<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|q?[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
|q? TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------ to ------------
COMMISSION FILE NUMBER 000-14747
AZUL HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2751102
(State or other jurisdiction (I.R.S. Employer Identification
Number)
of incorporation or organization)
30 New Crossing Road, Reading, MA 01867
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (781) 756-5600
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.
[x] Yes ---------- No ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of
November 12, 1999.
Common Stock, $.03 par value 2,854,283
(Title of each class) (number of shares)
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<PAGE>
Form 10-Q
Table of Contents
Page
Part I. Financial Information
Consolidated Balance Sheets
at September 30, 1999 and March 31, 1999............................. 2
Consolidated Statements of Operations
for the three and six months ended September 30, 1999 and 1998....... 3
Consolidated Statements of Cash Flows
for the six months ended September 30, 1999 and 1998................. 4
Notes to Consolidated Financial Statements............................ 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 9
Quantitative and Qualitative Disclosures About Market Risk........... 12
Part II. Other Information.................................................13
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. The important factors
discussed below under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations," including risks related to the
Company's credit line availability and debt restructuring efforts, among
others, could cause actual results to differ materially from those indicated by
forward-looking statements made herein and presented elsewhere by management
from time to time. Such forward-looking statements represent management's
current expectations and are inherently uncertain. Investors are warned that
actual results may differ from management's expectations.
1
<PAGE>
ITEM 1.
AZUL HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
(Unaudited)
September 30, March 31,
1999 1999
---------- -------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 301 $ 446
Accounts receivable:
Trade, less allowance for doubtful accounts of $225 at September 30, 1999
and $443 at March 31, 1999 ............................................... 1,668 1,608
Inventories ................................................................. 112 513
Other current assets ........................................................ 286 297
---------- -------
Total current assets .................................................... 2,367 2,864
Property and equipment, net ................................................. 687 639
Other assets, net, principally software development costs ................... 446 563
---------- -------
Total assets .......................................................... $ 3,500 $ 4,066
========== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to a stockholder, less unamortized discount of $340 at
September 30, 1999 and $680 at March 31, 1999............................... $ 13,317 $11,245
Current portion of long-term debt ........................................... 1,862 2,206
Accounts payable and accrued expenses ....................................... 2,942 2,829
Other current liabilities ................................................... 2,325 2,501
---------- -------
Total current liabilities ............................................... 20,446 18,781
---------- -------
Total liabilities ..................................................... 20,446 18,781
---------- -------
Minority interest in subsidiary ............................................... 1,806 1,015
Commitments and contingencies ................................................. - -
Stockholders' deficit:
Capital stock:
Series preferred stock, $1.00 par value; 1,700,000 shares authorized;
no shares issued ......................................................... - -
Series B convertible preferred stock, $1.00 par value; 300,000 shares
authorized; 234,977 issued and outstanding at September 30, 1999 and
March 31, 1999 (aggregate liquidation preference of $3,292 and $3,246,
respectively) ............................................................ 235 235
Series C convertible preferred stock, $.01 par value; 1,000,000 shares
authorized; 175,000 shares issued and outstanding at September 30, 1999
and March 31, 1999 ....................................................... 1,750 1,750
Common stock, $.03 par value; 25,000,000 shares authorized; 2,949,616
issued and outstanding at September 30, 1999 and March 31, 1999 .......... 88 88
Additional paid-in capital .................................................. 51,458 51,124
Accumulated deficit ......................................................... (71,115) (67,759)
---------- -------
(17,584) (14,562)
Less:
Treasury stock, at cost; 95,333 shares at September 30, 1999 and
March 31, 1999 ........................................................... 1,168 1,168
---------- -------
Total stockholders' deficit ................................................ (18,752) (15,730)
---------- -------
Total liabilities and stockholders' deficit ........................... $ 3,500 $ 4,066
========== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
AZUL HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Three MonthsEnded Six Months Ended
--------------------------------- -----------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------- ------- ------- -------
(Unaudited) (Unaudited)
Revenues:
Systems .......................................... $ 623 $ 781 $ 1,386 $ 1,772
Service .......................................... 1,707 1,607 3,568 3,287
------- ------- ------- -------
Total revenues ............................... 2,330 2,388 4,954 5,059
------- ------- ------- -------
Cost of sales:
Systems .......................................... 187 704 504 923
Service .......................................... 1,230 1,326 2,351 2,603
------- ------- ------- -------
Total cost of sales .......................... 1,417 2,030 2,855 3,526
------- ------- ------- -------
Gross margin ...................................... 913 358 2,099 1,533
------- ------- ------- -------
Expenses:
Research and development ......................... 924 1,163 1,705 2,104
Marketing, general and administrative ............ 1,375 2,487 2,840 4,409
------- ------- ------- -------
Total operating expenses ..................... 2,299 3,650 4,545 6,513
------- ------- ------- -------
Loss from operations .............................. (1,386) (3,292) (2,446) (4,980)
------- ------- ------- -------
Other expense, net:
Interest income .................................. 7 2 11 2
Interest expense - third party ................... (206) (34) (639) (62)
Interest expense - stockholder ................... (233) (366) (234) (614)
------- ------- ------- -------
Total other expense, net .......................... (432) (398) (862) (674)
------- ------- ------- -------
Loss before income taxes .......................... (1,818) (3,690) (3,308) (5,654)
Provision for income taxes ........................ - - - -
------- ------- ------- -------
Net loss .......................................... (1,818) (3,690) (3,308) (5,654)
Series B Preferred Stock dividends ................ 23 24 47 48
------- ------- ------- -------
Net loss allocable to common stockholders ......... $(1,841) $(3,714) $(3,355) $(5,702)
======= ======= ======= =======
Basic and diluted earnings per share:
Loss allocable to common stockholders ............. (.65) (1.30) (1.18) (2.00)
------- ------- ------- -------
Net loss per share ................................ (.65) (1.30) (1.18) (2.00)
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding .................. 2,854 2,854 2,854 2,854
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
AZUL HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<S> <C> <C>
Six Months Ended
------------------------------------
September 30, September 30,
1999 1998
------- -------
(Unaudited)
Operations:
Net loss ................................................................... $(3,308) $(5,654)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization .............................................. 304 1,132
Interest expense related to warrants ....................................... 340 -
Provisions for losses on accounts receivable ............................... (110) 379
Loss on sale of assets ..................................................... - 397
Operating assets and liabilities:
Accounts receivable ...................................................... 49 1,241
Inventories .............................................................. 401 8
Accounts payable and accrued expenses .................................... 113 (107)
Other current liabilities ................................................ (190) 11
Other assets ............................................................. 13 179
------- -------
Net cash used for operations ............................................... (2,388) (2,414)
Investments:
Additions to property and equipment ........................................ (239) (119)
Capitalized software ....................................................... - (176)
------- -------
Net cash used for investments .............................................. (239) (295)
Financing:
Proceeds from line of credit from a stockholder ............................ 1,812 2,600
Repayment of line of credit to a stockholder ............................... (80) -
Proceeds from sale of Subsidiary's Series A Preferred Stock ................ 750 -
------- -------
Net cash provided from financing ........................................... 2,482 2,600
Net decrease in cash and cash equivalents .................................. (145) (109)
Cash and cash equivalents at the beginning of the period ................... 446 357
------- -------
Cash and cash equivalents at the end of the period ......................... $ 301 $ 248
======= =======
Supplemental Information:
Accrued Preferred Stock dividends ........................................ 47 48
Extinguishment of 4% note payable ........................................ 347 -
Extinguishment of Debenture .............................................. 25 -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
AZUL HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying financial statements reflect
all adjustments (including normal recurring adjustments) necessary to
present fairly the consolidated financial position as of September 30,
1999 and the results of its consolidated operations and consolidated cash
flows for the quarter ended September 30, 1999 and 1998 of Azul Holdings
Inc. ("Parent") and its majority-owned subsidiary Xyvision Enterprise
Solutions, Inc. ("Subsidiary") (Parent and Subsidiary are sometimes
collectively referred to as the "Company"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1999.
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, liabilities and accrued litigation at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates and would impact future results of operations and cash
flows.
The results of consolidated operations for the quarter ended September 30,
1999 are not necessarily indicative of the results of consolidated
operations that may be expected for the complete fiscal year.
2. The Company sells its products to a wide variety of customers in a variety
of industries. The Company performs ongoing credit evaluations of its
customers but does not require collateral or other security to support
customer receivables. The Company maintains reserves for credit losses and
such losses have been within management's expectations. Trade receivables
do not contain any material amounts collectible over a period in excess of
one year.
3. Inventories are stated at the lower of cost, determined on a first-in,
first-out method, or market and consist primarily of third party products
and software.
4. Parent has a line of credit with Tudor Trust ("Tudor Trust"), the largest
stockholder of Parent. Mr. Jeffrey Neuman, the grantor, sole trustee and
sole current beneficiary of Tudor Trust, also serves as Chairman of the
Board of Directors of Parent. The line, which is payable on March 31,
2000, is collateralized by the common stock of Subsidiary held by Parent,
and has been used for working capital and general business purposes.
Interest on the line of credit is payable on March 31, 2000 in cash,
provided that Tudor Trust has the option to receive interest on a
quarterly basis after January 1, 1999, payable in shares of Parent's
common stock ("Parent Common Stock") based on the fair market value of the
Parent Common Stock on such payment dates. Since the initial adoption on
June 30, 1992, there have been numerous amendments to the line of credit,
with each amendment increasing the maximum loan amount thereunder and
providing other terms and provisions.
On July 1, 1998, Parent and Tudor Trust entered into an additional
amendment to the line of credit that, among other things, (i) increased
the maximum loan amount thereunder to $13,500,000, (ii) provided that
Tudor Trust shall have the sole discretion to decide whether or not to
make advances of funds thereunder, (iii) provided Tudor Trust with the
option of receiving the interest payable thereunder in cash or in shares
of Parent Common Stock based on the fair market value of the Parent Common
Stock on the interest payment dates, (iv) provided for the issuance by
Parent to Tudor Trust of warrants to purchase 600,000 shares of Parent
Common Stock at an exercise price of $1.25 per share (representing the
fair market value of the Parent Common Stock on the date of issuance), and
(v) increased the interest rate on the line of credit from 6% to 8% per
annum. The value of the warrants (representing the parties' understanding
as to the fair market value of the Parent Common Stock as of the date the
warrants were issued) is part of the unamortized discount of the note
issued by Parent and payable to Tudor Trust evidencing the line of credit.
On December 31, 1998, as part of the corporate restructuring plan further
described in Note 5 to the
5
<PAGE>
AZUL HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Consolidated Financial Statements, Tudor Trust converted $1,750,000 of the
outstanding indebtedness under the line of credit into 175,000 shares of
Parent's Series C Preferred Stock ("Parent Series C Preferred") (which are
convertible into 1,750,000 shares of Parent Common Stock). In addition,
Parent and Tudor Trust entered into an additional amendment to the line of
credit that, among other things (i) provided that an additional $5,000,000
of the outstanding indebtedness became convertible in June 1999, into
shares of Parent Series C Preferred at a rate of $10.00 per share at the
option of Tudor Trust, (ii) decreased the interest rate on the convertible
portion of the line of credit from 8% to 6% per annum, (iii) decreased the
maximum loan amount thereunder to $12,227,000, less any amount converted
from time to time into shares of Parent Series C Preferred, (iv) Tudor
Trust released its liens on the assets of Parent that were transferred to
Subsidiary while taking a security interest in the stock of Subsidiary
held by Parent, and (v) Tudor Trust also surrendered for cancellation
warrants to purchase an aggregate of 4,956,000 shares of Parent Common
Stock at various exercise prices.
Notwithstanding the fact such warrants have been cancelled, as described
in the preceding paragraph, Parent has continued to amortize the portion
of the warrants related to Parent's outstanding line of credit balance
into interest expense.
On December 31, 1998, Subsidiary and Tudor Trust entered into a Loan
Agreement providing Subsidiary with a $1,000,000 line of credit for
working capital and general business purposes, which was subsequently
amended to $1,850,000 with a maturity extended to June 30, 2001. This line
of credit bears an interest rate of 8% per annum, and is collateralized by
substantially all of the assets of Subsidiary.
The Company is currently in negotiations with Tudor Trust to facilitate
the Company's cash requirements for at least the remainder of fiscal 2000.
There can be no assurance, however, that such negotiations will be
successful or that increased borrowings will be available under the
Company's line of credit or otherwise from Tudor Trust.
As of September 30, 1999, the Company had an outstanding credit line
balance of $13,657,000, of which $1,400,000 are the borrowings of the
Subsidiary. As of November 12, 1999, the Company had an outstanding credit
line balance of $14,107,000, of which $1,850,000 are borrowings of the
Subsidiary.
5. In May 1987, Parent issued an aggregate of $25,000,000 principal aggregate
amount of 6% Convertible Subordinated Debentures due 2002 (the
"Debentures") convertible into Parent Common Stock at a conversion price
of $112.50 per share. Interest on the Debentures is payable annually and
the Debentures may be called by Parent under certain conditions. During
fiscal 1992, Parent began a program to restructure its financial position,
specifically, the Debentures, which continues to this date.
From March 10, 1992 to September 30, 1996, Parent completed restructuring
transactions pursuant to which the holders of an aggregate of $19,035,000
aggregate principal amount of Debentures exchanged such Debentures for a
combination of unsecured, unsubordinated promissory notes issued by Parent
bearing interest at 15% per year (the "15% Notes") and shares of Parent
Common Stock. Between September 30, 1996 and December 31, 1998, Parent
completed restructuring transactions pursuant to which holders of an
aggregate of $2,020,000 of Debentures generally exchanged such Debentures
for shares of Parent Common Stock. As discussed in the last paragraph of
this Note 4, Tudor Trust has made an offer to purchase certain outstanding
Debentures, 15% Notes and 4% Notes. As a result, $25,000 of Debentures
were repurchased and cancelled during the first quarter of fiscal 2000.
The gain created by such cancellation was treated as a contribution of
capital because Tudor Trust is a related and significant stockholder. As
of September 30, 1999, an aggregate of $1,330,000 Debentures remained
outstanding. Parent may seek to restructure the remaining Debentures, but
there can be no assurance that it will do so.
Parent did not make the interest payments due on the Debentures on May 5,
of 1992, 1993, 1994, 1995, 1996, 1997, 1998 or 1999. As of September 30,
1999, the cumulative unpaid interest due on the Debentures totaled
$683,000. Under the terms of the Indenture covering the Debentures, the
Trustee or the holders of no less than 25% of outstanding principal amount
of Debentures have the right to accelerate the maturity date of the
remaining Debentures. As of September 30, 1999, no such acceleration had
occurred or been threatened.
6
<PAGE>
AZUL HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As of March 31, 1998, Parent completed restructuring transactions pursuant
to which holders of 15% Notes in an aggregate principal amount of
$5,709,000 with accrued interest of $2,353,000 generally exchanged such
15% Notes (including all rights to receive any interest accrued thereon)
for a combination of (i) unsecured, unsubordinated promissory notes of
Parent bearing interest at 4% per year (the "4% Notes"), (ii) shares of
Parent Common Stock and (iii) shares of Parent Series B Preferred. The
Parent Series B Preferred accrues a cumulative dividend in the amount of
$.40 per share per annum, whether or not declared, and has a liquidation
preference of $12.50 per share, plus any dividends declared or accrued but
unpaid. As of September 30, 1999, cumulative accrued but unpaid dividends
on the Parent Series B Preferred totaled $351,000. As of September 30,
1999, 15% Notes in an aggregate principal amount of $60,000 with accrued
interest of $84,000 were overdue. Parent may seek to restructure the
remaining 15% Notes, but there can be no assurance that it will do so. No
15% notes have been repurchased by Tudor Trust.
As a result of Tudor Trust's offer to purchase certain outstanding
Debentures, 15% Notes and 4% Notes, $346,500 of 4% Notes were repurchased
and cancelled during the first quarter of fiscal 2000. The gain created by
such cancellation was treated as a contribution of capital because Tudor
Trust is a related and significant stockholder. As of June 30, 1999,
Parent had completed restructuring transactions pursuant to which the
holders of 4% Notes in an aggregate principal amount of $5,321,000
exchanged such 4% Notes for shares of Parent Common Stock plus accrued but
unpaid interest. As of September 30, 1999, 4% Notes in an aggregate
principal amount of $389,000 with accrued interest of $26,000 were
overdue.
Parent continues to negotiate restructuring transactions with as many of
the remaining holders of Debentures, 15% Notes and 4% Notes as possible.
Independently of Parent, Tudor Trust has made an offer to certain holders
of Debentures, 15% Notes and 4% Notes to purchase such securities at 10%
of their face amount. Tudor Trust has agreed to reduce Parent's liability
with respect to such securities to the purchase price paid by Tudor Trust.
Despite the fact that 96% of the original Debentures have been exchanged
or sold by the holders for such securities, Parent has been unable to
identify most of the remaining original Debentureholders. For this reason,
Parent can still give no assurance about the outcome of the effort to
restructure the Debentures and does not expect the matters to be resolved
in the near future.
On December 31, 1998, Parent completed a corporate restructuring plan (the
"Restructuring") pursuant to which, among other things, substantially all
of the assets of Parent's publishing business were transferred to
Subsidiary in exchange for shares of the common stock of Subsidiary, while
the majority of Parent's liabilities, including obligations under its line
of credit with Tudor Trust, remained with Parent. As described in Note 4
to the Consolidated Financial Statements, Parent's credit line with Tudor
Trust was amended. In addition, Tudor Trust converted $1,750,000 of
Parent's outstanding indebtedness under a line of credit with Parent into
175,000 shares of Parent Series C Preferred, which are convertible into
Parent Common Stock. An additional $5,000,000 of Parent's outstanding
indebtedness became convertible into Parent Series C Preferred in June
1999 at the option of Tudor Trust at the conversion ratio of $10.00 per
share. Tudor Trust has also surrendered for cancellation warrants to
purchase an aggregate of 4,956,000 shares of Parent Common Stock at
various exercise prices. Tudor Trust has also provided Subsidiary with a
$1,850,000 line of credit, and has invested $1,750,000 to purchase 700,000
shares of Subsidiary's Series A Preferred Stock (the "Subsidiary Series A
Preferred"). The Subsidiary Series A Preferred converts into Subsidiary's
common stock on a one-for-one basis, subject to adjustment.
6. The Company's deferred tax assets consist 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.
7
<PAGE>
AZUL HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Earnings Per Share
<TABLE>
<S> <C> <C> <C> <C>
Three MonthsEnded Six Months Ended
-------------------------------- ------------------------------------
September 30, Sepember 30, September 30, Sepember 30,
1999 1998 1999 1998
------ ------ ------ ------
(Unaudited) (Unaudited)
Basic and diluted EPS Computation:
Net loss ........................................... (1,818) (3,690) (3,308) (5,654)
Series B Preferred Stock Dividends ................. 23 24 47 48
------ ------ ------ ------
Net loss allocable to common stockholders .......... (1,841) (3,714) (3,355) (5,702)
------ ------ ------ ------
Weighted average common shares outstanding ......... 2,854 2,854 2,854 2,854
====== ====== ====== ======
Basic and diluted EPS:
Loss allocable to common stockholders .............. (.65) (1.30) (1.18) (2.00)
------ ------ ------ ------
Net loss per share ................................. (.65) (1.30) (1.18) (2.00)
====== ====== ====== ======
</TABLE>
On October 20, 1998 Parent amended its Certificate of Incorporation to effect a
one-for-five reverse split of Parent Common Stock and to change the number of
authorized shares from 50,000,000 to 25,000,000. All references to number of
shares and per share information in the consolidated financial statements have
been
adjusted to reflect a reverse stock split on a retroactive basis.
At September 30, 1999, the following antidilutive common stock equivalents
were not included in the diluted EPS calculation as a result of the net
loss for the period: (i) options to purchase 326,751 shares of common
stock, (ii) shares of Series B Preferred Stock convertible to 94,000
shares of common stock, (iii) shares of Series C Preferred convertible to
1,750,000 shares of common stock, (iv) and 99,478 common equivalents as
a result of certain debt to equity transactions.
8. Sale of Assets: On September 18, 1998, the Company sold substantially all
of the assets of its Contex division, with the exception of approximately
$300,000 of accounts receivable, for approximately $200,000 pursuant to
the terms of an Asset Purchase Agreement dated September 18, 1998 between
the Company and Barco, Inc. Included in the assets sold were inventory,
equipment, certain accounts receivable, source code and object code for
Contex PackageMaker, Contex Professional, Contex Rip'n'Strip, and Contex
Object Library. In connection with the sale, the Company recorded direct
transaction costs, costs to write-off other assets and other accruals for
costs directly associated with the sale in the amount of approximately
$564,000.
9. Xyvision, Inc. changed its name to Azul Holdings Inc. during quarter ended
September 30, 1999 and now trades under symbol "AZUL". The name change
reflects Azul Holding's focus on its investment portfolio, including the
Subsidiary.
8
<PAGE>
ITEM 2.
AZUL HOLDINGS INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
For the three month periods ended September 30, 1999 and 1998
Results of Operations
Revenues for the second quarter of fiscal 2000 were $2,330,000, a decrease
of approximately $58,000, or 2%, from the second quarter of fiscal 1999.
Systems revenues in the second quarter of fiscal 1999 include both the Contex
and Publishing divisions. On September 18, 1998, the Company sold substantially
all the assets of its Contex division, pursuant to the terms of an Asset
Purchase Agreement dated September 18, 1998 between the Company and Barco, Inc.
(see Note 8 to the Consolidated Financial Statements). For that reason, systems
revenues in the second quarter of fiscal 2000 include revenues from only the
Publishing division which increased $55,000, or 10%, when compared to
publishing systems revenues of the same quarter of fiscal 1999. One significant
customer sale and related services accounted for 11% of the revenues in the
second quarter of fiscal 2000. Overall, combined system revenues declined
$158,000, or 20%, from $781,000 to $623,000, as a result of the sale of the
Contex division. Service revenues increased $100,000 or 6% from $1,607,000 in
the second quarter of fiscal 1999 (which includes Contex service revenues) to
$1,707,000 in the second quarter of fiscal 2000. Service revenues for the
Publishing division for the second quarter of fiscal 2000 increased $454,000,
or 36%, from the second quarter of fiscal 1999. The increase in service
revenues was primarily a result of increased consulting service revenues and
maintenance revenues from new and renewing accounts.
Gross margins in the second quarter of the current fiscal year increased
to 39% of revenues from 15% in the comparable quarter of fiscal 1999. Systems
margins were 70% of systems revenues in the current fiscal quarter as compared
to 10% of systems revenues in the second quarter of the previous fiscal year.
The increase of system margins in the second quarter of fiscal 2000 was
primarily a result of favorable product mix. Accelerated amortization due to
the change in estimate of realizability of previously capitalized software
resulted in an expense of approximately $286,000 in the second quarter of
fiscal 1999. The service margins in the second quarter of fiscal 2000 were 28%
as compared with service margins of 17% in the second quarter of the previous
fiscal year. The increase was a result of reduced employee headcount resulting
from the sale of the Contex division.
Research and development expenses in the second quarter of fiscal 2000,
net of capitalized software development costs, were $924,000, a decrease of
$239,000, or 21%, from the second quarter of fiscal 1999. The decrease was
primarily due to reduced development headcount and payroll as a result of the
sale of the Contex business. The Company made further reductions in headcount
in September 1999 and has included related severance costs in the reported
expenses. Capitalized software costs were none and $176,000 for the first six
months of fiscal 2000 and 1999, respectively.
Marketing, general and administrative expenses were $1,375,000 for the
second quarter of fiscal 2000, a decrease of $1,112,000, or 45%, from the
second quarter of fiscal 1999. The decline in corporate administrative expenses
reflected a reduction in headcount as a result of the sale of the Contex
business, as well as other cost containment programs. The Company made further
reductions in headcount in September 1999 and has included related severance
costs in the reported expenses. Also included in administrative expenses is a
benefit of approximately $110,000 related to collections of accounts receivable
previously reserved.
Net total other expense was $432,000 for the second quarter of fiscal
2000, an increase of $34,000, or 9%, from the second quarter of 1999, due to an
increase in interest expense primarily due to the increase in warrant
amortization expense as a result of a shorter life for the line of credit. (see
Note 4 to the Consolidated Financial Statements) as well as a rate increase on
the note payable to Tudor Trust from 6% to 8% on a higher average balance of
the Parent's credit line.
The Company's deferred tax assets consist primarily of its net operating
loss carryforwards. The Company has a valuation allowance to fully offset
future tax benefits of these deferred assets.
The Company accrued dividends of $23,000 on the Parent Series B Preferred
in each of the second quarters of fiscal 2000 and 1999, as well as $26,000 on
the Subsidiary Series A Preferred in the second quarter of fiscal 2000.
The Company recorded a net loss allocable to common stockholders of
$1,841,000 for the second quarter of fiscal 2000 compared to $3,714,000 for the
second quarter of fiscal 1999.
9
<PAGE>
Liquidity and Capital Resources
At September 30, 1999, the Company had cash of $301,000, a decrease of
$145,000 from March 31, 1999. For the first six months of fiscal 2000, the
Company's operating and investment activities used $2,627,000 of cash,
primarily for operations. The Company invested $111,000 in capital expenditures
during the quarter.
Parent has a $12,227,000 line of credit with Tudor Trust, the largest
stockholder of Parent. Mr. Jeffrey L. Neuman, the grantor, sole trustee and
sole current beneficiary of Tudor Trust, also serves as Chairman of the Board
of Directors of Parent. This credit line has been used for working capital and
general business purposes. As of September 30, 1999, Parent had an outstanding
line of credit balance of $12,257,000. As of November 12, 1999, Parent had an
outstanding credit line balance of $12,257,000. Subsidiary has a separate
$1,850,000 line of credit with Tudor Trust. As of September 30, 1999,
Subsidiary had drawn down $1,400,000 of the line of credit. As of November 12,
1999, Subsidiary had an outstanding credit balance of $1,850,000. See Note 4 to
the Consolidated Financial Statements for a further description of these lines
of credit.
See Note 4 to the Consolidated Financial Statements for a description of
Parent's efforts to restructure its outstanding Debentures, 15% Notes and 4%
Notes. Despite the fact that 96% of the Debentures have been exchanged or sold
by the holders thereof, Parent has been unable to identify the holders of the
remaining Debentures. For this reason, Parent can give no assurance about the
outcome of the effort to restructure and does not expect the matters to be
resolved in the near future. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The
financial statements do not include any adjustments relating to the recovery
and classification of recorded asset amounts or the amounts and classifications
or liabilities that might be necessary should the Company be unable to continue
as a going concern.
As a result of Tudor Trust's offer to purchase certain outstanding
Debentures, 15% Notes and 4% Notes, $346,500 of 4% Notes and $25,000 of
Debentures were repurchased and cancelled during the first quarter of fiscal
2000. The gain created by such retirement was treated as a contribution of
capital.
The Company anticipates that its cash requirements for fiscal 2000 will be
satisfied mainly from its credit lines, or otherwise from Tudor Trust, assuming
the continued forbearance by the holders of the Debentures, 15% Notes and 4%
Notes. There can be no assurances that increased borrowings will be available
under the Company's line of credit or otherwise from Tudor Trust.
Foreign Currency - Conversion To Euro
On January 1, 1999, 11 of the 15 members of the European Union established
fixed conversion rates between their existing currencies and the "euro." The
euro will trade on currency exchanges and the legacy currencies will remain
legal tender for a transition period between January 1, 1999 and January 1,
2002. During the transition period, goods and services may be paid for using
the euro or the participating country's legacy currency. Participating
countries no longer control their own monetary policies by directing
independent interest rates for their legacy currencies. Instead, the authority
to direct monetary policy, including money supply and official interest rates
will be exercised by the new European Central Bank. No later than July 1, 2002,
the legacy currencies of the participating countries will no longer be legal
tender for any transaction, making conversion to the euro complete.
The Company has established plans and has included the necessary
modifications for the technical adaptation of its internal information
technology and other systems to accommodate euro-denominated transactions. The
Company is also assessing the business implications of the conversion to the
euro, including long-term competitive implications. The Company does not expect
the euro conversion to have a significant impact on its results of operations,
financial condition or cash flows. However, the Company will continue to assess
the impact of euro conversion issues as the applicable accounting, tax, legal
and regulatory guidance evolves.
Year 2000
The "Year 2000" problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19,"
but may not properly recognize the year 2000. If a computer system or software
application used by the Company or a third party dealing with the Company fails
or generates erroneous results because of the inability of the system or
application to properly read the date data, the results could conceivably have
a material adverse effect on the Company.
Products
Year 2000 problems are characteristic of applications in which sorting by
date is stored in a format that relies solely on the last two digits of the
calendar year. Neither Xyvision Production Publisher ("XPP") nor Parlance
10
<PAGE>
Document Manager ("PDM") store date information in this type of truncated
format. Date information is stored in full standard UNIX date formats so that
all four digits of the year are available both within the applications and to
any applications built upon them. Both XPP and PDM continue to be tested
internally to meet the Company's qualifications for Year 2000 compliance. The
total cost relating to compliance by its products is not expected to be
material to the Company's financial position or operations. As a key supplier
to the technical documentation and publishing industries, the Company's major
exposure for Year 2000 problems is the effect of shutting down page composition
or document management capabilities production at one of its customer's
facilities. The Company believes its contracts with its customers preclude
liability for consequential damages as a result of such claims.
Third Party Products
The Company continues to assess its exposure to failures of products
obtained from third parties to be Year 2000 compliant. The primary risk in that
regard relates to software applications integrated within its core
applications, and the Company has received assurances that software licensed
for use within its products are Year 2000 compliant. This assessment and
testing program will be ongoing and the Company's efforts with respect to
specific problems identified will depend in part upon its assessment of the
risk that any such problems may cause. Unfortunately, the Company cannot fully
control the conduct of its suppliers, and there can be no guarantee that Year
2000 problems originating with a supplier will not occur. The Company has not
yet developed contingency plans in the event of a year 2000 failure caused by a
supplier or third party, but intends to consider developing such plans if a
specific problem is identified through the programs described above. In some
cases, especially with respect to its software vendors, alternative suppliers
may not be available. Despite its efforts to test its own and third party
products, these products may contain undetected problems associated with Year
2000 compliance.
Information Technology and Operating Equipment
The Company has identified anticipated costs, problems and uncertainties
associated with making its internal use systems Year 2000 compliant. Costs
identified by September 30, 1999 approximate $244,000 of which $217,000 has
been expended at September 30, 1999. The Company expects to resolve the Year
2000 issue with respect to its computer systems and software applications
during calendar year 1999 through the upgrade, conversion, modification or
replacement of non-compliant systems and applications. The Company's Year 2000
readiness task force continues to assess the exposure of its internal
information technologies ("IT"), including operating equipment and software
systems.
The Company has determined that the replacement of older non-compliant
personal computers with Year 2000 compliant technology represents the most
extensive task yet to be completed. The Company has replaced its customer
support database application with an application that offers additional
features, better interfaces and is warranted to be Year 2000 compliant. The
Company is currently approximately 90% complete with replacement of its human
resource and financial business system, which it believes will offer
substantial benefits of improved functionality, ease of use and maintenance and
which is Year 2000 compliant. The Company recently upgraded its payroll
application which was accomplished swiftly. The Company has identified and
budgeted $100,000 in fiscal year 2000 for software and hardware replacement.
The Company's communications infrastructure was partially upgraded in
conjunction with its corporate relocation in February, 1998. The replacement of
its voicemail system was accomplished in March 1999. The Company has been
assured by its suppliers that its telecommunication systems and internet
connectivity is Year 2000 compliant.
The Company believes that it has an effective compliance plan in place,
supported by its product planning and support organizations, and its internal
IT support function. The remediation efforts are substantially complete, and
the Company expects that continued testing and remediation efforts will
continue for one to two months after September 30, 1999.
The Company does not use operating equipment beyond systems which support
what is considered to be merely office space. Maintenance of building support
systems is wholly the responsibility of the Company's landlord according to the
current lease agreement, and remediation of failures in this regard would fall
under the landlord's extensive on-site maintenance operation.
Contingency Plans
The Company would expect Year 2000 related problems to be addressed by
reliance upon its backup of its IT related information assets with its physical
hardcopy of customer files containing amounts owed, software and services
previously delivered, and software options currently licensed by its customer
base. There is no formal contingency plan under development, nor is one
expected to be produced. The most likely worst case scenario is that
11
<PAGE>
the Company will have to upgrade applications without enhancing features and
benefits in its financial, human resource and payroll applications. The Company
has centralized the majority of its administrative functions at its corporate
headquarters, and has a minimal reliance on widely geographically dispersed
systems or networks to support its information resource needs.
The foregoing shall be considered a Year 2000 readiness disclosure to the
maximum extent allowed under the Year 2000 Information and Readiness Disclosure
Act.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not currently use derivative financial instruments. The
Company generally places its marketable security investments in high credit
quality instruments, primarily U.S. Government and Federal Agency obligations,
tax-exempt municipal obligations and corporate obligations with contractual
maturities of ten years or less. The Company does not expect any material loss
from its marketable security investments and therefore believes that its
potential interest rate exposure is not material.
Internationally, the Company invoices customers primarily in local
currency. The Company is exposed to foreign exchange rate fluctuations from
when customers are invoiced in local currency until collection occurs. The
Company does not currently enter into foreign currency hedge transactions.
Through September 30, 1999, foreign currency fluctuations have not had a
material impact on the Company's financial position or results of operations.
12
<PAGE>
PART II: OTHER INFORMATION
Item 3. Defaults Upon Senior Securities:
For a description of defaults upon the Debentures, 15% Notes and 4% Notes
and arrearage in the payment of dividends on the Parent Series B
Preferred, see Note 4 to the Consolidated Financial Statements, which is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K:
(a) The exhibits listed in the Exhibit Index immediately preceding such
exhibits are filed as part of or are included in this report.
(b) On September 29, 1999 Parent filed a report on Form 8-K disclosing
under Item 5 thereof the amendment of Parent's certificate of
incorporation to change its name to "Azul Holdings Inc."
13
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
AZUL HOLDINGS INC.
------------------------------
(Registrant)
November 15, 1999
/s/ Wendy Darland
------------------------------
Wendy Darland
Vice President, Chief
Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit No. Description
- --------------- ----
3.1 Restated Certificate of Incorporation, incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended March 31,
1988.
3.2 Certificate of Amendment to Certificate of Incorporation, incorporated
herein by reference to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1993.
3.3 Certificate of Amendment to Certificate of Incorporation, incorporated
herein by reference to the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1996.
3.4 Certificate of Designation to Certificate of Incorporation designating Series
B Preferred Stock, incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the year ended March 31, 1996.
3.5 Certificate of Amendment of Amended and Restated Certificate of Incorpo-
ration, incorporated herein by reference to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
3.6 Certificate Eliminating the Series A Junior Participating Preferred Stock,
incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1998.
3.7 Certificate of Designations of the Preferred Stock to be Designated Series C
Preferred Stock, incorporated by reference to Exhibit 3.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1998.
3.8 Certificate of Amendment of Amended and Restated Certificate of Incorpo-
ration of the Registrant, incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the year ended March 31, 1999.
3.9 Certificate of Ownership and Merger Merging Xyvision Design Systems,
Inc. into Xyvision, Inc. and Changing the Name of Xyvision, Inc.
10.1 First Amendment to Secured Advanced Facility Loan Agreement dated as of
July 1, 1999 between Xyvision Enteprise Solutions, Inc. and Jeffrey L.
Neuman as Trustee of Tudor Trust u/d/t December 12, 1997
10.2 Series A Convertible Preferred Stock Purchase Agreement dated as of July
1, 1999 between Xyvision Enterprise Solutions, Inc. and Tudor Trust
27 Financial Data Schedule (Electronic version only)
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 301
<SECURITIES> 0
<RECEIVABLES> 1,893
<ALLOWANCES> (225)
<INVENTORY> 112
<CURRENT-ASSETS> 286
<PP&E> 2,079
<DEPRECIATION> (1,392)
<TOTAL-ASSETS> 3,500
<CURRENT-LIABILITIES> 22,252
<BONDS> 0
235
0
<COMMON> 17,819
<OTHER-SE> (1,168)
<TOTAL-LIABILITY-AND-EQUITY> 3,500
<SALES> 4,954
<TOTAL-REVENUES> 4,954
<CGS> 2,855
<TOTAL-COSTS> 2,855
<OTHER-EXPENSES> 4,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 862
<INCOME-PRETAX> (3,308)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,308)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,308)
<EPS-BASIC> (1.18)
<EPS-DILUTED> (1.18)
</TABLE>
<PAGE>
Rider 15a
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation, incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended March 31, 1988.
3.2 Certificate of Amendment to Certificate of Incorporation, incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended March 31, 1993.
3.3 Certificate of Amendment to Certificate of Incorporation, incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended March 31, 1996.
3.4 Certificate of Designation to Certificate of Incorporation designating Series B Preferred Stock,
incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended
March 31, 1996.
3.5 Certificate of Amendment of Amended and Restated Certificate of Incorporation, incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
3.6 Certificate Eliminating the Series A Junior Participating Preferred Stock, incorporated by reference to
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31,
1998.
3.7 Certificate of Designations of the Preferred Stock to be Designated Series C Preferred Stock,
incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998.
3.8 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant,
incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended
March 31, 1999.
3.9 Certificate of Ownership and Merger Merging Xyvision Design Systems, Inc. into Xyvision, Inc. and
Changing the Name of Xyvision, Inc.
</TABLE>
1
<PAGE>
Rider 15b
Exhibit 3.9
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
XYVISION DESIGN SYSTEMS, INC.
(a Delaware corporation)
INTO
XYVISION, INC.
(a Delaware corporation)
AND CHANGING THE NAME OF
XYVISION, INC.
(a Delaware corporation)
Xyvision, Inc., a Delaware corporation (the "Company"), does hereby
certify:
FIRST: That the Company is incorporated pursuant to the General
Corporation Law of the State of Delaware (the "Law").
SECOND: That the Company owns all of the outstanding shares of each class
of the capital stock of Xyvision Design Systems, Inc., a Delaware corporation
("Subsidiary").
THIRD: That pursuant to Section 253(a) of the Law, the Company, by the
resolutions of its Board of Directors attached as Exhibit A hereto, duly
adopted on the 9th day of September, 1999, determined to merge Subsidiary into
itself and assume all of Subsidiary's liabilities and obligations (the
"Merger") on the conditions set forth in such resolutions.
FOURTH: That pursuant to Section 253(b) of the Law, the Company, by the
resolutions of its Board of Directors attached as Exhibit A hereto, duly
adopted on the 9th day of September, 1999, also determined to change the name
of the Company upon the effective date of the Merger from "Xyvision, Inc." to
"Azul Holdings Inc."
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of Ownership
and Merger to be signed by Wendy Darland, its Vice President, Chief Financial
Officer, Secretary and Treasurer, this 16th day of September, 1999.
XYVISION, INC.
By: /s/Wendy Darland
-------------------------------
Wendy Darland
Vice President, Chief Financial Officer,
Secretary and Treasurer
3
<PAGE>
Exhibit 10.1
FIRST AMENDMENT TO
SECURED ADVANCE FACILITY LOAN AGREEMENT
This FIRST AMENDMENT TO SECURED ADVANCE FACILITY LOAN AGREEMENT (the
"First Amendment") is entered into as of this 1st day of July, 1999 (the "First
Amendment Date") by and between XYVISION ENTERPRISE SOLUTIONS, INC., a Delaware
corporation with its principal office at 30 New Crossing Road, Reading,
Massachusetts (the "Borrower"), and Jeffrey L. Neuman as trustee of the Tudor
Trust u/d/t December 12, 1997, with an address of 450 North Roxbury Drive, 4th
Floor, Beverly Hills, California (the "Lender").
WHEREAS, the Borrower and the Lender are parties to a Secured Advance
Facility Loan Agreement dated December 31, 1998 (the "Agreement"); and
WHEREAS, the parties hereto desire to make amendments and modifications to
the Agreement as provided herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and with the specific intent to
be bound hereby, the Borrower and the Lender hereby agree as follows:
1. Definitions. Each term in this First Amendment not otherwise defined
herein shall be deemed to have the same meaning ascribed to that term in
the Agreement.
2. Amendments to Agreement. The provisions of the Agreement are hereby
amended as follows:
(a) Section 1.9 of the Agreement is amended and restated in its
entirety as follows:
"1.9. Maximum Loan Amount. One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000)."
(b) Section 1.13 of the Agreement is amended and restated in its
entirety as follows:
"1.13. Secured Promissory Note. The secured promissory note dated
July 1, 1999 in the amount of One Million Seven Hundred Fifty
Thousand Dollars ($1,750,000) executed by the Borrower and delivered
to the Lender."
(c) The first sentence of Section 3.1 of the Agreement is amended and
restated in its entirety as follows:
"All Liabilities shall be paid in full on June 30, 2001, unless
declared due and payable earlier by the Lender as set forth
herein."
(d) A new Section 3.4 is hereby added to the Agreement as follows:
"3.4. Equity Financing. Upon the consummation of an equity
financing covering the sale and issuance by the Borrower of shares
of its capital stock (the "Financing Stock") which results in
aggregate gross proceeds to the Company of not less than $3,000,000
(the "Financing"), the Lender shall, for a period of 180 days
following the consummation of the Financing, have the right, which
may or may not be exercised at the Lender's sole discretion, (i) to
convert $750,000 of the unpaid principal balance of the Liabilities
into such number of fully paid and non-assessable shares of
Financing Stock as is equal to the quotient obtained by dividing
(x) $750,000 by (y) the per share sale price of the Financing Stock
in the Financing, or (ii) to declare $750,000 of the unpaid
principal balance of the Liabilities immediately due and payable,
without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived. The Borrower shall give
the Lender at least five days' prior written notice of the
consummation of a Financing.
3. Effective Date. The changes effected by this First Amendment shall be
deemed to take effect as of the close of business on July 1, 1999.
1
<PAGE>
4. Except as amended hereby, the Agreement shall remain in full force
and effect and is in all respects hereby ratified and affirmed.
XYVISION ENTERPRISE SOLUTIONS, INC.
By: /s/ Kevin J. Duffy
---------------------
Name: Kevin J. Duffy
Title: President
/s/ Jeffrey Neuman
---------------------
Jeffrey Neuman as trustee of
the Tudor Trust u/d/t
December 12, 1997 and not
individually
2
<PAGE>
SECURED PROMISSORY NOTE
$1,750,000
Boston, Massachusetts July 1, 1999
FOR VALUE RECEIVED, the undersigned XYVISION ENTERPRISE SOLUTIONS, INC., a
Delaware corporation with a principal place of business located at 30 New
Crossing Road, Reading, Massachusetts (hereinafter, the "Borrower") promises to
pay in good U.S. funds to the order of Jeffrey L. Neuman as trustee of the
Tudor Trust u/d/t dated December 12, 1997 (hereinafter, with any subsequent
holder, the "Lender"), at the Lender's principal office located at 450 Roxbury
Drive, Beverly Hills, California, the Liabilities then outstanding under the
loan made by the Lender to the Borrower pursuant to that certain Secured
Advance Facility Loan Agreement executed between the Borrower and the Lender
dated December 31, 1998, as amended (the "Agreement"). Advances made pursuant
to the Agreement shall bear interest at the rate of eight (8) percent per annum
and after any Default at the rate of twelve (12) percent per annum, calculated
based upon a 360-day year and actual day months.
Interest at the rate set forth above shall be paid on the first day of
each calendar quarter in arrears on the outstanding principal amount of
Advances made under the Agreement, all as provided in Section 3.2 of the
Agreement. Unless a Default under the Agreement shall have occurred earlier,
the principal balance of this Note shall be due and payable in full on June 30,
2001.
To secure the obligations of the Borrower under this Note, the Lender has
been granted a security interest in substantially all of the Borrower's
presently existing and hereafter acquired property pursuant to that certain
Security Agreement executed between the Borrower and the Lender dated December
31, 1998 (the "Security Agreement"). All capitalized terms used herein, unless
otherwise defined herein, shall have the meanings ascribed to them in the
Security Agreement.
No delay or omission by the Lender in exercising or enforcing any of the
Lender's powers, rights, privileges, remedies or discretions hereunder shall
operate as a waiver thereof on that occasion nor on any other occasion.
After demand by the Lender, the Borrower will pay on demand all reasonable
attorneys' fees and out-of-pocket expenses incurred by the Lender in recovering
the amounts due to the Lender by the borrower hereunder.
This Note shall be binding upon the Borrower and upon its heirs,
successors, assigns, and representatives, and shall inure to the benefit of the
Lender and its successors, endorsees, and assigns.
This Note shall be governed by the laws of the Commonwealth of
Massachusetts and shall take effect as a sealed instrument.
XYVISION ENTERPRISE SOLUTIONS, INC.
By: /s/ Kevin J. Duffy
---------------------
Kevin J. Duffy
President
3
<PAGE>
Exhibit 10.2
XYVISION ENTERPRISE SOLUTIONS, INC.
Series A Convertible Preferred Stock Purchase Agreement
This Agreement dated as of July 1, 1999 is entered into by and between
Xyvision Enterprise Solutions, Inc., a Delaware corporation (the "Company"),
and Tudor Trust (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. The Company has duly authorized the sale and
issuance, pursuant to the terms of this Agreement, of 300,000 shares of
its Series A Convertible Preferred Stock, $.001 par value per share
(the "Series A Preferred").
1.2 Sale of Shares. Upon the execution of this Agreement, the Company
will sell and issue to the Purchaser, and the Purchaser will purchase,
300,000 shares of Series A Preferred for the purchase price of $2.50
per share. The shares of Series A Preferred being sold under this
Agreement are referred to as the "Shares." To effect such sale and
purchase of the Shares, the Company shall deliver to the Purchaser a
certificate for the Shares, registered in the name of the Purchaser,
against payment to the Company of the purchase price therefor, by wire
transfer, check or other method acceptable to the Company.
2. Representations of the Company. The Company hereby represents and
warrants to the Purchaser as follows:
2.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by
it and to enter into and perform this Agreement and to carry out the
transactions contemplated by this Agreement.
2.2 Capitalization. The authorized capital stock of the Company
(immediately prior to the execution of this Agreement) consists of (i)
10,000,000 shares of common stock, $.001 par value per share (the
"Common Stock"), of which 2,800,000 shares are issued and outstanding
and owned by Xyvision, Inc. ("Xyvision"), and (ii) 5,000,000 shares of
Preferred Stock, $.001 par value per share, of which 700,000 shares
have been designated as Series A Preferred, of which 400,000 shares are
issued and outstanding. All of the issued and outstanding shares of
capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable.
2.3 Authority for Agreement; Issuance of Shares. The execution,
delivery and performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of the Company. Without limiting the generality of the foregoing, the
issuance, sale and delivery of the Shares in accordance with this
Agreement, and the issuance and delivery of the shares of Common Stock
issuable upon conversion of the Shares, have been duly authorized by
all necessary corporate action on the part of the Company. The Shares
when so issued, sold and delivered against payment therefor in
accordance with the provisions of this Agreement, and the shares of
Common Stock issuable upon conversion of the Shares when issued upon
such conversion, will be duly and validly issued, fully paid and
nonassessable. This Agreement has been duly executed and delivered by
the Company and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms.
2.4 SEC Reports . Xyvision has filed with the Securities and Exchange
Commission all reports and statements required to be filed by Xyvision
under Section 13 or 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since March 31, 1997 (such reports and
statements are collectively referred to herein as the "Xyvision
Reports"). The Xyvision Reports comply in all material respects with
the requirements of the Exchange Act and the rules and regulations
thereunder. As of their respective dates, the Xyvision Reports did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
2.5 Absence of Material Adverse Change. Since March 31, 1999, there has
been no material adverse change in the business, results of operations
or financial condition of the Company, it being acknowledged that the
Company has continued to incur operating losses and utilize cash.
3. Representations of the Purchaser. The Purchaser represents and
warrants to the Company as follows: 3.1 Investment. The Purchaser is
acquiring the Shares, and the shares of Common Stock into which the
1
<PAGE>
Shares may be converted, for its own account for investment and not
with a view to, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling the
same; and the Purchaser has no present or presently contemplated
agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof. The Purchaser is an
"accredited investor" as defined in Rule 501(a) under the Securities
Act of 1933, as amended (the "Securities Act").
3.2 Authority. The execution, delivery and performance by the Purchaser
of this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Purchaser. This Agreement has been
duly executed and delivered by the Purchaser and constitutes a valid
and binding obligation of the Purchaser enforceable in accordance with
its terms.
3.3 No Registration of Shares. The Purchaser acknowledges that the
Shares to be purchased by it have not been registered under the
Securities Act. Each certificate representing the Shares shall bear a
legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and
until such shares are registered under such Act or an opinion of
counsel satisfactory to the Company is obtained to the effect that
such registration is not required."
3.4 Experience. The Purchaser is familiar with the business, results of
operations, assets and liabilities of both Xyvision and the Company;
the officers of the Company have made available to the Purchaser any
and all information which it has requested and has answered to the
Purchaser's satisfaction all inquiries made by it; and the Purchaser
has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and
merits of its investment in the Company and is able financially to bear
the risks thereof.
4. Miscellaneous.
4.1 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
4.2 Amendments and Waivers. Except as otherwise expressly set forth in
this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived only with the
written consent of the Company and the Purchaser.
4.3 Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an
original, and all of which shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
4.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, exclusive of its
choice of law and conflicts of law rules.
IN WITNESS WHEREOF, this Series A Convertible Preferred Stock Purchase
Agreement has been executed as of the date first above written.
XYVISION ENTERPRISE SOLUTIONS, INC.
By: /s/ Kevin Duffy
---------------------
Kevin Duffy
President
TUDOR TRUST
By: /s/ Jeffrey Neuman
---------------------
Jeffrey Neuman
Trustee
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