- ------------- -------------
Revenues: Systems $13,026,610 $15,674,312 $14,895,180
Service 9,386,903 8,884,796 8,969,855
Total revenues 22,413,513 24,559,108 23,865,035
Cost of sales: Systems 5,852,984 6,527,775 5,572,756
Service 6,390,728 5,986,263 6,385,063
Total cost of sales 12,243,712 12,514,038 11,957,819
Gross margin 10,169,801 12,045,070 11,907,216
Expenses:
Research and development 3,424,797 2,997,285 3,197,231
Marketing, general, and administrative 11,152,172 8,207,762 8,618,326
Restructuring charge 499,725 -- --
Total operating expenses 15,076,694 11,205,047 11,815,557
Net income (loss) from operations (4,906,893) 840,023 91,659
Other income (expense), net: Interest income 7,312 9,193 2,848
Interest expense - third party (423,657) (284,285) (256,499)
Interest expense - shareholder (383,752) (244,204) (316,613)
Total other expense, net (800,097) (519,296) (570,264)
Income (loss) before income taxes and
extraordinary item (5,706,990) 320,727 (478,605)
Provision for income taxes -- -- --
Income (loss) before extraordinary item (5,706,990) 320,727 (478,605)
Extraordinary item:
Gain on exchange of convertible subordinated
debentures -- -- 779,574
Net income (loss) (5,706,990) 320,727 300,969
Series B Preferred Stock Dividends 85,916 34,903 --
Net income (loss) allocable to common
stockholders $(5,792,906) $ 285,824 $ 300,969
Income (loss) per share:
Income (loss) before extraordinary item $ (.66) $ .03 $ (.06)
Extraordinary item -- -- .10
Income (loss) per share $ (.66) $ .03 $ .04
Weighted average common and common equivalent
shares outstanding 8,725,829 10,032,930 8,224,189
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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XYVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
- ------------------------------------------------------ -------------- ------------- -------------
Operations: Net income (loss) $(5,706,990) $ 320,727 $ 300,969
Adjustments to reconcile net income to net cash
provided from operating activities:
Gain on exchange of convertible subordinated
debentures -- -- (779,574)
Depreciation and amortization 2,205,499 2,137,450 2,231,586
Restructuring charge 499,725 -- --
Provision for losses on accounts receivable 2,015,768 505,554 963,803
Loss on disposal of property and equipment 6,310 20,030 61,733
Operating assets and liabilities:
Accounts receivable (43,842) (1,393,112) (1,275,876)
Retainage -- 526,220 113,196
Inventories (188,451) (96,850) 152,506
Accounts payable and accrued expenses (595,387) 894,249 (696,822)
Other current liabilities 400,130 (577,608) 371,210
Other current assets 426,737 (570,109) (147,415)
Net cash provided from operations (980,501) 1,766,551 1,295,316
Investments:
Additions to property and equipment (280,098) (368,982) (640,176)
Proceeds from sales of property and equipment 3,353 225 11,794
Additions to customer support spares (3,864) (1,358) --
Capitalized software costs (1,086,960) (1,412,911) (1,388,884)
Net cash used by investments (1,367,569) (1,783,026) (2,017,266)
Financing:
Proceeds from line of credit from a shareholder 3,900,000 1,800,000 2,900,000
Repayment of line of credit to a shareholder (1,600,000) (2,100,000) (2,700,000)
Proceeds from issuance of common stock from treasury 33,350 186 331
Dividends on preferred stock (82,557) (15,967) --
Payment on 15% promissory notes (2,134) (62,836) --
Loan payment from Employee Stock Ownership Plan 257,143 257,143 257,143
Net cash provided from (used by) financing 2,505,802 (121,474) 457,474
Net increase (decrease) in cash and cash equivalents 157,732 (137,949) (264,476)
Cash and cash equivalents at the beginning of the
year 174,289 312,238 576,714
Cash and cash equivalents at the end of the year $ 332,021 $ 174,289 $ 312,238
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
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XYVISION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Receivable
From
Employee
Additional Stock
Total
Preferred Common Paid-In Accumulated Treasury Ownership
Stockholders'
Stock Stock Capital Deficit Stock Plan
Deficit
Balance, March 31, 1993 -- $248,727 $39,325,087 $(44,392,896) $(1,467,517) $(1,008,571) $
(7,295,170)
Issuance of common stock with the
exchange of $1,425,000 of Convertible
Subordinated Debentures, 161,181 shares 4,836 14,359
19,195
Issuance of common stock in accordance
with credit line agreement 300,000
shares 9,000 34,750
43,750
Issuance of stock from treasury for
employment service awards, 2,400 shares (6,869) 7,200
331
Payments on receivable from Employee
Stock Ownership Plan 257,143
257,143
- ----------------------------------------- ----------- ---------- ------------- --------------- -------------- --------------
---------------
Net income 300,969
300,969
Balance, March 31, 1994 -- 262,563 39,367,327 (44,091,927) (1,460,317) (751,428)
(6,673,782)
Issuance of common stock with the
exchange of $30,000 of convertible
subordinated debentures, 3,213 shares 96 639
735
Issuance of common stock with the
exchange of $4,636,500 of promissory
notes, 463,650 shares 13,910 101,673
115,583
- ----------------------------------------- ----------- ---------- ------------- --------------- -------------- --------------
---------------
Issuance of Series B preferred stock with
the exchange of $4,636,500 of promissory
notes, 189,875 shares 189,875 1,708,875
1,898,750
Issuance of stock from treasury for
employment service awards, 600 shares (1,614) 1,800
186
Payments on receivable from Employee
Stock Ownership Plan 257,143
257,143
Dividends on Series B preferred stock (34,903)
(34,903)
Net Income 320,727
320,727
Balance, March 31, 1995 189,875 276,569 41,176,900 (43,806,103) (1,458,517) (494,285)
(4,115,561)
- ----------------------------------------- ----------- ---------- ------------- --------------- -------------- --------------
---------------
Issuance of common stock with the
exchange of $25,000 of Convertible
Subordinated Debentures, 2,675 shares 80 1,254
1,334
Issuance of common stock with the
exchange of $784,000 of Promissory
Notes, 78,400 shares 2,352 39,268
41,620
Issuance of Series B stock with the
exchange of $784,000 of Promissory
Notes, 33,068 shares 33,068 297,612
330,680
Issuance of stock from treasury for
employee stock options, 94,660 shares (250,974) 283,980
33,006
Issuance of stock from treasury for
employment service awards, 800 shares (2,056) 2,400
344
Payments on receivable from Employee
Stock Ownership Plan 257,143
257,143
Dividends on Series B Preferred Stock (85,916)
(85,916)
Net loss (5,706,990)
(5,706,990)
Balance, March 31, 1996 $222,943 $279,001 $41,262,004 $(49,599,009) $(1,172,137) $(237,142) $
(9,244,340)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Xyvision, Inc. (the "Company"), which operates in a
single industry segment, designs and markets software for publishing,
document management, color design, and prepress applications.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Xyvision, Inc. and all its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
CASH: Cash consists of bank deposits.
INVENTORIES: Inventories are stated at the lower of cost, determined under
the first-in, first-out method, or market.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Major
renewals and improvements are capitalized while repair and maintenance
charges are expensed when incurred. Depreciation and amortization are
computed on a straight-line basis over the useful lives of the assets, except
for leasehold improvements that are amortized over the lesser of the term of
the lease or the estimated useful life of the related asset. When assets are
sold or retired, their cost and related accumulated depreciation are removed
from the accounts. Any gain or loss is included in income.
The following lives are used to provide for depreciation and amortization:
<TABLE>
<CAPTION>
<S> <C>
LIVES IN YEARS
- --------------------------------------------- ------------------
Design, test, and manufacturing equipment 2-5
Office furniture and fixtures 7
Leasehold improvements 2-10
Purchased software 5
Delivery and service vehicles 3
</TABLE>
REVENUE RECOGNITION: Revenues from equipment, software, and supplies are
recognized upon shipment. Maintenance revenues are recognized over the
contractual periods and noncontractual maintenance services are recognized as
the services are provided. Revenues on major systems integration contracts
are recognized on the percentage-of-completion method. Losses, if any, on
such contracts are provided for at the time they become apparent.
SOFTWARE DEVELOPMENT COSTS: Costs for research, design, and development of
software for sale to others incurred prior to the achievement of
"technological feasibility" are charged to expense. The Company capitalizes
certain software costs in accordance with Statement of Financial Accounting
No. 86, "Accounting for costs of computer software to be sold, leased or
otherwise marketed." The Company's policy is to amortize capitalized software
costs by the greater of (a) the ratio that current gross revenues for a
product bear to the total of current and anticipated future gross revenues
for that product or (b) the straight-line method over the remaining estimated
life of the product including the period being reported on. It is reasonably
possible that those estimates of anticipate future gross revenues, the
remaining estimated economic life of the product, or both will be reduced
significantly in the near term. As a result, the carrying amount of the
capitalized software costs may be reduced materially in the near term.
INCOME TAXES: The Company follows the provisions of Financial Accounting
Standards Board Statement ("FAS") No. 109, "Accounting for Income Taxes."
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial statement purposes
and such amounts recognized for tax purposes. These deferred taxes are
measured by applying currently enacted tax rates. Applicable tax credits are
recognized as a reduction in the provision for income taxes in the year in
which they are available.
11
<PAGE>
WARRANTY COSTS: The Company warrants the majority of its products for 90
days from the date of customer acceptance. Estimated warranty costs are
provided at the time of sale. Warranty costs incurred by the Company have not
been significant.
EARNINGS (LOSS) PER SHARE: Earnings (loss) per share is computed based on
the weighted average number of common shares outstanding adjusted to include
the dilutive effect of stock options and warrants.
CONCENTRATION OF CREDIT RISK: Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
trade receivables.
Concentrations of credit risk with respect to trade receivables are due to
the number of customers operating primarily in the electronic publishing
industry, which includes commercial publishers, printers, and trade shops.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates included in the
financial statements are accounts receivable and sales allowances, as well as
the amount of capitalized software costs. Actual results could differ from
those estimates.
FUTURE OPERATIONS
In fiscal 1992, the Company reduced its workforce and made other cost
reductions to meet the realities of: (i) becoming a software and services
oriented business and (ii) weak worldwide demand in its markets. In fiscal
1993, the Company continued to adjust expenses due to these same factors.
At the beginning of fiscal 1992, the Company had outstanding $22,410,000
of Debentures. This was a significant amount of debt for the Company and
represented an annual cash interest payment obligation of $1,344,600. During
fiscal 1992, the Company began a program to restructure its financial
position, specifically, these Debentures.
Since March 10, 1992, the Company has consummated restructuring
transactions with the holders of a total of $18,790,000 principal amount of
Debentures. Substantially all of these transactions involved the exchange of
outstanding Debentures for (i) an unsecured, unsubordinated promissory note
of Xyvision in a principal amount equal to 30% of the principal amount of the
Debentures delivered for exchange, bearing interest (payable at a maturity)
at 15% per year (compounded annually) and maturing 30 months from issuance
and (ii) 107,095 shares of common stock of Xyvision per $1,000,000 principal
amount of Debentures. As of June 28, 1996, a total of $3,620,000 principal
amount of Debentures remained outstanding. Of such Debentures, the Company
has identified the holders of $2,260,000 principal amount, leaving $1,360,000
principal amount of Debentures unidentified.
During the course of its attempts to restructure the Debentures and
negotiate transactions with Debentureholders, the Company did not make the
interest payment due on the Debentures on May 5 of 1992, 1993, 1994, 1995, or
1996. Under the terms of the Indenture covering the Debentures, the Trustee
or the holders of not less than 25% of the then outstanding principal amount
of Debentures have the right to accelerate the maturity date of the remaining
Debentures. To date (June 28, 1996), such acceleration has neither occurred
nor been threatened.
As described before, the Company continues to negotiate in good faith with
as many of the remaining Debentureholders as possible. However, despite the
progress that has been made, the Company can still give no assurance about
the outcome of the Debenture restructuring efforts and does not expect the
matter to be resolved in the near future. If the Company is unable to enter
into restructuring transactions with the remaining Debentureholders, and such
Debentureholders seek to pursue legal remedies against the Company, the
Company may have to seek protection under applicable laws, including the
Bankruptcy Code, while it develops, analyzes and completes alternative
restructuring strategies.
In addition, as of June 28, 1996, the Company had issued promissory notes
in an aggregate principal amount of $5,742,000 in connection with the
Debenture exchange transactions described above, the interest on which
12
<PAGE>
accrues at a rate of 15% per year and is $2,346,000 payable at maturity. Such
15% Promissory Notes in an aggregate principal amount of $4,542,000 were to
mature on September 30, 1994, and the remainder of these 15% Promissory Notes
were to mature at various dates between September 30, 1994 and February 28,
1997. In order to relieve itself of the payment obligations on the Promissory
Notes, in fiscal 1995 the Company began a program to restructure the
Promissory Notes. To date, the Company has closed exchange transactions with
15% Promissory Note holders of an aggregate principal amount of $5,634,000
and accrued interest of $2,320,000 in which, in exchange for the delivery of
a 15% Promissory Note (including all rights to receive any interest accrued
thereon) for cancellation, the Company issued (i) a new Promissory Note that
matures 30 months from the date of issuance and bears interest at 4% per
annum, (ii) one share of common stock for each $10.00 of principal amount of
15% Promissory Note delivered and (iii) one share of Series B Preferred Stock
for each $10.00 of interest due on the 15% Promissory Note delivered. The
Series B Preferred Stock accrues a cumulative dividend in the amount of $.40
per share per annum, whether or not declared and has a liquidation reference
of $12.50 per share, plus any dividends declared or accrued but unpaid. Each
share of Series B Preferred Stock is convertible into two shares of common
stock, subject to adjustment for certain events as defined in the Series B
Preferred Stock Agreement. Additionally, holders of outstanding shares of
Series B Preferred Stock are entitled to voting rights equivalent to the
rights attributable to the whole shares of common stock into which the Series
B Preferred are convertible. The exchange transactions were completed
assuming a fair value of $10 per share of Series B Preferred Stock. At March
31, 1996, 15% Promissory Notes in an aggregate principle amount of $239,000
and accrued interest of $101,000 were overdue. As of June 28, 1996, 15%
Promissory Notes in an aggregate principle amount of $60,000 and accrued
interest of $26,000 were overdue. The Company may seek to restructure the
remaining 15% Promissory Notes.
Tudor Trust and Saltzman Partners, both of whom are significant
stockholders of the Company and own a significant portion of the outstanding
Debentures and/or 4% Promissory Notes, have presented to the Company the
following proposal relating to the exchange of Debentures and 4% Promissory
Notes for common stock of the Company: they, along with certain other holders
of the Debentures, would exchange their Debentures for such number of shares
of common stock of the Company as is equal to the sum of the principal amount
of the Debentures exchanged plus the accrued interest thereon, divided by
$3.33; and they, along with certain other holders of the 4% Promissory Notes,
would exchange their 4% Promissory Notes for such number of shares of common
stock of the Company as is equal to the principal amount of the 4% Promissory
Notes exchanged divided by $2.00 (any accrued but unpaid interest would be
paid in cash at the time of such exchange). The consummation of the exchange
transaction for the Debentures would be contingent upon the participation in
such exchange by the holders of at least 50% of the principal amount of the
outstanding Debentures; and the consummation of the exchange transaction for
the 4% Promissory Notes would be contingent upon the participation in such
exchange by the holders of at least 75% of the principal amount of the
outstanding 4% Promissory Notes. Together, Tudor Trust and Saltzman Partners
currently own approximately 40% of the principal amount of the outstanding
Debentures and 46% of the principal amount of the outstanding 4% Promissory
Notes. The Board of Directors of the Company has voted to accept the terms of
the exchange proposal made by Tudor Trust and Saltzman Partners and to
proceed with such exchange transactions, assuming the requisite number of
holders of the Debentures and 4% Promissory Notes agree to the terms of such
exchanges. While the Company believes that such exchange transactions would
be very beneficial to the Company and its stockholders and would
significantly improve the Company's balance sheet and liquidity position,
there can be no assurance that such exchange transactions will be
consummated.
On June 30, 1992, the Company obtained a $2,000,000 line of credit with a
current investor in the Company. The line, which is payable on demand, is
secured by substantially all of the assets of the Company and has been used
for working capital and general business purposes. Interest on the line of
credit is payable monthly. The Company issued 400,000 shares of common stock
and a common stock purchase warrant for 100,000 shares of common stock at an
exercise price of $.50 per share to the investor for no additional
consideration upon signing of the line of credit. In addition, as required by
the line of credit, from September 30, 1992 through June 30, 1993, the
Company granted the investor four additional common stock purchase warrants,
each covering 100,000 shares of common stock. On September 28, 1993, the
Company and the investor amended the line of credit. Under the terms of this
amendment: (i) the amount available under the line of credit was increased
from $2,000,000 to $2,500,000; (ii) the annual interest rate was reduced from
13% to 10%; and (iii) the term of the line of credit was
13
<PAGE>
extended from June 30, 1994 to June 30, 1995. In consideration of such
changes, the Company: (i) reduced the exercise price of 200,000 and 100,000
common stock purchase warrants exercisable by the investor from $.50 and $.25
per share, respectively, to $.09 per share (the fair market value of the
common stock on September 28, 1993); (ii) issued 200,000 shares of common
stock and a warrant to purchase 300,000 shares of common stock at an exercise
price of $.09 per share to the investor for no additional consideration; and
(iii) agreed to grant the investor up to eight additional warrants, each
covering 125,000 shares of common stock at an exercise price at the lesser of
the fair market value of the common stock on the date of issue or $1.00 per
share.
On December 3, 1993, the Company and the investor entered into an
additional amendment to the line of credit. Under the terms of this
amendment, the amount available under the line of credit was increased to
$3,000,000. In consideration of this change, the Company: (i) issued 100,000
shares of common stock and a warrant to purchase 500,000 shares of common
stock at fair market value of the common stock on December 3, 1993 and (ii)
agreed to grant the investor up to seven additional common stock purchase
warrants between December 31, 1993 and June 30, 1995, each covering 200,000
shares of common stock at an exercise price at the lesser of the fair market
value of the common stock on the date of grant or $1.00 per share (these
warrants are in lieu of the last seven of the warrants referred to in clause
(iii) of the preceding paragraph).
On February 29, 1996, the Company and the investor entered into an
additional amendment to the line of credit. Under the terms on this
amendment, the amount available under the line of credit was increased to
$4,000,000 and the term of the line of credit was extended to December 31,
1997. In consideration of these changes, the Company granted the investor a
common stock purchase warrant for 200,000 shares of common stock at an
exercise price of $.10 per share (the fair market value of the common stock
on the date of issuance of such warrant) and agreed to continue to grant the
investor, for each fiscal quarter for which amounts are outstanding under the
credit line, a common stock purchase warrant for 200,000 shares of common
stock provided that the number of shares subject to the warrant shall be
325,000 (rather than 200,000 shares in the event that the maximum amount of
outstanding credit line advances on one or more dates during the quarter
ending on the issue date of such warrant exceeds $3,000,000). The exercise
price of the first five warrants (beginning with the warrant for the quarter
ended September 30, 1995) will be at the lesser of the fair market value of
the common stock on the date of the grant or $1.00 per share while the
exercise price of the final five warrants will be the fair market value of
the common stock on the date of the grant.
Late in fiscal 1996, management of the Company concluded that, due
principally to the significant losses from operations in the third and fourth
quarters of fiscal 1996 (which amounted to approximately $1.8 million and
$2.5 million, respectively), the Company's $4,000,000 credit line would be
insufficient to finance the Company's cash needs during the first quarter of
fiscal 1997. Accordingly, after investigating a number of alternative sources
of financing, the Company entered into an amendment to its line of credit
agreement with Tudor Trust, effective as of May 31, 1996, pursuant to which
(a) Tudor Trust agreed to (i) increase the maximum loan amount to $5,000,000,
(ii) reduce the interest rate on the line of credit from 10% to 8% per annum,
(iii) eliminate any borrowing covenants or conditions that would prevent the
Company from accessing the full $5,000,000 of available credit, and (iv)
eliminate the requirement for the issuance of additional warrants to Tudor
Trust under the line of credit (which were issuable on a quarterly basis),
and (b) in consideration therefor, the Company issued to Tudor Trust warrants
for 10,000,000 shares of common stock of the Company at an exercise price of
$.10 per share (representing the fair market value of the common stock of the
Company as of the date of warrant issuance). In connection with this line of
credit amendment, Tudor Trust exercised warrants for the purchase of
2,092,500 shares of common stock of the Company, for an aggregate purchase
price of $200,000.
As of March 31, 1996, the Company had $3,400,000 outstanding and $600,000
available under the amended line of credit. As of June 28, 1996, the Company
had $1,000,000 available under the amended line of credit.
The Company anticipates that its cash requirements for the first part of
fiscal 1997 will be satisfied from its present cash balances, cash flow from
existing operations, and its credit line, assuming the continued forbearance
by the Debentureholders. Despite the progress made during the past fiscal
year, the Company can give no assurance on the outcome of its debt
restructuring efforts. The above uncertainties raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the
14
<PAGE>
recovery and classifications of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
The Company's long term liquidity needs cannot reasonably be determined at
this time principally because these needs are dependent, in a large part,
upon the outcome of the Company's attempt to convert into equity its
outstanding Debentures and 4% Promissory Notes and the ability of the Company
to obtain financing to repay or otherwise restructure the remaining
outstanding 15% Promissory Notes. While the Company remains confident about
its future, it can give no assurance regarding the ultimate success of its
strategy.
ACCOUNTS RECEIVABLE
Trade receivables do not contain any material amounts collectible over a
period in excess of one year. Retainage consists of receivables billed under
retainage provisions of contracts and collectibility is not expected to
extend over a period of one year.
INVENTORIES
Inventory consists primarily of finished goods from third party vendors.
PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1996 March 31, 1995
Design, test, and manufacturing equipment $ 2,553,670 $ 4,864,898
Office furniture and fixtures 1,171,997 1,197,041
Leasehold improvements 1,209,949 1,209,948
Purchased software 219,543 316,974
Delivery and service vehicles 9,333 9,333
- ------------------------------------------ -------------- --------------
5,164,492 7,598,194
Accumulated depreciation and amortization (4,440,403) (6,380,395)
- ------------------------------------------ -------------- --------------
$ 724,089 $ 1,217,799
========================================== ============== ==============
</TABLE>
Depreciation and amortization expense for property and equipment for
fiscal 1996, 1995, and 1994 was $777,000, $919,000 and $1,301,000,
respectively.
OTHER ASSETS
Other assets consists of the following, which are presented net of any
accumulated amortization:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1996 March 31, 1995
-------------- --------------
Capitalized software costs $1,944,626 $2,214,966
Debenture issuance costs 47,703 57,448
Other 210,674 249,745
$2,203,003 $2,522,159
</TABLE>
Capitalized software costs amortized and charged to expense were
$1,357,000, $1,143,000, and $752,000 in fiscal 1996, 1995, and 1994,
respectively. Capitalized software costs are presented net of accumulated
amortization of $3,294,000 and $1,937,000 at March 31, 1996 and 1995,
respectively.
Debenture issuance costs amortized and charged to expense were $10,000,
$10,000, and $11,000, in fiscal 1996, 1995, and 1994, respectively. In
addition, as a result of the exchange of Debentures in fiscal 1994 and 1993,
related Debenture issuance costs of $27,000 were written off as a reduction
to the extraordinary gain recognized in fiscal year 1994. The accumulated
amortization of the Debenture issuance costs was $737,000 and $727,000 at
March 31, 1996 and 1995, respectively. (See Note 9.)
16
<PAGE>
OTHER CURRENT LIABILITIES
Other current liabilities consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1996 March 31, 1995
- ------------------------------- -------------- --------------
Deferred service revenue $1,419,587 $1,107,493
Interest payable on debentures 1,093,622 876,277
Customer deposits -- 34,000
Other 540,199 638,387
$3,053,408 $2,656,157
</TABLE>
NOTE PAYABLE TO SHAREHOLDER
On June 30, 1992, the Company obtained a $2,000,000 line of credit with a
current investor in the Company. The line, which is payable on demand, is
secured by substantially all of the assets of the Company and has been used
for working capital and general business purposes. Interest on the line of
credit is payable monthly. The Company issued 400,000 shares of common stock
and a common stock purchase warrant for 100,000 shares of common stock at an
exercise price of $.50 per share to the investor for no additional
consideration upon signing of the line of credit. In addition, as required by
the line of credit, from September 30, 1992 through June 30, 1993, the
Company granted the investor four additional common stock purchase warrants,
each covering 100,000 shares of common stock. On September 28, 1993, the
Company and the investor amended the line of credit. Under the terms of this
amendment: (i) the amount available under the line of credit was increased
from $2,000,000 to $2,500,000; (ii) the annual interest rate was reduced from
13% to 10%; and (iii) the term of the line of credit was extended from June
30, 1994 to June 30, 1995. In consideration of such changes, the Company: (i)
reduced the exercise price of 200,000 and 100,000 common stock purchase
warrants exercisable by the investor from $.50 and $.25 per share,
respectively, to $.09 per share (the fair market value of the common stock on
September 28, 1993); (ii) issued 200,000 shares of common stock and a warrant
to purchase 300,000 shares of common stock at an exercise price of $.09 per
share to the investor for no additional consideration; and (iii) agreed to
grant the investor up to eight additional warrants, each covering 125,000
shares of common stock at an exercise price at the lesser of the fair market
value of the common stock on the date of issue or $1.00 per share.
On December 3, 1993, the Company and the investor entered into an
additional amendment to the line of credit. Under the terms of this
amendment, the amount available under the line of credit was increased to
$3,000,000. In consideration of this change, the Company: (i) issued 100,000
shares of common stock and a warrant to purchase 500,000 shares of common
stock at fair market value of the common stock on December 3, 1993 and (ii)
agreed to grant the investor up to seven additional common stock purchase
warrants between December 31, 1993 and June 30, 1995, each covering 200,000
shares of common stock at an exercise price at the lesser of the fair market
value of the common stock on the date of grant or $1.00 per share (these
warrants are in lieu of the last seven of the warrants referred to in clause
(iii) of the preceding paragraph).
On February 29, 1996, the Company and the investor entered into an
additional amendment to the line of credit. Under the terms on this
amendment, the amount available under the line of credit was increased to
$4,000,000 and extending the term of the line of credit to December 31, 1997.
In consideration of these changes, the Company granted the investor a common
stock purchase warrant for 200,000 shares of common stock at an exercise
price of $.10 per share (the fair market value of the common stock on the
date of issuance of such warrant) and agreed to continue to grant the
investor, for each fiscal quarter for which amounts are outstanding under the
credit line, a common stock purchase warrant for 200,000 shares of common
stock provided that the number of shares subject to the warrant shall be
325,000 (rather than 200,000 shares in the event that the maximum amount of
outstanding credit line advances on one or more dates during the quarter
ending on the issue date of such warrant exceeds $3,000,000). The exercise
price of the first five warrants (beginning with the warrant for the quarter
ended September 30, 1995) will be at the lesser of the fair market value of
the common stock on the date of the grant or $1.00 per share while the
exercise price of the final five warrants will be the fair market value of
the common stock on the date of the grant.
18
<PAGE>
Late in fiscal 1996, management of the Company concluded that, due
principally to the significant losses from operations in the third and fourth
quarters of fiscal 1996 (which amounted to approximately $1.8 million and
$2.5 million, respectively), the Company's $4,000,000 credit line would be
insufficient to finance the Company's cash needs during the first quarter of
fiscal 1997. Accordingly, after investigating a number of alternative sources
of financing, the Company entered into an amendment to its line of credit
agreement with Tudor Trust, effective as of May 31, 1996, pursuant to which
(a) Tudor Trust agreed to (i) increase the maximum loan amount to $5,000,000,
(ii) reduce the interest rate on the line of credit from 10% to 8% per annum,
(iii) eliminate any borrowing covenants or conditions that would prevent the
Company from accessing the full $5,000,000 of available credit, and (iv)
eliminate the requirement for the issuance of additional warrants to Tudor
Trust under the line of credit (which were issuable on a quarterly basis),
and (b) in consideration therefor, the Company issued to Tudor Trust warrants
for 10,000,000 shares of common stock of the Company at an exercise price of
$.10 per share (representing the fair market value of the common stock of the
Company as of the date of warrant issuance). In connection with this line of
credit amendment, Tudor Trust exercised warrants for the purchase of
2,092,500 shares of common stock of the Company, for an aggregate purchase
price of $200,000.
As of March 31, 1996, the Company had $3,400,000 outstanding and $600,000
available under the amended line of credit. As of June 28, 1996, the Company
had $1,000,000 available under the amended line of credit.
LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31,
1996 March 31, 1995
6% Convertible Subordinated Debentures $3,710,000 $ 3,735,000
15% promissory notes, due fiscal 1995, 1996, and
1997 353,597 1,459,661
4% promissory notes, due fiscal 1998 5,420,500 4,636,500
9,484,097 9,831,161
Less: Current portion of long-term debt 4,063,597 5,175,906
$5,420,500 $ 4,655,255
</TABLE>
In May 1987, the Company issued $25,000,000 of 6% Convertible Subordinated
Debentures (the "Debentures") convertible into common stock at a conversion
price of $22.50 per share. Interest on the Debentures is payable annually (on
May 5th) and the Debentures may be called by the Company under certain
conditions. At the beginning of fiscal 1992, the Company had outstanding
$22,410,000 of these Debentures. This was a significant amount of debt for
the Company and represented an annual cash interest payment obligation of
$1,344,600. During fiscal 1992, the Company began a program to restructure
its financial position, specifically, these Debentures.
Since March 10, 1992, the Company has consummated restructuring
transactions with the holders of a total of $18,790,000 principal amount of
Debentures. Substantially all of these transactions involved the exchange of
outstanding Debentures for (i) an unsecured, unsubordinated promissory note
of Xyvision in a principal amount equal to 30% of the principal amount of the
Debentures delivered for exchange, bearing interest (payable at a maturity)
at 15% per year (compounded annually) and maturing 30 months from issuance
and (ii) 107,095 shares of common stock of Xyvision per $1,000,000 principal
amount of Debentures. As of June 28, 1996, a total of $3,620,000 principal
amount of Debentures remained outstanding. Of such Debentures, the Company
has identified the holders of $2,260,000 principal amount, leaving $1,360,000
principal amount of Debentures unidentified.
During the course of its attempts to restructure the Debentures and
negotiate transactions with Debentureholders, the Company did not make the
interest payment due on the Debentures on May 5 of 1992, 1993, 1994, 1995, or
1996. Under the terms of the Indenture covering the Debentures, the Trustee
or the holders of not less than 25% of the then outstanding principal amount
of Debentures have the right to accelerate the maturity date of the remaining
Debentures. To date (June 28, 1996), such acceleration has neither occurred
nor been threatened.
19
<PAGE>
The Company continues to negotiate in good faith with as many of the
remaining Debentureholders as possible. However, despite the progress that
has been made, the Company can still give no assurance about the outcome of
the Debenture restructuring efforts and does not expect the matter to be
resolved in the near future. If the Company is unable to enter into
restructuring transactions with the remaining Debentureholders, and such
Debentureholders seek to pursue legal remedies against the Company, the
Company may have to seek protection under applicable laws, including the
Bankruptcy Code, while it develops, analyzes and completes alternative
restructuring strategies.
In addition, as of June 28, 1996, the Company had issued promissory notes
in an aggregate principal amount of $5,742,000 in connection with the
Debenture exchange transactions described above, the interest on which
accrues at a rate of 15% per year and is $2,346,000 payable at maturity. Such
15% Promissory Notes in an aggregate principal amount of $4,542,000 were to
mature on September 30, 1994, and the remainder of these 15% Promissory Notes
were to mature at various dates between September 30, 1994 and December 30,
1998. In order to relieve itself of the payment obligations on the Promissory
Notes, in fiscal 1995 the Company began a program to restructure the
Promissory Notes. To date, the Company has closed exchange transactions with
15% Promissory Note holders of an aggregate principal amount of $5,634,000
and accrued interest of $2,320,000 in which, in exchange for the delivery of
a 15% Promissory Note (including all rights to receive any interest accrued
thereon) for cancellation, the Company issued (i) a new Promissory Note that
matures 30 months from the date of issuance and bears interest at 4% per
annum, (ii) one share of common stock for each $10.00 of principal amount of
15% Promissory Note delivered and (iii) one share of Series B Preferred Stock
for each $10.00 of interest due on the 15% Promissory Note delivered. The
Series B Preferred Stock accrues a cumulative dividend in the amount of $.40
per share per annum, whether or not declared and has a liquidation reference
of $12.50 per share, plus any dividends declared or accrued but unpaid. Each
share of Series B Preferred Stock is convertible into two shares of common
stock, subject to adjustment for certain events as defined in the Series B
Preferred Stock Agreement. Additionally, holders of outstanding shares of
Series B Preferred Stock are entitled to voting rights equivalent to the
rights attributable to the whole shares of common stock into which the Series
B Preferred are convertible. The exchange transactions were completed
assuming a fair value of $10 per share of Series B Preferred Stock. At March
31, 1996, 15% Promissory Notes in an aggregate principle amount of $239,000
and accrued interest of $101,000 were overdue. As of June 28, 1996 15%
Promissory Notes in an aggregate principle amount of $60,000 and accrued
interest of $26,000 were overdue. The Company may seek to restructure the
remaining 15% Promissory Notes.
Tudor Trust and Saltzman Partners, both of whom are significant
stockholders of the Company and own a significant portion of the outstanding
Debentures and/or 4% Promissory Notes, have presented to the Company the
following proposal relating to the exchange of Debentures and 4% Promissory
Notes for common stock of the Company: they, along with certain other holders
of the Debentures, would exchange their Debentures for such number of shares
of common stock of the Company as is equal to the sum of the principal amount
of the Debentures exchanged plus the accrued interest thereon, divided by
$3.33; and they, along with certain other holders of the 4% Promissory Notes,
would exchange their 4% Promissory Notes for such number of shares of common
stock of the Company as is equal to the principal amount of the 4% Promissory
Notes exchanged divided by $2.00 (any accrued but unpaid interest would be
paid in cash at the time of such exchange). The consummation of the exchange
transaction for the Debentures would be contingent upon the participation in
such exchange by the holders of at least 50% of the principal amount of the
outstanding Debentures; and the consummation of the exchange transaction for
the 4% Promissory Notes would be contingent upon the participation in such
exchange by the holders of at least 75% of the principal amount of the
outstanding 4% Promissory Notes. Together, Tudor Trust and Saltzman Partners
currently own approximately 40% of the principal amount of the outstanding
Debentures and 46% of the principal amount of the outstanding 4% Promissory
Notes. The Board of Directors of the Company has voted to accept the terms of
the exchange proposal made by Tudor Trust and Saltzman Partners and to
proceed with such exchange transactions, assuming the requisite number of
holders of the Debentures and 4% Promissory Notes agree to the terms of such
exchanges. While the Company believes that such exchange transactions would
be very beneficial to the Company and its stockholders and would
significantly improve the Company's balance sheet and liquidity position,
there can be no assurance that such exchange transactions will be
consummated.
The Company anticipates that its cash requirements for the first part of
fiscal 1997 will be satisfied from its present cash balances, cash flow from
existing operations, and its credit line, assuming the continued forbearance
20
<PAGE>
by the Debentureholders. Despite the progress made during the past fiscal
year, the Company can give no assurance on the outcome of its debt
restructuring efforts. The above uncertainties raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recovery and
classifications of recorded asset amounts or the amounts and classifications
of liabilities that might be necessary should the Company be unable to
continue as a going concern.
The Company's long term liquidity needs cannot reasonably be determined at
this time principally because these needs are dependent, in a large part,
upon the outcome of the Company's attempt to convert into equity its
outstanding Debentures and 4% Promissory Notes and the ability of the Company
to obtain financing to repay or otherwise restructure the remaining
outstanding 15% Promissory Notes. While the Company remains confident about
its future, it can give no assurance regarding the ultimate success of its
strategy.
Interest expense amounted to $807,000, $528,000, and $573,000, in fiscal
1996, 1995, and 1994, respectively.
INCOME TAXES
For fiscal years 1996, 1995, and 1994 the Company was not required to
provide for income taxes and had no effective income tax rate due to the
utilization of net operating loss carryforwards. The Company was not required
to make an alternative minimum tax payment in fiscal 1996. Payments of
alternative minimum taxes amounted to $14,000 and $46,000 in fiscal 1995 and
1994, respectively.
As of March 31, 1996, the Company had net operating loss carryforwards of
$49,014,000 expiring at various dates through fiscal 2011, investment tax
credits of $150,000 expiring at various dates through fiscal 2002, and
research and development credits of $1,439,000 expiring at various dates
through fiscal 2009. These items are available to reduce future income taxes
payable.
Additionally, the Company has approximately $2,500,000 of net operating
loss carryforwards for regular federal income tax and alternative minimum tax
purposes from the acquisition of Contex Graphics Systems, Inc. These acquired
net operating loss carryforwards, which expire in the year 2001, have
limitations on their use pursuant to the United States Internal Revenue Code
and are available only to offset income from that subsidiary.
As of March 31, 1996, 1995, and 1994 the Company's deferred tax assets of
approximately $20,214,000, $18,343,000 and $18,440,000, respectively,
consisted primarily of its net operating loss carryforwards. Management has
assigned a valuation allowance to fully offset the future tax benefits of
these deferred tax assets.
Under Federal tax laws, certain changes in ownership of the Company, which
may not be within the Company's control, may restrict future utilization of
these carryforwards.
STOCK OPTION AND PURCHASE PLANS
Stock Option Plans
Under the Company's 1982 Stock Option Plan, options to purchase 1,647,057
shares of the Company's Common Stock may be granted to key employees,
consultants, and non-employee directors. Incentive stock options are granted
at a price equal to the fair market value per share on the date of the grant
and non-qualified stock options may be granted at not less than 85% of the
fair market value per share on the date of the grant. Options granted on or
after January 1, 1987 generally become exercisable at a rate of 20% per year
over a five-year period with any shares issued upon exercise not being
subject to repurchase by the Company. The 1982 Stock Option Plan expired on
May 5, 1992. No options were granted under the 1982 Stock Option Plan after
March 31, 1992.
At the Company's June 23, 1992 Board of Directors' Meeting, the Board
approved a 1992 Stock Option Plan and an increase in the authorized number of
shares of the Company's Common Stock from 10,000,000 to 15,000,000 shares.
The terms of the 1992 Stock Option Plan are essentially the same as the 1982
Stock Option Plan. At this time the maximum number of options that could be
granted under the 1992 Stock Option Plan was 1,000,000 shares. The 1992 Stock
Option Plan and the increase in authorized shares were both approved by the
Company's shareholders at the Company's 1992 Annual Meeting of Stockholders
held on October 21, 1992.
21
<PAGE>
At the 1994 Annual Meeting of Stockholders on September 22, 1994, the
stockholders of the Company approved an amendment to the Company's 1992 Stock
Option Plan increasing the number of shares for which options may be granted
from 1,000,000 to 2,000,000.
The following sets forth certain information relating to the 1982 Stock
Option Plan and the 1992 Stock Option Plan for the years ended March 31,1994,
1995, and 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
SHARES PRICE
- -------------------------------------- ----------- ---------------
Options outstanding at March 31, 1993 1,508,272 $0.31 -$13.75
Granted 15,000 0.19
Cancelled (496,522) 0.19 - 6.75
Exercised -- --
Options outstanding at March 31, 1994 1,026,750 0.19 -13.75
Granted 297,500 0.19 - 0.53
Cancelled (98,633) 0.31 - 0.38
Exercised -- --
Options outstanding at March 31, 1995 1,225,617 0.19 -13.75
Granted 277,293 0.52 - 0.95
Cancelled (237,895) 0.19 -13.75
Exercised (94,660) 0.19 - 0.38
Options outstanding at March 31, 1996 1,170,355 $ 0.19 -$5.00
</TABLE>
Options were exercisable for 729,095 and 683,308 shares of Common Stock at
March 31, 1995 and 1996, respectively. At March 31, 1995 and 1996, options
for the purchase of 1,074,594 and 979,906 shares of Common Stock,
respectively, were available for future grants under the 1992 Stock Option
Plan. At March 31, 1996, there were 2,150,261 shares of Common Stock reserved
for issuance under these Plans.
On October 21, 1992, the 1992 Director Stock Option Plan was approved by
stockholders of the Company. Under this Plan, options to purchase up to a
total of 150,000 shares of Common Stock may be granted to outside directors
of the Company. On March 31, 1993, an option for 20,000 shares of Common
Stock at an exercise price of $0.25 per share (the fair market value of the
Common Stock on the date of grant) was granted to each of the four outside
directors of the Company. Each outside director who is initially elected to
the Board of Directors after March 31, 1993 will also be granted an option
for 20,000 shares of Common Stock, at an exercise price equal to the fair
market value of the Common Stock on the date of grant. Each option becomes
exercisable in five equal annual installments beginning on the date of grant,
provided that all outstanding options will become exercisable in full in the
event of a "change in control" of the Company (as defined in the Plan) which
is not approved by the Board of Directors. In general, an optionholder may
exercise his option, to the extent vested, only while he is a director of the
Company and for up to three months thereafter. In connection with the
adoption of the 1992 Director Stock Option Plan, the Company terminated the
1989 Director Stock Option Plan. In addition, each of the four outside
directors who received options under the 1992 Director Stock Option Plan on
March 31, 1993 surrendered for cancellation the option held by him under the
1989 Director Stock Option Plan.
On January 8, 1990, the Board of Directors granted options to purchase 42,500
shares of the Company's Common Stock to former officers of the Company. These
non-qualified stock options were granted outside the Company's 1982 Stock
Option Plan at an exercise price of $2.50 per share and are immediately
exercisable. At March 31, 1996, there were 42,500 shares reserved for
issuance for these options.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Stan-
dards No. 123, "Accounting for Stock-Based Compensation", which is effective
for fiscal year 1997. The
Company has determined that it will elect the disclosure-only alternative.
The Company will be required to
22
<PAGE>
disclose the pro forma net income or loss and per share amounts in the
notes to the financial statements using the fair value
- -----------------------------------------------------------------------------
based method beginning in fiscal 1997 with comparable disclosures for fiscal
1996. The Company has not determined the
- -----------------------------------------------------------------------------
impact of these pro forma adjustments.
Stock Purchase Plan
In 1990, the Board of Directors adopted and the stockholders approved the
Company's 1990 Employee Stock Purchase Plan (the "1990 Purchase Plan"). The
1990 Purchase Plan covers an aggregate of up to 420,000 shares of Common
Stock to be issued and sold to participating employees of the Company through
a series of six overlapping one-year offerings, commencing six months apart,
beginning August 1, 1990 and ending January 31, 1994. The 1990 Purchase Plan
was administered by the Compensation Committee and was intended to qualify as
an "employee stock purchase plan" within the meaning of Section 423 of the
Internal Revenue Code. All employees who have been employed by the Company
(or a qualifying subsidiary) for 30 days on the date an offering under the
1990 Purchase Plan commences and who ordinarily work more than 20 hours per
week and more than five months per year were eligible to participate in that
offering. The price at which the shares were offered is 85% of the fair
market value of the Common Stock on the date such offering commences or the
date such offering terminates, which-ever is lower. Each employee could elect
to have up to 10% of his base pay withheld and applied toward the purchase of
shares in such offering. The 1990 Purchase Plan terminated January 31, 1994.
RIGHTS AGREEMENT
In October 1988, the Company entered into a Rights Agreement and declared
a dividend distribution of one Right for each share of the Common Stock of
the Company outstanding on October 26, 1988. Each Right entitles the holder
to purchase from the Company 1/100 of a share of $1.00 par value Series A
Junior Participating Preferred Stock at an exercise price of $35.00 per
Right, subject to adjustment. The Rights will not be exercisable or separable
from the Common Stock until ten business days after a party acquires
beneficial ownership of 20% or more of the Company's Common Stock or
announces a tender offer for at least 30% of its Common Stock outstanding.
Except for Saltzman Partners' and Tudor Trust's acquisition of 20% of the
Company's Common Stock, which have been exempted by the Board of Directors
from the Rights Agreement, the Company is not aware of the occurrence of any
such events. The issuance of the Rights does not dilute ownership or affect
reported earnings per share.
PROFIT-SHARING AND SAVINGS PLANS
Employee Stock Ownership Plan
In fiscal 1990, the Company created the Xyvision, Inc. Employee Stock
Ownership Plan and Trust (the "Trust") and entered into a Term Loan Agreement
with the Trust whereby the Trust borrowed $1,800,000 from the Company and
paid the proceeds to the Company to purchase 400,000 shares of the Company's
Common Stock at $4.50 per share. The loan, with an interest rate of prime
plus one-half of one percent, is to be repaid over seven years in equal
annual installments of approximately $257,000. The Company is required to
make equal annual contributions to the Trust in the amounts of the Trust's
annual principal installments. The Company also makes monthly contributions
to the Trust which uses such funds to pay monthly interest installments to
the Company. The Plan covers substantially all employees and, as principal
payments are made on the term loan, shares held by the Trust are allocated to
eligible employees. Payments of approximately $257,000 were made to the Trust
in each of the fiscal years 1996, 1995, and 1994, respectively, which the
Trust applied against its loan to the Company. These payments caused an
allocation to the eligible employees of 57,143 shares of the Company's Common
Stock in each of fiscal 1996, 1995, and 1994.
The Company charged $257,000 per year to operations for contributions to
this Trust in fiscal 1996, 1995, and 1994.
Savings Plan
The Company has a 401(k) Savings Plan under which employees may
voluntarily defer a portion of their compensation and the Company matches a
portion of the employee deferral. All employees employed within the United
States with at least one year of continuous service are eligible for the
Plan. Company contributions vest 100% immediately. The Company's
contributions to this Plan and charges to expense amounted to $65,000,
$58,000, and $56,000 in fiscal 1996, 1995, and 1994, respectively.
23
<PAGE>
COMMITMENTS AND CONTINGENCIES
Leases
At March 31, 1996, the Company was committed under operating leases,
principally for building and office space. Certain leases require the payment
of expenses under escalation clauses. The major facilities lease is for a two
year term.
Future minimum lease payments under all noncancelable leases as of March
31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
- -------------
1997 1,136,000
1998 959,000
1999 95,000
2000 95,000
2001 95,000
Thereafter 323,000
Total $2,703,000
</TABLE>
Rental expense under all operating leases was approximately $1,200,000,
$1,185,000, and $1,221,000 in fiscal 1996, 1995, and 1994, respectively.
Employment Agreements
The Company has entered into employment agreements with certain of its
executive officers which provide for the payment to these executives of up to
twelve months of compensation and the continuation of certain benefits if
there is a change in control of the Company (as defined) or if employment is
terminated without cause. The maximum contingent liability, at March 31,
1996, under these agreements was approximately $300,000.
The Company has also instituted a severance benefit plan which covers
substantially all employees. The agreement stipulates, in general, that in
the event of a change in control of the Company (as defined), any employee
terminated within twelve months of such event, without cause, would be
entitled to receive a cash payment equal to his annual base compensation. The
Board of Directors may declare by resolution that an event otherwise
constituting a change in control per this agreement will not be considered a
change in control. Therefore, it can not be reasonably estimated what the
potential liability to the Company would be under this agreement.
Contingencies
The Company is party to several pending legal proceedings and claims.
Although the outcome of such proceedings and claims cannot be determined with
certainty, the Company's counsel and management are of the opinion that the
final outcome should not have a material adverse effect on the Company's
operations or financial position.
MAJOR CUSTOMERS AND EXPORT SALES
No single customer accounted for more than 10% of revenues in fiscal 1996,
1995, or 1994.
Export sales to unrelated customers outside of the United States for
fiscal 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal 1996 Fiscal 1995 Fiscal 1994
- --------------- ------------- ------------- -------------
Western Europe $1,127,000 $1,221,000 $1,319,000
Asia 1,337,000 1,043,000 396,000
Australia 160,000 254,000 219,000
Total $2,624,000 $2,518,000 $1,934,000
</TABLE>
24
<PAGE>
RELATED PARTIES
THE COMPANY HAS AN AGREEMENT TO PAY CONSULTING FEES, WHICH AMOUNTED TO
$194,000, $148,000, AND $162,000 IN FISCAL 1996, 1995 AND 1994, RESPECTIVELY,
TO T.H. CONWAY AND ASSOCIATES, INC. THESE AMOUNTS ARE IN LIEU OF SALARY AND
BENEFIT PAYMENTS TO MR. CONWAY. MR. CONWAY, PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR OF THE COMPANY, IS THE PRESIDENT AND OWNER OF THIS FIRM.
25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
XYVISION, INC.
DATE:
JUNE 28, 1996
/S/ EUGENE P. SENETA
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
EUGENE P. SENETA
VICE PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES ON THE DATE INDICATED.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
Vice President, Chief
/s/ Eugene P. Seneta Eugene Financial Officer, Treasurer
P. Seneta and Secretary
/s/ Thomas H. Conway Thomas
H. Conway Director June 28, 1996
/s/ Leland S. Kollmorgen
Leland S. Kollmorgen Director
/s/ James L. McKenney James
L. McKenney Director
/s/ James S. Saltzman James
S. Saltzman Director
</TABLE>
26
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
XYVISION, INC.
DATE:
JULY 11, 1996
/S/ EUGENE P. SENETA
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
EUGENE P. SENETA
VICE PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY
27
<PAGE>
XYVISION, INC.
COMMISSION FILE NUMBER 0-14747
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Number Description Page
- -----------------------------------------------------------------------------------------------------------------
*3.1 - Restated Certificate of Incorporation of the Company
+++3.2 - Certificate of Amendment No. 6 to Certificate of Incorporation of the Company
3.3 - Certificate of Amendment to Certificate of Incorporation
- Certificate of Designation to Certificate of Incorporation of the Company designating
3.4 Series B Preferred Stock
******3.5 - Amended and Restated By-laws of the Company as amended
- Indenture dated as of May 5, 1987 between the Company and Bankers Trust Company, as
Trustee, regarding the Company's $25,000,000 principal amount of 6% Convertible Subordinated
***4.1 Debentures Due 2002
- Rights Agreement, dated as of October 19, 1988, between Xyvision, Inc. and the Connecticut
****4.2 Bank and Trust Company, N.A.
- Amendment No. 1, dated January 8, 1992, to Rights Agreement between Xyvision, Inc. and
++4.3 Mellon Bank, N.A. (formerly Connecticut Bank and Trust Company, N.A.)
- Amendment No. 2, dated September 16, 1992, to Rights Agreement between Xyvision, Inc. and
4.4 Mellon Bank, N.A. (formerly Connecticut Bank and Trust Company, N.A.)
- Amendment No. 3, dated January 2, 1996, to Rights Agreement between Xyvision, Inc. and
4.5 Mellon Bank, N.A. (formerly Connecticut Bank and Trust Company, N.A.)
0++10.1 - 1992 Stock Option Plan
- Lease dated April 3, 1985 for the Company's premises at 101 Edgewater Drive, Wakefield,
** 10.2 Massachusetts, between Edward Callan and the Company (the "Edgewater Lease")
X 10.3 - Form of Lease Amendment No. 2 to the Edgewater Lease
10.4 - Form of Sublease Agreement to the Amended Edgewater Lease
- Secured Advance Facility Loan Agreement between the Company and Tudor Trust dated July 2,
X 10.5 1992, as amended to date
- Second Amendment dated February 29, 1996, to the Amended Secured Advance Facility Loan
10.6 Agreement between the Company and Tudor Trust
- Third Amendment dated May 31, 1996, to the Amended Secured Advance Facility Loan Agreement
10.7 between the Company and Tudor Trust
0****** 10.8 - Severence Program for Executive Committee Corporate Officers
0****** 10.9 - Employee Severence Benefit Program
0******10.10 - Employee Stock Ownership Plan and Trust
0*****10.11 - 1992 Director Stock Option Plan
- Lease Termination Agreement dated April 25, 1991 for the Company's premises at 5
+ 10.12 Centennial Park, Peabody, Massachusetts, between the Company and JMS Realty Trust
XX 10.13 - Form of Exchange Agreement for 15% Promissory Notes
0 10.14 - Letter Agreement effective October 1, 1993 between the Company and Thomas H. Conway
+ 21.1 - List of Subsidiaries
23.1 - Consent of Independent Accountants
27 - Financial Data Schedule
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
* 31, 1988.
** Incorporated by reference from the Company's Registration Statement on Form S-1 (File No. 33-6015).
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
*** 31, 1987.
**** Incorporated by reference from the Company's Current Report on Form 8-K dated October 19, 1988.
***** Incorporated by reference from the Company's Registration Statement on Form S-8 (File No. 33-54018).
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
****** 31, 1990.
XYVISION, INC.
COMMISSION FILE NUMBER 0-14747
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
INDEX TO EXHIBITS (CONT'D)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit
Number Description Page
- -----------------------------------------------------------------------------------------------------------------
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended
+ March 31, 1991.
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended
++ March 31, 1992.
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended
+++ March 31, 1993.
Management contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to
0 Items 14(a) and 14(c) of Form 10-K.
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended
X March 31, 1994.
Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the fiscal quarter
XX ended September 30, 1994.
</TABLE>
31
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
XYVISION, INC.
PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
XYVISION, INC. (hereinafter called the "Corporation"), a corporation
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
By unanimous written action, the Board of Directors of the Corporation,
the Board of Directors duly adopted resolutions pursuant to Sections 141(f)
and 242 of the General Corporation Law of the State of Delaware setting forth
an amendment to the Restated Certificate of Incorporation of the Corporation
and declaring said amendment to be advisable. The stockholders of the
Corporation duly approved, pursuant to said Section 242, said proposed
amendment at the Annual Meeting of Stockholders held on September 22, 1994.
The amendment to the Restated Certificate of Incorporation is as follows:
The first paragraph of Article IV of the Restated Certificate of
Incorporation of the Corporation, as amended, be and hereby is deleted and
the following first paragraph of Article IV inserted in lieu thereof:
"The total number of shares of all classes of stock which the Corporation
shall have authority to issue is twenty-three million (23,000,000). All such
shares are to have par value and are classified as follows: three million
(3,000,000) shares of Preferred Stock, par value $1.00 per share ("Preferred
Stock"), and twenty million (20,000,000) shares of Common Stock, par value
$.03 per share ("Common Stock")."
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be Daniel M. Clarke, its President and attested by Eugene P.
Seneta, its Secretary, this 22nd day of September, 1994.
XYVISION, INC.
By: /s/ Daniel M. Clarke
Daniel M. Clarke
President
ATTEST:
By: /s/ Eugene P. Seneta
Eugene P. Seneta
Secretary
1
<PAGE>
Exhibit B
Certificate of Designations of the Preferred Stock
of
Xyvision, Inc.
To be Designated
Series B Preferred Stock
Xyvision, Inc. a Delaware corporation (the "Corporation"), pursuant to
authority conferred on the Board of Directors of the Corporation by the
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, certifies that
the Board of Directors of the Corporation, at a meeting duly called and held,
at which a quorum was present and acting throughout, duly adopted the
following resolution:
RESOLVED: That, pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock
of the Corporation be and hereby is established, consisting of 300,000
shares, to be designated "Series B Preferred Stock" (hereinafter "Series B
Preferred Stock"); that the Board of Directors be and hereby is authorized to
issue such shares of Series B Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine;
and that, subject to the limitations provided by law and by the Certificate
of Incorporation, the powers, designations, preferences and relative,
participating, optional or other special rights of, and the qualifications,
limitations or restrictions upon, the Series B Preferred Stock shall be as
follows:
SERIES B PREFERRED STOCK.
A total of 300,000 shares of the authorized and unissued Preferred Stock
of the Corporation is hereby designated "Series B Preferred Stock" (the
"Series B Preferred Stock") with the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations.
1. Dividends.
(a) The holders of shares of Series B Preferred Stock shall be entitled to
receive, out of funds legally available therefor, dividends of $.40 per share
per annum (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization
affecting such shares), payable in arrears on the last day of each calendar
quarter. Such dividends shall accrue and shall be cumulative from the date of
issuance of each share of Series B Preferred Stock, whether or not declared.
(b) The Corporation shall not declare or pay any dividends or other
distributions on shares of Common Stock until the holders of the Series B
Preferred Stock then outstanding shall have first received a dividend at the
rate specified in paragraph (a) of this Section 1.
2. Liquidation, Dissolution or Winding Up; Certain Mergers,
Consolidations and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of shares of Series B Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after and subject
to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series B Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any
payment shall be made to the holders of Common Stock or any other class or
series of stock ranking on liquidation junior to the Series B Preferred Stock
(such Common Stock and other stock being collectively referred to as "Junior
Stock") by reason of their ownership thereof, an amount equal to $12.50 per
share (subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar
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recapitalization affecting such shares), plus any dividends declared or
accrued but unpaid thereon. If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay
the holders of shares of Series B Preferred Stock the full amount to which
they shall be entitled, the holders of shares of Series B Preferred Stock and
any class or series of stock ranking on liquidation on a parity with the
Series B Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by
them upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
(b) After the payment of all preferential amounts required to be paid to
the holders of Senior Preferred Stock, Series B Preferred Stock and any other
class or series of stock of the Corporation ranking on liquidation on a
parity with the Series B Preferred Stock, upon the dissolution, liquidation
or winding up of the Corporation, the holders of shares of Junior Stock then
outstanding shall be entitled to receive the remaining assets and funds of
the Corporation available for distribution to its stockholders.
(c) In the event of any merger or consolidation of the Corporation into or
with another corporation (except one in which the holders of capital stock of
the Corporation immediately prior to such merger or consolidation continue to
hold at least 80
by voting power of the capital stock of the surviving corporation), or the
sale of all or substantially all the assets of the Corporation, if the
holders of at least 66 2/3% of the then outstanding shares of Series B
Preferred Stock so elect by giving written notice thereof to the Corporation
within 20 days after delivery of written notice of such a transaction by the
Corporation, then such merger, consolidation or asset sale shall be deemed to
be a liquidation of the Corporation, and all consideration payable to the
stockholders of the Corporation (in the case of a merger or consolidation),
or all consideration payable to the Corporation, together with all other
available assets of the Corporation (in the case of an asset sale), shall be
distributed to the holders of capital stock of the Corporation in accordance
with Subsections 2(a) and 2(b) above. The Corporation shall promptly provide
to the holders of shares of Series B Preferred Stock such information
concerning the terms of such merger, consolidation or asset sale and the
value of the assets of the Corporation as may reasonably be requested by the
holders of Series B Preferred Stock in order to assist them in determining
whether to make such an election. If the holders of the Series B Preferred
Stock make such an election, the Corporation shall use its best efforts to
amend the agreement or plan of merger or consolidation to adjust the rate at
which the shares of capital stock of the Corporation are converted into or
exchanged for cash, new securities or other property to give effect to such
election. The amount deemed distributed to the holders of Series B Preferred
Stock upon any such merger or consolidation shall be the cash or the value of
the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors
of the Corporation. If no notice of the election permitted by this Subsection
(c) is given, the provisions of Subsection 4(h) shall apply.
3. Voting.
(a) Each holder of outstanding shares of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series B Preferred Stock held by such holder
are then convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written
actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection
3(b) below or by the provisions establishing any other series of Series
Preferred Stock, holders of Series B Preferred Stock and of any other
outstanding series of Series Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series B Preferred Stock so as to
affect adversely the Series B Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares
of Series B Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization
of any shares of capital stock with preference or priority over the Series B
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series B Preferred
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Stock, and the authorization of any shares of capital stock on a parity with
Series B Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up of the
Corporation shall not be deemed to affect adversely the Series B Preferred
Stock. The number of authorized shares of Series B Preferred Stock may be
increased or decreased (but not below the number of shares then outstanding)
by the directors of the Corporation pursuant to Section 151 of the General
Corporation Law of Delaware.
4. Optional Conversion. The holders of the Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $10.00 by the Conversion Price (as defined
below) in effect at the time of conversion. The "Conversion Price" shall
initially be $5.00. Such initial Conversion Price, and the rate at which
shares of Series B Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series B Preferred
Stock pursuant to Section 6 hereof, the Conversion Rights of the shares
designated for redemption shall terminate at the close of business on the
fifth full day preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights for such
shares shall continue until such price is paid in full. In the event of a
liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day preceding the date fixed for the
payment of any amounts distributable on liquidation to the holders of Series
B Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall issue such number of whole shares of Common Stock as is
equal to the number of shares otherwise issuable, rounded up or down to the
nearest whole number.
(c) Mechanics of Conversion.
(i) In order for a holder of Series B Preferred Stock to convert shares of
Series B Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series B
Preferred Stock, at the office of the transfer agent for the Series B
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of the
Series B Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. If required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation
shall, as soon as practicable after the Conversion Date, issue and deliver at
such office to such holder of Series B Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled.
(ii) The Corporation shall at all times when the Series B Preferred
Stock shall be outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the Series
B Preferred Stock, such number of its duly authorized shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding Series B Preferred Stock.
(iii) All shares of Series B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate
on the Conversion Date, except only the right of the holders thereof to
receive shares of Common Stock in exchange therefor and payment of any
dividends declared or accrued but unpaid thereon. Any shares of Series B
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation (without the need for stockholder action) may
from time to time take such appropriate action as may be necessary to reduce
the authorized Series B Preferred Stock accordingly.
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(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the date on which a share of
Series B Preferred Stock was first issued (the "Original Issue Date") effect
a subdivision of the outstanding Common Stock, the Conversion Price then in
effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after
the Original Issue Date effect a subdivision of the Series B Preferred Stock,
the Conversion Price then in effect immediately before that subdivision shall
be proportionately increased. If the Corporation shall at any time or from
time to time after the Original Issue Date combine the outstanding shares of
Common Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. If the Corporation shall at
any time or from time to time after the Original Issue Date combine the
outstanding shares of Series B Preferred Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately decreased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. In the event the
Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series B Preferred Stock then in effect shall be decreased as
of the time of such issuance or, in the event such a record date shall have
been fixed, as of the close of business on such record date, by multiplying
the Conversion Price for the Series B Preferred Stock then in effect by a
fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Price for the Series B Preferred Stock
shall be recomputed accordingly as of the close of business on such record
date and thereafter the Conversion Price for the Series B Preferred Stock
shall be adjusted pursuant to this paragraph as of the time of actual payment
of such dividends or distributions; and provided further, however, that no
such adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series B Preferred Stock had been
converted into Common Stock on the date of such event.
(f) Adjustments for Other Dividends and Distributions
. In the event the Corporation at any time or from time to time after the
Original Issue Date for the Series B Preferred Stock shall make or issue, or
fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Series B Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series B Preferred Stock
been converted into Common Stock on the date of such event; provided however,
that no such adjustment shall be made if the holders of Series B Preferred
Stock simultaneously receive a dividend or other distribution of such
securities in an amount equal to the amount of such securities as they would
have received if all outstanding shares of Series B Preferred Stock had been
converted into Common Stock on the date of such event.
(g) Adjustment for Reclassification, Exchange, or Substitution.
If the Common Stock issuable upon the conversion of the Series B Preferred
Stock shall be changed into the same or a different number of shares of any
class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series B Preferred Stock shall have
the right thereafter to convert such share into the kind and amount of shares
of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number
of shares of Common Stock into which such shares of Series B Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
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(h) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which is
covered by Subsection 2(c)), each share of Series B Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall
be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Series B
Preferred Stock would have been entitled upon such consolidation, merger or
sale.
(i) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Section 4, the
Corporation shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and, upon the written request of any holder
of Series B Preferred Stock, furnish to such holder of Series B Preferred
Stock, certificate setting forth such adjustment or readjustment and showing
the facts upon which such adjustment or readjustment is based.
5. Mandatory Conversion.
(a) If the average of the last reported sale price of the Common Stock on
the Nasdaq National Market (or such other securities exchange or trading
system on which the Common Stock is then listed or traded) over a period of
15 consecutive trading days exceeds $5.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), then, upon the close of business on
such fifteenth day (the "Mandatory Conversion Date"), (i) all outstanding
shares of Series B Preferred Stock shall automatically be converted into
shares of Common Stock, at the then effective conversion rate and the number
of authorized shares of Preferred Stock shall be automatically reduced by the
number of shares of Preferred Stock that had been designated as Series B
Preferred Stock, and all provisions included under the caption "Series B
Convertible Preferred Stock", and all references to the Series B Preferred
Stock, shall be deleted and shall be of no further force or effect.
(b) All holders of record of shares of Series B Preferred Stock will be
given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series B Preferred
Stock pursuant to this Section 5. Such notice shall be sent to each record
holder of Series B Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series B Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series B Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 5. At the close of business on
the Mandatory Conversion Date, all rights with respect to the Series B
Preferred Stock so converted, including the rights, if any, to receive
notices and vote, will terminate, except only the rights of the holders
thereof, upon surrender of their certificate or certificates therefor, to
receive certificates for the number of shares of Common Stock into which such
Series B Preferred Stock has been converted, and payment of any declared or
accrued but unpaid dividends thereon. If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for
Series B Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of shares of Common Stock issuable on such
conversion in accordance with the provisions hereof.
(c) All certificates evidencing shares of Series B Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be
deemed to have been retired and cancelled and the shares of Series B
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series B Preferred Stock
accordingly.
6. Optional Redemption
. (a) At any time and from time to time, the Corporation may, at the
option of its Board of Directors, redeem the Series B Preferred Stock, in
whole or in part, by paying $12.50 per share (subject to appropriate
adjustment for
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stock splits, stock dividends, combinations or other similar
recapitalizations affecting such shares), plus any dividends declared or
accrued but unpaid thereon (hereinafter referred to as the "Redemption
Price").
(b) In the event of any redemption of only a part of the then outstanding
Series B Preferred Stock, the Corporation shall effect such redemption pro
rata among the holders thereof based on the number of shares of Series B
Preferred Stock held by such holders on the date of the Redemption Notice (as
defined below).
(c) At least 30 days prior to the date fixed for any redemption of Series
B Preferred Stock (hereinafter referred to as the "Redemption Date"), written
notice shall be mailed to each holder of record of Series B Preferred Stock
to be redeemed, at his or its address last shown on the records of the
transfer agent of the Series B Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent), notifying such holder
of the election of the Corporation to redeem such shares, specifying the
Redemption Date and the time at which such holder's conversion rights
(pursuant to Section 4 hereof) as to such shares terminate (which shall be
the close of business on the fifth full day preceding the Redemption Date)
and calling upon such holder to surrender to the Corporation, in the manner
and at the place designated, his or its certificate or certificates
representing the shares to be redeemed (such notice is hereinafter referred
to as the "Redemption Notice"). On or prior to the Redemption Date, each
holder of Series B Preferred Stock to be redeemed shall surrender his or its
certificate or certificates representing such shares to the Corporation, in
the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the order
of the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be cancelled. In the
event less than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed
shares. From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of the
Series B Preferred Stock designated for redemption in the Redemption Notice
as holders of Series B Preferred Stock of the Corporation (except the right
to receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Subject to the provisions hereof, the Board of Directors of the
Corporation shall have authority to prescribe the manner in which Series B
Preferred Stock shall be redeemed from time to time. Any shares of Series B
Preferred Stock so redeemed shall permanently be retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized Series B Preferred Stock accordingly.
Nothing herein contained shall prevent or restrict the purchase by the
Corporation, from time to time either at public or private sale, of the whole
or any part of the Series B Preferred Stock at such price or prices as the
Corporation may determine, subject to the provisions of applicable law.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its
President and attested by its Secretary this 13th day of October, 1994.
XYVISION, INC.
By: /s/ Daniel M. Clarke
President
ATTEST:
/s/ Eugene P. Seneta
Secretary
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CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in the registration
statements of Xyvision, Inc. on Form S-8 (File Nos. 33-10405, 33-29845,
33-15473, 33-29486, 33-36243, 33-41846, 33-54014 and 33-54018) of our report
dated June 28, 1996, which report disclaims an opinion on consolidated
financial statements of Xyvision , Inc. as of March 31, 1996 and 1995 and for
the years ended March 31, 1996 , 1995, and 1994, due to uncertainties related
to the Company's ability to continue as a going concern, which report is
included in this Annual Report on Form 10-K..
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 28, 1996
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