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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 December 31, 1998
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
XYVISION, 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) 756-4400
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
February 16, 1999.
Common Stock, $.03 par value 2,854,236
(Title of each class) (number of shares)
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Form 10-Q
Table of Contents
Page
Part I. Financial Information
Consolidated Balance Sheets
at December 31, 1998 and March 31, 1998.............................. 2
Consolidated Statements of Operations
for the three and nine months ended December 31, 1998 and 1997....... 3
Consolidated Statements of Cash Flows
for the nine months ended December 31, 1998 and 1997................. 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........... 13
Part II. Other Information.................................................14
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.
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XYVISION, INC.
CONSOLIDATED BALANCE SHEETS
at December 31, 1998 and March 31, 1998
<TABLE>
<S> <C> <C>
(Unaudited)
December 31, March 31,
1998 1998
---------- -------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 484 $ 357
Accounts receivable:
Trade, less allowance for doubtful accounts of $727 at December 31, 1998
and $733 at March 31, 1998 ............................................ 1,432 3,630
Inventories .............................................................. 29 337
Other current assets ..................................................... 288 651
---------- -------
Total current assets ................................................. 2,233 4,975
Property and equipment, net .............................................. 596 851
Other assets, net, principally software development costs ................ 621 1,090
---------- -------
Total assets ....................................................... $ 3,450 $ 6,916
========== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to a stockholder, less unamortized discount of $887 at
December 31, 1998 and $1,032 at March 31, 1998........................... $ 10,863 $ 9,168
Current portion of long-term debt ........................................ 2,206 2,206
Accounts payable and accrued expenses .................................... 1,983 2,277
Other current liabilities ................................................ 2,074 2,112
---------- -------
Total current liabilities ............................................ 17,126 15,763
---------- -------
Total liabilities .................................................. 17,126 15,763
---------- -------
Minority interest in subsidiary ............................................ 1,000 -
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; 235,299 issued and outstanding at December 31, 1998 and
March 31, 1998 (aggregate liquidation preference of $3,223 and $3,151,
respectively) ......................................................... 235 235
Series C convertible preferred stock, $.01 par value; 1,000,000 shares
authorized; 175,000 shares issued and outstanding at liquidation value 1,750 -
Common stock, $.03 par value; 25,000,000 shares authorized; 2,949,549
issued and 2,854,236 outstanding at December 31, 1998 and March 31,
1998 .................................................................. 88 88
Additional paid-in capital ............................................... 50,724 50,956
Accumulated deficit ...................................................... (66,305) (58,958)
---------- -------
(13,508) (7,679)
Less:
Treasury stock, at cost; 95,333 shares at December 31, 1998 and
March 31, 1998 ........................................................ 1,168 1,168
---------- -------
Total stockholders' deficit ............................................. (14,676) (8,847)
---------- -------
Total liabilities and stockholders' deficit ........................ $ 3,450 $ 6,916
========== =======
</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 three and nine months ended December 31, 1998 and 1997
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended NineMonths Ended
------------------------------ --------------------------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------- ------- ------- -------
(Unaudited) (Unaudited)
Revenues:
Systems ......................................... $ 963 $ 2,016 $ 2,728 $ 6,610
Service ......................................... 1,783 2,285 5,077 6,813
------- ------- ------- -------
Total revenues ............................... 2,746 4,301 7,805 13,423
------- ------- ------- -------
Cost of sales:
Systems ......................................... 250 697 1,173 2,586
Service ......................................... 1,119 1,664 3,722 5,127
------- ------- ------- -------
Total cost of sales .......................... 1,369 2,361 4,895 7,713
------- ------- ------- -------
Gross margin ...................................... 1,377 1,940 2,910 5,710
------- ------- ------- -------
Expenses:
Research and development ........................ 801 867 2,905 2,435
Marketing, general and administrative ........... 1,769 2,228 6,178 6,719
------- ------- ------- -------
Total operating expenses ..................... 2,570 3,095 9,083 9,154
------- ------- ------- -------
Loss from operations .............................. (1,193) (1,155) (6,173) (3,444)
------- ------- ------- -------
Other expense, net:
Interest income ................................. 3 3 9 5
Interest expense - third party .................. (30) (60) (95) (125)
Interest expense - stockholder .................. (385) (226) (999) (626)
------- ------- ------- -------
Total other expense, net .......................... (412) (283) (1,085) (746)
------- ------- ------- -------
Loss before income taxes .......................... (1,605) (1,438) (7,258) (4,190)
Provision for income taxes ........................ - - - -
------- ------- ------- -------
Net loss .......................................... (1,605) (1,438) (7,258) (4,190)
Series B Preferred Stock dividends ................ 24 24 72 72
------- ------- ------- -------
Net loss allocable to common stockholders ......... $(1,629) $(1,462) $(7,330) $(4,262)
======= ======= ======= =======
Basic and diluted earnings per share:
Loss allocable to common stockholders ............. (0.57) (0.51) (2.57) (1.49)
------- ------- ------- -------
Net loss per share ................................ (0.57) (0.51) (2.57) (1.49)
======= ======= ======= =======
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.
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XYVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended December 31, 1998 and 1997
(In thousands)
<TABLE>
<S> <C> <C>
Nine Months Ended
----------------------------------
December 31, December 31,
1998 1997
------- -------
(Unaudited)
Operations:
Net loss ................................................................... $(7,258) $(4,190)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization .............................................. 1,414 1,696
Provisions for losses on accounts receivable ............................... 397 292
Loss on sale of assets ..................................................... 379 -
Operating assets and liabilities:
Accounts receivable ...................................................... 1,702 769
Inventories .............................................................. 164 (205)
Accounts payable and accrued expenses .................................... (294) (744)
Other current liabilities ................................................ (38) (11)
Other assets ............................................................. 94 24
------- -------
Net cash used for operations ............................................... (3,440) (2,369)
Investments:
Additions to property and equipment ........................................ (160) (439)
Capitalized software ....................................................... (176) (1,265)
Proceeds from sale of assets ............................................... 3 -
------- -------
Net cash used for investments .............................................. (333) (1,704)
Financing:
Proceeds from line of credit from a stockholder ............................ 3,300 4,300
Proceeds from sale of subsidiary's preferred stock ......................... 600 -
Repayment of line of credit to a stockholder ............................... - (200)
Accrued interest ........................................................... - 27
------- -------
Net cash provided from financing ........................................... 3,900 4,055
Net increase (decrease) in cash and cash equivalents ....................... 127 (18)
Cash and cash equivalents at the beginning of the period ................... 357 261
------- -------
Cash and cash equivalents at the end of the period ......................... $ 484 $ 243
======= =======
Supplemental Information:
Conversion of 6% debentures to equity ..................................... - 20
Conversion of accrued interest on 6% debentures to equity ................. - 7
Note receivable from stockholder .......................................... 400 -
Conversion of debt from shareholder ....................................... 1,750 -
Dividends on preferred stock .............................................. 72 72
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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XYVISION, 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 Company's consolidated financial position as of
December 31, 1998 and the results of its consolidated operations and
consolidated cash flows for the interim periods ended December 31, 1998
and 1997. 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, 1998.
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 interim period ended
December 31, 1998 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 finished goods.
4. The Company has a line of credit with Tudor Trust ("Tudor Trust"), the
largest stockholder of the Company. Mr. Jeffrey Neuman, the grantor, sole
trustee and sole current beneficiary of Tudor Trust, also serves as
Chairman of the Board of Directors of the Company. The line, which is
payable on March 31, 2000, is collateralized by the Company's stock in
Xyvision Enterprise Solutions, Inc., a majority owned subsidiary
("XyEnterprise), 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 common
stock based on the fair market value of the Common Stock. 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, the Company 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 Common Stock based on the fair market value of the Common Stock, (iv)
provided for the issuance by the Company to Tudor Trust common stock
purchase warrant covering 600,000 shares of Common Stock of the Company at
an exercise price of $1.25 (representing the fair market value of the
Common Stock on the date of issuance), and (v) increased the interest rate
on the line of credit from 6% to 8%.
On December 31, 1998, as part of the corporate restructuring plan approved
by the Board of Directors and further described in Note 9 to the
Consolidated Financial Statements, Tudor Trust converted $1,750,000 of the
outstanding indebtedness under the line of credit into 175,000 shares of
the newly designed Series C Preferred Stock of the Company (which are
convertible into 1,750,000 shares of Common Stock). In addition, the
Company 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 under the line of credit will
become convertible into shares of Series C Preferred Stock in June 1999 at
the option of Tudor Trust at the conversion
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ratio of $10.00 per share, (ii) decreased the interest rate on the
convertible portion of the line of credit from 8% to 6%, (iii) decreased
the maximum loan amount thereunder to $12,226,620 less any amount
converted from time to time into the Company's Series C Preferred Stock,
and (iv) Tudor Trust released its liens on the assets of Xyvision that
were transferred to XyEnterprise while taking a security interest in the
stock of XyEnterprise held by Xyvision. On December 31, 1998, XyEnterprise
and Tudor Trust entered into a Loan Agreement providing XyEnterprise with
a $1,000,000 line of credit to use for working capital and general
business purposes. The line of credit bears an interest rate of 8%, is
payable March 31, 2000 and is collateralized by substantially all of the
assets of XyEnterprise. As of December 31, 1998, including the line of
credit available to XyEnterprise, the Company had an outstanding credit
line balance of $11,750,000. As of February 16, 1999, the Company had an
outstanding credit line balance of $11,750,000. As of February 16, 1999,
XyEnterprise had an outstanding credit line balance of $100,000.
5. In May 1987, the Company issued $25,000,000 principal aggregate amount of
6% Convertible Subordinated Debentures due 2002 (the "Debentures")
convertible into 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 the Company under certain conditions. During fiscal 1992, the
Company began a program to restructure its financial position,
specifically, the Debentures which continues to this date.
From March 10, 1992 to September 30, 1996, the Company completed
restructuring transactions pursuant to which the holders of a total of
$19,035,000 aggregate principal amount of Debentures generally exchanged
Debentures for a combination of unsecured, unsubordinated promissory notes
of the Company bearing interest at 15% per year and shares of Common
Stock. Between September 30, 1996 and December 31, 1998, the Company
completed restructuring transactions pursuant to which the holders of a
total of $2,020,000 aggregate principal amount of Debentures generally
exchanged Debentures for shares of Common Stock. As of February 16, 1999,
a total of $1,355,000 principal amount of Debentures remained outstanding.
The Company may seek to restructure the remaining Debentures, but there
can be no assurance that it will do so.
The Company did not make the interest payment due on the Debentures on May
5, of 1992, 1993, 1994, 1995, 1996, 1997 or 1998. As of February 16, 1999,
the cumulative unpaid interest due on the Debentures totaled $633,025.
Under the terms of the Indenture covering the Debentures, the Trustee or
the holders of no less than 25% of outstanding principal amount of the
Debentures have the right to accelerate the maturity date of the remaining
Debentures. As of February 16, 1999, no such acceleration had occurred or
been threatened.
As of December 31, 1998, the Company had completed restructuring
transactions pursuant to which the holders of 15% Promissory Notes in the
aggregate principal amount of $5,709,000 with accrued interest of
$2,353,000 generally exchanged 15% Promissory Notes (including all rights
to receive any interest accrued thereon) for a combination of unsecured,
unsubordinated promissory notes of the Company bearing interest at 4% per
year, shares of Common Stock and shares of Series B Preferred Stock. 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
preference of $62.50 per share, plus any dividends declared or accrued but
unpaid. As of February 16, 1999, cumulative accrued but unpaid dividends
on the Series B Preferred Stock totaled $293,123 or $1.25 per share. As of
February 16, 1999, 15% Promissory Notes in an aggregate principal amount
of $60,000 with accrued interest of $56,000 were overdue. The Company may
seek to restructure the remaining 15% Promissory Notes, but there can be
no assurance that it will do so.
As of December 31, 1998, the Company had completed restructuring
transactions pursuant to which the holders of 4% Promissory Notes in the
aggregate principal amount of $4,974,000 generally exchanged 4% Promissory
Notes for shares of Common Stock plus accrued but unpaid interest. As of
February 16, 1999, 4% Promissory Notes in an aggregate principal amount of
$512,000 with accrued interest of $11,950.00 were overdue. The Company may
seek to restructure the remaining 4% Promissory Notes, but there can be no
assurance that it will do so.
The Company continues to negotiate, in good faith, restructuring
transactions with as many of the remaining holders of Debentures, 15%
Promissory Notes and 4% Promissory Notes as possible. Independently of the
Company, Tudor Trust has made an offer to certain holders of Debentures,
15% Promissory Notes and 4% Promissory Notes to purchase such securities
at 10% of their face amount. Tudor Trust has agreed to reduce the
Company's liability with respect to such securities to the purchase price
paid by Tudor Trust. However, despite the fact that 95% of the 6%
Debentures have been restructured and the Company has been unable to
6
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indentify 4% of the remaining, the Company can still give no assurance
about the outcome of these restructuring efforts and does not expect the
matters to be resolved in the near future. If the Company is unable to
enter into exchange transactions with the remaining holders, and such
holders 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.
The Company anticipates that its cash requirements for the remainder of
fiscal 1999 will be satisfied mainly from its credit line, or otherwise
from Tudor Trust, assuming the continued forbearance by the holders of the
Debentures, 15% Promissory Notes and 4% Promissory Notes. 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.
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. There has
been no change to the valuation allowance during the nine months ended
December 31, 1998.
7. Earnings Per Share (in thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
------------------------------- -----------------------------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
------- ------- ------- -------
(Unaudited) (Unaudited)
Basic and diluted EPS computation:
Net loss ........................................... $(1,605) $(1,438) $(7,258) $(4,190)
Series B Preferred Stock dividends ................. 24 24 72 72
------- ------- ------- -------
Net loss allocable to common stockholders .......... $(1,629) $(1,462) $(7,330) $(4,262)
------- ------- ------- -------
Weighted average common shares outstanding ......... 2,854 2,854 2,854 2,854
======= ======= ======= =======
Basic and diluted EPS:
Loss allocable to common stockholders .............. (0.57) (0.51) (2.57) (1.49)
------- ------- ------- -------
Net loss per share ................................. (0.57) (0.51) (2.57) (1.49)
======= ======= ======= =======
</TABLE>
On October 20, 1998, the Company amended its Certificate of Incorporation
to effect a one-for-five reverse split of the Common Stock and to change
the number of authorized shares of Common Stock 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 the
reverse stock split on a retroactive basis.
8. Sale of Assets: On September 18, 1998, the Company sold substantially
all 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
$464,000.
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9. Restructuring: On December 31, 1998, the Company completed a corporate
restructuring plan (the "Restructuring") pursuant to which, among other
things, substantially all of the assets of the publishing business were
transferred to XyEnterprise in exchange for shares of common stock of
XyEnterprise, while the majority of its liabilities, including obligations
under its line of credit with Tudor Trust, will remain with the Company. As
described in Note 4 to the Consolidated Financial Statements, the Company's
credit line with Tudor Trust was amended. In addition, Tudor Trust
converted $1,750,000 of the outstanding indebtedness under the line of
credit into 175,000 shares of Series C Preferred Stock, which are
convertible into Common Stock. An additional $5,000,000 of the outstanding
indebtedness under the line of credit will become convertible into shares
of Series C Preferred Stock 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 all of its Common Stock Purchase Warrants, covering an
aggregate of 4,956,000 shares of Common Stock at various exercise prices.
Tudor Trust has provided XyEnterprise with a $1,000,000 line of credit, as
well as invested $1,000,000 to purchase 400,000 shares of Series A
Preferred Stock of XyEnterprise of which $600,000 has been received as of
December 31, 1998.
8
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XYVISION, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
For the three and nine month periods ended December 31, 1998 and 1997
Results of Operations
Revenues for the third quarter of fiscal 1999 were $2,746,000, a decrease
of $1,555,000, or 36%, from the third quarter of fiscal 1998. Systems revenues
fell $1,053,000, or 52%, from the same quarter of fiscal 1998. Systems revenues
decreased 92% in the Contex division as compared to the third quarter of fiscal
1998 while the systems revenues in the Publishing division declined 34% for the
same comparative period. The Contex division was sold on September 18, 1998.
Service revenues decreased $502,000 or 22% from $2,285,000 in the third quarter
of fiscal 1998. The decrease in service revenues was a result primarily of
reduced service revenues in the Contex division.
Revenues for the nine months ended December 31, 1998 were $7,805,000, a
decrease of $5,618,000 or 42% from the nine months ended December 31, 1997.
Systems revenues dropped $3,882,000, or 59%, from the comparable period ended
December 31, 1997. Systems revenues decreased due to lower sales within the
Publishing business as well as a result of the sale of the Contex business.
Service revenues decreased by $1,736,000, or 25%, from $6,813,000 in the first
nine months of fiscal 1998. The decrease in service revenues was primarily a
result of reduced service revenues in the Contex division as well as lower
system sales and consequentially a lower level of customer service and
maintenance requirements.
Gross margins in the third quarter of the current fiscal year improved to
50% of revenues from 45% in the comparable quarter of fiscal 1998. Systems
margins were 74% of system revenues in the current fiscal quarter as compared
to 65% of system revenues in the second quarter of the previous fiscal year.
The increase of system margins in the third quarter of fiscal 1999 was
primarily a result of reduced amortization of capitalized software. The service
margins in the third quarter of fiscal 1999 were 37% as compared with service
margins of 27% in the third quarter of the previous fiscal year. The
improvement is a result of reduced employee headcount and other cost
containment.
Gross margins for the nine months ended December 31, 1998 were 37% of
revenues as compared to 43% of revenues for the nine months ended December 31,
1997. Systems margins were 57%, a decrease from 61% for the comparable period
in fiscal 1998. The decrease in the system margins was primarily a result of a
change in estimate of realizability of previously capitalized software creating
an accelerated amortization expense. Service margins for the first nine months
of fiscal 1999 of 27% were relatively consistent with the 25% for the first
nine months of fiscal 1998.
Research and development expenses in the third quarter of fiscal 1999, net
of capitalized software development costs, were $801,000, a decrease of
$66,000, or 8%, from the third quarter of fiscal 1998. The decrease was
primarily due to reduced development headcount and payroll as a result of the
sale of the Contex business. There were no capitalized software development
costs in the third quarter of 1999 as compared to $357,000 in the third quarter
of fiscal 1998. Research and development expenses, net of capitalized software
development costs, for the nine months ended December 31, 1998 were $2,905,000,
an increase of 19% from the comparable period ended December 31, 1997. The
increase was primarily due to a lower level of capitalization of development
costs in the Contex and Publishing division partially offset by a reduction in
headcount and payroll in the Contex division early in the year and the ultimate
sale of the division in the second quarter. Capitalized software costs were
$176,000 and $1,265,000 for the first nine months of 1999 and 1998,
respectively.
Marketing, general and administrative expenses were $1,769,000 for the
third quarter of fiscal 1999, a decrease of $459,000, or 21%, from the third
quarter of fiscal 1998. Included in these costs are expenses related to the
Restructuring. Corporate administrative expenses reflect savings associated
with the relocation of corporate headquarters, a reduction in headcount as a
result of the sale of the Contex business, as well as other cost containment
programs.
Marketing, general and administrative expenses were $6,178,000 and
$6,719,000 for the first nine months of fiscal 1999 and 1998, respectively. The
decrease of 8% is primarily a result of lower employee costs in the Contex
sales and support groups worldwide and the Publishing sales and marketing group
in North America offset by a
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charge of $464,000 related to the sale of the Contex business, additional
provision for bad debt in the second quarter and expenses for the
Restructuring.
Total other expense, net was $412,000 for the third quarter of fiscal
1999, an increase of $129,000, or 46%, from the third quarter of 1998,
primarily due to an increase in interest expense. The increase in interest
expense for the third quarter of fiscal 1999 was primarily due to a rate
increase on the note payable to Tudor Trust from 6% to 8% as well as higher
average balance of the Company's credit line and the increase in warrant
amortization expense related to additional warrants issued pursuant to the July
1, 1998 amendment to the Tudor Trust line of credit agreement. See Note 4 to
Consolidated Financial Statements.
Total other expense, net was $1,085,000 and $746,000 for the first nine
months of fiscal 1999 and 1998 respectively. The increase in interest expense
was primarily due to a rate increase on the note payable to Tudor Trust from 6%
to 8% effective July 1, 1998 as well as a higher balance on the credit line and
the increase in warrant amortization expense related to additional warrants
issued pursuant to the July 1, 1998 amendment to the Tudor Trust line of credit
agreement. See Note 4 to Consolidated Financial Statements.
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. There has been no change in the
valuation allowance for the third quarter of fiscal 1999 and first nine months
of fiscal 1999.
The Company accrued dividends of $24,000 on the Series B Preferred Stock
in each of the first three quarters of fiscal 1999 and 1998.
The Company recorded a net loss allocable to common stockholders of
$1,629,000 for the third quarter of fiscal 1999 and $7,330,000 for the nine
months ending December 31, 1998, compared to a net loss allocable to common
stockholders of $1,462,000 for the third quarter of fiscal 1998 and $4,262,000
for the nine months ending December 31, 1997.
On September 18, 1998, the Company sold substantially all 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 $464,000 in the second quarter.
On December 31, 1998, the Company completed a corporate restructuring plan
(the "Restructuring") pursuant to which, among other things, substantially all
of the assets of the publishing business were transferred to XyEnterprise in
exchange for shares of common stock of XyEnterprise, while the majority of its
liabilities, including obligations under its line of credit with Tudor Trust,
will remain with the Company. As described in Note 4 to the Consolidated
Financial Statements, the Company's credit line with Tudor Trust was amended.
In addition, Tudor Trust converted $1,750,000 of the outstanding indebtedness
under the line of credit into 175,000 shares of Series C Preferred Stock, which
are convertible into Common Stock. An additional $5,000,000 of the outstanding
indebtedness under the line of credit will become convertible into shares of
Series C Preferred Stock 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 all of its Common Stock Purchase Warrants, covering an aggregate
of 4,956,000 shares of Common Stock of at various exercise prices. Tudor Trust
has provided XyEnterprise with a $1,000,000 line of credit, as well as invested
$1,000,000 to purchase 400,000 shares of Series A Preferred Stock of
XyEnterprise, of which $600,000 has been received as of December 31, 1998.
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Liquidity and Capital Resources
At December 31, 1998, the Company had cash of $484,000, an increase of
$127,000 from March 31, 1998. For the first nine months of fiscal 1999, the
Company's operating and investment activities used $3,440,000 of cash,
primarily for operations.
The Company has a $12,226,620 line of credit with Tudor Trust, the largest
stockholder of the Company. 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 the Company. This credit line has been used for working
capital and general business purposes. As of December 31, 1998, the Company had
an outstanding line of credit balance of $11,750,000. As of February 12, 1999,
the Company had an outstanding credit line balance of $11,750,000.
XyEnterprise, a subsidiary of Xyvision, has a separate $1,000,000 line of
credit with Tudor Trust. As of December 31, 1998, XyEnterprise had not drawn
down the line of credit. As of February 12, 1999, XyEnterprise had an
outstanding credit balance of $100,000. See Note 4 to the Consolidated
Financial Statements for a further description of the Company's line of credit.
See Note 5 to the Consolidated Financial Statements for a description of
the Company's efforts to restructure its outstanding Debentures, 15% Promissory
Notes and 4% Promissory Notes. Despite the fact that 95% of the 6% bonds have
been restructured and the Company has been unable to identify 4% of the
remaining, the Company can give no assurance about the outcome of these
continued restructuring efforts and does not expect the matters to be resolved
in the near future. If the Company is unable to enter into exchange
transactions with the remaining debt holders, and such holders 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.
The Company anticipates that its cash requirements for fiscal 1999 will be
satisfied mainly from its credit lines, or otherwise from Tudor Trust, assuming
the continued forbearance by the holders of the Debentures, 15% Promissory
Notes and 4% Promissory Notes For the remainder of fiscal 1999, the Company
expects to have sufficient cash within the current terms of the credit line.
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 begun developing 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
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 have been tested internally and
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
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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 has completed its assessment of 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 products sold are Year 2000 compliant. This assessment 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 is in the process of identifying anticipated costs, problems
and uncertainties associated with making its internal use systems Year 2000
compliant. Costs identified to date approximate $265,000 of which $110,000 has
been expended. The Company expects to resolve the Year 2000 issue with respect
to its computer systems and software applications during calendar year 1999
through upgrade, conversion, modification or replacement of non-compliant
systems and applications. The Company's Year 2000 readiness task force has
completed its assessment of the exposure of its internal information
technologies (IT), including operating equipment such as electrical power
systems, heating and cooling, etc. The task currently underway is the continued
assessment of all corporate IT, and the implementation of remediation of
problems discovered.
The Company has determined that the replacement of older personal
computers with non-compliant hardware and software with Year 2000 compliant
technology represents the most extensive task yet to be completed. The
Company's survey of its financial, human resource, customer support, and
payroll applications base has identified subsequent versions of existing
software and hardware which are Year 2000 compliant, and these applications
software vendors have all provided an upgrade path which requires minimal
commitment of resources from the Company's IT group. The Company has budgeted
$350,000 for software upgrades and hardware replacement program of which
$110,000 has been spent. The Company is evaluating these upgrades and choosing
to implement them, or at its option replace the entire application with another
similar application, for additional reasons not related to Year 2000
compliance, such as additional features, better interfaces, and tighter
integration.
In the terms of communications infrastructure, the Company's systems were
partially upgraded in conjunction with its corporate relocation in February,
1998, and the replacement of its voicemail system is the only remaining
identifiable Year 2000 compliance task, as its telecommunication systems and
internet connectivity is assured by its current suppliers to be Year 2000
compliant. The budget for the voicemail system is $50,000 for hardware,
software and services.
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 expected to be substantially
complete by July 1999, with continued testing and remediation efforts through
the following four to five months.
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 the
Company will have to upgrade applications without enhancing features and
benefits in the financial, human
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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.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds:
At the Company's 1998 Annual Meeting of Stockholders, the stockholders
approved an amendment (the "Charter Amendment") to the Company's
Certificate of Incorporation, as amended, to effect a one-for-five
reverse split of the Common Stock and to change the number of authorized
shares of Common Stock from 50,000,000 to 25,000,000. The reverse split
became effective on October 20, 1998 with the filing with the Secretary
of State of the State of Delaware of the Charter Amendment.
On October 26, 1998, each of the Rights representing the right to
purchase one one-hundredth of a share of the Company's Series A Junior
Participating Preferred Stock upon the terms and subject to the
conditions set forth in the Rights Agreement, dated as of October 19,
1988, by and between the Company and Mellon Bank N.A., as amended,
expired pursuant to the terms of the Rights Agreement. The Company has no
current plans to adopt a new stockholder rights plan. On November 20,
1998, the Company filed with the Secretary of State of the State of
Delaware a Certificate Eliminating the Series A Junior Participating
Preferred Stock.
On December 30, 1998, the Company filed with the Secretary of State of
the State of Delaware a Certificate of Designations of the Preferred
Stock of Xyvision, Inc. To Be Designated Series C Convertible Preferred
Stock (the "Certificate of Designations"). The Certificate of
Designations designated a total of 1,000,000 shares of the authorized and
unissued shares of preferred stock of the Company as Series C Convertible
Preferred Stock and set the powers, designations, preferences and
relative, optional or other special rights of, and the qualifications,
limitations or restrictions upon, the Series C Convertible Preferred
Stock. The Series C Preferred Stock shall bear no dividends; provided
that while the Series C Preferred Stock is outstanding, the Company shall
not declare or pay any dividends or other distributions on shares of
Common Stock. The Series C Preferred Stock shall have a liquidation
preference in the amount of $10.00 per share. Each share of Series C
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 C
Preferred Stock are then convertible. Initially, each share of Series C
Preferred Stock is convertible into ten shares of Common Stock. Except as
otherwise provided in the Certificate of Designations or by law, the
Series C Preferred Stock shall vote together with the Common Stock. The
Company may at any time redeem the Series C Preferred Stock. The initial
redemption price is $10.00 per share. The foregoing description of the
terms of the Series C Preferred Stock does not purport to be complete and
is qualified in its entirety by reference to the full text of the
Certificate of Designations which is filed as Exhibit 3.2 to this
Quarterly Report on Form 10-Q, and is incorporated herein by reference.
On December 31, 1998, the Company issued to Tudor Trust an aggregate of
175,000 shares of Series C Preferred Stock (the "Shares") in exchange for
the cancellation of $1,750,000 of the outstanding indebtedness under the
Company's line of credit with Tudor Trust. The Shares are initially
convertible into an aggregate of 1,750,000 shares of Common Stock. The
Shares were issued to Tudor Trust in reliance on Section 4(2) of the
Securities Act of 1933, as amended, as a transaction by the Company not
involving a public offering. No underwriters were involved with the
issuance of the Shares.
Item 3. Defaults Upon Senior Securities:
For a description of defaults upon the Company's 6% Convertible
Subordinated Debentures, 15% Promissory Notes and 4% Promissory Notes and
arrearage in the payment of dividends on the Company's Series B Preferred
Stock, see Note 5 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 October 5, 1998, the Company filed a Current Report on Form 8-K,
dated September 18, 1998, to report under Item 2 (Acquisition or
Disposition of Assets) the Company's sale of substantially all of
the assets, inventory, equipment and accounts receivable of its
Contex Division to Barco, Inc.
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On October 21, 1998, the Company filed a Current Report on Form 8-K,
dated October 20, 1998, to report under Item 5 (Other Events) the
effectiveness of the reverse split of the Common Stock. No financial
statements were required to be filed with such report.
On October 27, 1998, the Company filed a Current Report on Form 8-K,
dated October 27, 1998, to report under Item 5(Other Events) the
expiration of the Company's stockholder rights agreement. No
financial statements were required to be filed with such report.
On December 2, 1998, the Company filed Amendment No. 1 to Current
Report on Form 8-K/A, dated September 18, 1998, to amend and restate
in its entirety the Company's Current Report on Form 8-K, dated
September 18, 1998, to report under Item 5 (Other Events) the
company's sale of substantially all of the assets, inventory,
equipment and accounts receivable of its Contex Division to Barco,
Inc. No financial statements were required to be filed with such
report.
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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.
XYVISION, INC.
------------------------------
(Registrant)
February 16, 1999
/s/ Wendy Darland
------------------------------
Wendy Darland
Vice President, Chief
Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit No. Description
- --------------- ----
2.1 Asset Purchase Agreement, dated as of September 18, 1998, by and between
the Registrant and Barco, Inc. is incorporated by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K, dated September 18, 1998 (File
No. 000-14747)
2.2 Agreement dated as of December 22, 1998, by and among the Registrant,
Xyvision Enterprise Solutions, Inc. and Jeffrey L. Neuman, as trustee of the
Tudor Trust u/d/t December 12, 1997 is incorporated by reference to Exhibit
2.1 to the Registrant's Current Report on Form 8-K, dated December 31,
1998 (File No. 000-14747)
2.3 Contribution and Assumption Agreement, dated as of December 31, 1998,
by and between the Registrant and Xyvision Enterprise Solutions, Inc. is
incorporated by reference to Exhibit 2.2 to the Registrant's Current Report
on Form 8-K, dated December 31, 1998 (File No. 000-14747)
3.1 Certificate Eliminating the Series A Junior Participating Preferred Stock of
the Registrant
3.2 Certificate of Designations of the Preferred Stock of the Registrant to be
Designated Series C Preferred Stock
10.1 Letter Agreement, dated December 31, 1998, by and between the Registrant
and Jeffrey L. Neuman, as trustee of the Tudor Trust u/d/t December 12,
1997
10.2 First Amendment to Second Amended and Restated Secured Advance
Facility Loan Agreement, dated as of December 31, 1998, by and between
the Registrant and Jeffrey L. Neuman, as trustee of the Tudor Trust u/d/t
December 12, 1997
10.3 Series A Convertible Preferred Stock Purchase Agreement, dated as of
December 31, 1998, by and between Xyvision Enterprise Solutions, Inc. and
Tudor Trust
10.4 Xyvision Enterprise Solutions, Inc. 1998 Stock Incentive Plan
10.5 Secured Advance Facility Loan Agreement, dated as of December 31, 1998,
by and between Xyvision Enterprise Solutions, Inc. and Jeffrey L. Neuman,
as trustee of the Tudor Trust u/d/t December 12, 1997
10.6 Services Agreement, dated as of December 31, 1998, by and between the
Registrant and Xyvision Enterprise Solutions, Inc.
10.7 Letter Agreement, dated as of December 31, 1998, by and between Xyvision
Enterprise Solutions, Inc. and Jeffrey L. Neuman, as trustee of the Tudor
Trust u/d/t December 12, 1997
10.8 Letter Agreement and Promissory Note, dated as of November 30, 1998, by
and between the Registrant and Jeffrey L. Neuman, as trustee of the Tudor
Trust u/d/t December 12, 1997
27 Financial Data Schedule
</TABLE>
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EXHIBIT 2.1
AGREEMENT
THIS AGREEMENT (the "Agreement"), made as of the 22nd day of December,
1998, is entered into by Xyvision, Inc., a Delaware corporation ("Xyvision"),
Xyvision Enterprise Solutions, Inc., a Delaware corporation ("XES"), and
Jeffrey L. Neuman, as trustee of the Tudor Trust u/d/t December 12, 1997
("Tudor Trust").
WHEREAS, on December 4, 1998, XES was incorporated under the laws of the
State of Delaware as a wholly owned subsidiary of Xyvision;
WHEREAS, on the date hereof, the Board of Directors of Xyvision approved a
corporate restructuring plan pursuant to which, among other things,
substantially all of the assets and certain liabilities of Xyvision's
publishing business will be contributed to XES (the "Restructuring"), effective
as of December 31, 1998 (the "Effective Date"); and
WHEREAS, the successful completion of the Restructuring is dependent upon
the mutual cooperation of Xyvision, XES and Tudor Trust as set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
agree as follows:
1. First Amendment to Second Amended and Restated Secured Advance
Facility Loan Agreement. On or before the Effective Date, Xyvision and
Tudor Trust each shall execute and deliver the First Amendment to Second
Amended and Restated Secured Advance Facility Loan Agreement (the "Amended
Loan Agreement"), substantially in the form attached hereto as Exhibit A.
2. Conversion of Tudor Trust Debt. On the Effective Date, in accordance
with the terms of the Amended Loan Agreement, Tudor Trust shall convert
$1,750,000 of the principal of the secured indebtedness outstanding
thereunder into an aggregate of 175,000 shares of Series C Convertible
Preferred Stock, $.01 par value per share, of Xyvision having the terms set
forth on Exhibit B attached hereto.
3. Pledge Agreement. On or before the Effective Date, Xyvision and Tudor
Trust each shall execute and deliver the Pledge Agreement, substantially in
the form attached hereto as Exhibit C.
4. Cancellation of Tudor Trust Warrants. On the Effective Date, Tudor
Trust shall deliver to Xyvision for cancellation the Common Stock Purchase
Warrants set forth on Exhibit D hereto.
5. Acquired Debt Agreement. On or before the Effective Date, Xyvision
and Tudor Trust each shall execute and deliver the Acquired Debt Agreement,
substantially in the form attached hereto as Exhibit E.
6. Contribution and Assumption Agreement. On or before the Effective
Date, Xyvision and XES each shall execute and deliver the Contribution and
Assumption Agreement, substantially in the form attached hereto as Exhibit
F.
7. Series A Preferred Stock Purchase Agreement. On the Effective Date,
XES and Tudor Trust each shall execute and deliver the Series A Convertible
Preferred Stock Purchase Agreement, substantially in the form attached
hereto as Exhibit G, for the purchase and sale of an aggregate of 400,000
shares of Series A Convertible Preferred Stock, $.001 par value per share,
of XES having the terms set forth on Exhibit H attached hereto.
8. Secured Advance Facility Loan Agreement. On the Effective Date, XES
and Tudor Trust each shall execute and deliver the Secured Advance Facility
Loan Agreement, and the related documents and agreements referenced therein
and contemplated thereby, substantially in the forms attached hereto as
Exhibit I.
9. Further Assurances. Subject to the provisions hereof, each of the
parties hereto shall make, execute, acknowledge and deliver such other
agreements, documents or instruments and take or cause to be taken such
other actions as may be reasonably required in order to effectuate the
purposes of this Agreement and the Restructuring and to consummate the
transactions contemplated hereby and thereby.
10. Titles and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
11. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of The Commonwealth of
Massachusetts without regard to any choice or conflict of law rule or
provision that would result in the application of the domestic substantive
laws of any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
XYVISION, INC.
By: /s/ Kevin J. Duffy
---------------------------
Name: Kevin J. Duffy
Title: President
XYVISION ENTERPRISE SOLUTIONS, INC.
By: /s/ Wendy Darland
---------------------------
Name: Wendy Darland
Title: Vice President
/s/ Jeffrey L. Neuman
---------------------------
Jeffrey L. Neuman, as trustee of
the Tudor Trust u/d/t December 12, 1997
2
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[Xyvision, Inc. agrees to furnish supplementally to the Securities and Exchange
Commission copies of any of the following omitted exhibits upon request of the
Commission.]
<TABLE>
<S> <C>
Exhibit A First Amendment to Second Amended and Restated Secured Advance Facility Agreement
Exhibit B Certificate of Designations of Series C Convertible Preferred Stock of the Registrant
Exhibit C Pledge Agreement
Exhibit D Common Stock Purchase Warrants Held by Tudor Trust
Exhibit E Acquired Debt Agreement
Exhibit F Contribution and Assumption Agreement
Exhibit G XyEnterprise Series A Convertible Preferred Stock Purchase Agreement
Exhibit H Certificate of Designations of Series A Convertible Preferred stock of XyEnterprise
Exhibit I XyEnterprise Secured Advance Facility Loan Agreement
</TABLE>
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EXHIBIT 2.2
CONTRIBUTION AND ASSUMPTION AGREEMENT
This Contribution and Assumption Agreement is made as of December 31, 1998
by and between Xyvision, Inc., a Delaware corporation ("Xyvision"), and
Xyvision Enterprise Solutions, Inc., a Delaware corporation ("XES").
WITNESSETH:
WHEREAS, Xyvision is currently the sole stockholder of XES;
WHEREAS, Xyvision has agreed to contribute, transfer, assign and deliver
to XES, and XES has agreed to accept from Xyvision, all of Xyvision's rights,
title and interest in and to all of Xyvision's assets, except for those
described on Schedule A attached hereto (the "Assets"); and
WHEREAS, XES has agreed to assume all of Xyvision's duties, obligations
and responsibilities with respect to the liabilities described on Schedule B
attached hereto (the "Assumed Liabilities");
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
I. Transfer of Assets.
A. Xyvision hereby contributes, transfers, assigns and delivers to XES, its
successors and assigns, to have and to hold forever, and XES hereby accepts
from Xyvision, all of Xyvision's rights, title and interest in and to all of
the Assets, effective as of December 31, 1998 (the "Effective Date").
B. Xyvision represents and warrants to XES that Xyvision is the lawful owner
of all of the Assets to be contributed, transferred and assigned to XES
hereby; that such Assets are free from all encumbrances; and that Xyvision has
the full legal right, power and authority to transfer the same as aforesaid.
C. Xyvision hereby covenants and agrees that on and after the Effective Date
it will, at the request of XES, execute and deliver such other instruments and
take such other action as XES reasonably may require more effectively to
contribute, transfer and assign to, and vest in, XES, its successors and
assigns, or to put XES, its successors and assigns in possession of, any or
all of the Assets hereby contributed, transferred and assigned, or intended so
to be.
II. Assumption of Liabilities.
A. XES hereby assumes all of Xyvision's duties, obligations and
responsibilities with respect to the Assumed Liabilities, effective as of
the Effective Date, it being expressly understood that XES shall in no event
be deemed to assume or be liable in any manner for any of Xyvision's duties,
obligations and responsibilities with respect to Xyvision's outstanding (i)
6% Convertible Subordinated Debentures Due 2002, (ii) 15% Promissory Notes,
(iii) 4% Promissory Notes, or (iv) indebtedness to Tudor Trust under that
certain Second Amended and Restated Secured Advance Facility Loan Agreement,
dated as of July 1, 1998, as amended.
B. Nothing herein shall be deemed to deprive XES of any defenses, set-offs
or counterclaims which Xyvision may have had or which XES shall have with
respect to any of the Assumed Liabilities (the "Defenses and Claims").
Xyvision hereby contributes, transfers and assigns to XES all Defenses and
Claims, effective as of the Effective Date, and agrees to cooperate with XES
to maintain, secure, perfect and enforce such Defenses and Claims.
III. Power of Attorney.
A. Xyvision does hereby irrevocably constitute and appoint XES, its
successors and assigns, as its true and lawful attorney, with full power of
substitution, in its name, or otherwise, and on behalf of Xyvision, or for
its own use, on and after the Effective Date, to claim, demand, collect and
receive at any time and from time to time any and all Assets hereby
contributed, transferred and assigned, or intended so to be, and to
prosecute the same at law or in equity, to settle or compromise the same,
and, upon discharge thereof, to complete, execute and deliver any and all
necessary instruments of satisfaction and release.
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B. XES hereby covenants and agrees with Xyvision that on and after the
Effective Date it will defend Xyvision against the lawful claims and
demands of all persons arising any time and from time to time with respect
to any and all Assets hereby contributed, transferred and assigned, or
intended so to be. Xyvision does hereby irrevocably constitute and appoint
XES, its successors and assigns, as its true and lawful attorney, with full
power of substitution, in its name, or otherwise, and on behalf of
Xyvision, on and after the Effective Date, to defend against such claims
and demands, including, without limitation, to settle or compromise such
claims and demands on such terms as XES may consider appropriate.
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IN WITNESS WHEREOF, the parties have caused this Contribution and
Assumption Agreement to be duly executed as of the day and year first above
written.
XYVISION, INC.
/s/ Kevin J. Duffy
-------------------------------
Name: Kevin J. Duffy
Title: President
XYVISION ENTERPRISE SOLUTIONS, INC.
/s/ Wendy Darland
-------------------------------
Name: Wendy Darland
Title: Vice President
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[Xyvision, Inc. agrees to furnish supplementally to the Securities and Exchange
Commission copies of any of the following omitted schedules upon request of the
Commission.]
<TABLE>
<S> <C>
Schedule A Assets Retained by Xyvision
Schedule B Liabilities Assumed by XES
</TABLE>
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EXHIBIT 3.1
CERTIFICATE ELIMINATING THE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF XYVISION, INC.
XYVISION, INC., a Delaware corporation (the "Corporation"), pursuant to
authority conferred on the Board of Directors of the Corporation by the
Certificate of Incorporation of the Corporation and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, certifies that on November 20, 1998 the Board of Directors of the
Corporation duly adopted the following resolution stating that none of the
authorized shares of the Series A Junior Participating Preferred Stock is
outstanding and that none will be issued, as follows:
RESOLVED: That in connection with the expiration of all Rights outstanding
under the Rights Agreement between the Corporation and Mellon
Bank, N.A., dated as of October 19, 1988, and in accordance with
the provisions of Section 151(g) of the General Corporation Law
of the State of Delaware, the Board of Directors hereby
determines that none of the authorized shares of the
Corporation's Series A Junior Participating Preferred Stock is
outstanding and none will be issued subject to the Certificate of
Designations filed October 21, 1988 with the Secretary of State
of the State of Delaware; and that the proper officers of the
Corporation be, and they hereby are, authorized and directed,
jointly and severally, for and in the name and on behalf of the
Corporation, to execute and file with the Secretary of State of
the State of Delaware a certificate to evidence this resolution
and the determination of the directors hereunder, the intent
being that in accordance with applicable law such filing shall
eliminate from the Corporation's Certificate of Incorporation all
matters set forth in the October 21, 1988 Certificate of
Designations with respect to the Series A Junior Participating
Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by its President this 20th day of November, 1998.
XYVISION, INC.
By: /s/ Kevin J. Duffy
---------------------
Kevin J. Duffy
President
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EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS
OF THE PREFERRED STOCK OF XYVISION, INC.
to be designated Series C Convertible Preferred Stock
Xyvision, Inc., a Delaware corporation (the "Corporation"), pursuant to
the authority conferred on the Board of Directors of the Corporation by the
Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and in accordance with the provisions of Section 151 of the
General Corporation Law of Delaware, hereby 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 1,000,000 shares to be designated "Series C
Convertible Preferred Stock" (hereinafter "Series C Preferred
Stock"); that the Board of Directors be and hereby is authorized
to issue such shares of Series C 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, optional or other
special rights of, and the qualifications, limitations or
restrictions upon, the Series C Preferred Stock shall be as
follows:
Series C Preferred Stock.
A total of 1,000,000 shares of the authorized and unissued Preferred Stock
of the Corporation is hereby designated "Series C Preferred Stock" (the "Series
C Preferred Stock") with the following rights, preferences, powers, privileges,
restrictions, qualifications and limitations:
1. Dividends.
(a) The holders of Series C Preferred Stock shall not be entitled to
receive any dividends.
(b) At any time while shares of Series C Preferred Stock are issued and
outstanding, the Corporation shall not declare or pay any dividends or other
distributions on shares of Common Stock, whether in cash or in property, nor
shall any shares of Common Stock be purchased, redeemed, or otherwise acquired
for value by the Corporation. 2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (a "Liquidation"), and except to
the extent Section 5(k) below requires, the holders of the Series C Preferred
Stock then outstanding shall thereupon be entitled to be paid from the assets
of the Corporation available for distribution to its stockholders the following
amount per share:
(i) On a proportionate parity with the liquidation preference of the
holders of Series B Preferred Stock in the amount of $12.50 per share of Series
B Preferred Stock plus any dividends declared or accrued but unpaid thereon,
the holders of Series C Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders an
amount with respect to each share of Series C Preferred Stock (subject to
appropriate proportionate adjustment for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) the amount
of $10.00 (the "Series C Preferred Stock Liquidation Value"). If the assets of
the Corporation available for distribution are insufficient for the payment of
the foregoing liquidation preference amounts to the holders of Series B
Preferred Stock and Series C Preferred Stock, respectively, the assets
available for distribution to stockholders shall be distributed pro rata among
the holders of the Series B Preferred Stock and the Series C Preferred Stock
based upon the relative aggregate liquidation preference amounts for the
outstanding Series B Preferred Stock and the Series C Preferred Stock and upon
the number of shares of each Series held by each holder; and
(ii) After payment of all preferential amounts required to be paid to
the holders of Series C Preferred Stock
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and any other class or series of stock of the Corporation ranking with respect
to Liquidation on parity with the Series C Preferred Stock, upon the
Liquidation of the Corporation the holders of shares of Series C Preferred
Stock then outstanding shall not be entitled to receive any of the remaining
assets and funds of the Corporation available for distribution to its
stockholders.
(b) The sale, lease, license or other disposition of all or substantially
all of the Corporation's assets, with the exception of the transfer of assets
to Xyvision Enterprise Solutions, Inc., or the share exchange, merger or
consolidation of the Corporation with or into another corporation in which the
beneficial owners of the Corporation's voting stock immediately before the
share exchange, merger or consolidation own less than a majority of the
surviving or acquiring entity's voting stock immediately after the share
exchange, merger or consolidation, shall be deemed to be a Liquidation of the
Corporation for purposes of this Section 2.
(c) In the event the Corporation shall propose to take any action which
would constitute a Liquidation, the Corporation shall, within five days after
the date the Board of Directors approves such action, at least twenty days
prior to any stockholders' meeting called to approve such action, or at least
twenty days prior to the consummation or effectiveness of such action,
whichever is earlier, provide the holders of the Series C Preferred Stock with
written notice of the proposed action. Such written notice shall describe the
material terms and conditions and anticipated timing of such proposed action,
including a description of the stock, cash and/or property to be received by
the holders of the Series C Preferred Stock upon consummation of the proposed
action. The Corporation shall thereafter provide prompt notice of all material
changes to such information, as well as of the consummation or effectiveness of
the action. No such action shall in any event be consummated or take effect
sooner than twenty days after the Corporation has given the first such notice;
provided, however, that any of the foregoing notice periods may be amended by
vote or written consent of the holders of at least two-thirds of the
outstanding shares of Series C Preferred Stock, voting as a single class.
(d) In the event of any Liquidation involving the distribution of assets
other than cash, the amount of such distribution shall be deemed to be the fair
market value of such assets at the time of such distribution as determined in
good faith by the Board of Directors of the Corporation.
3. Voting Rights.
(a) General. Each holder of outstanding shares of Series C 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 C Preferred Stock held by such
holder are then convertible (as determined pursuant to Section 5 hereof) at
each meeting of stockholders of the Corporation (and with respect to written
consents of stockholders in lieu of meetings) regarding 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 Section 3(b)
below, or by the provisions establishing any other series of Preferred Stock,
holders of Series C Preferred Stock and Common Stock shall vote together and
not as separate classes.
(b) Requirement for Series C Preferred Stock Class Vote or Consent. So
long as any shares of Series C
Preferred Stock which are issued by the Corporation remain outstanding, in
addition to any other vote or consent required herein or by law, the
affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of Series C Preferred Stock shall be necessary for effecting
or validating the following actions by the Corporation:
(i) any amendment, alteration, waiver or repeal of any provision of the
Certificate of Incorporation or Bylaws of the Corporation that affects
adversely the voting powers, preferences, or other special rights or
privileges, qualifications, limitations or restrictions of the Series C
Preferred Stock;
(ii) any authorization or any designation, whether by reclassification
or otherwise, of any new class or series of stock or any other securities
convertible into equity securities of the Corporation ranking on a parity with
or senior to the Series C Preferred Stock in right of redemption, liquidation
preference, voting or dividends, or any increase in the authorized or
designated number of any such new class or series;
(iii) any issuance of additional shares of the Series C Preferred
Stock, other than up to 500,000 shares issued in connection with conversions of
debt outstanding on the date of this Certificate, or in excess of an additional
64,701 shares of the Corporation's Series B Preferred Stock, of which Series B
Preferred Stock there are 235,299 shares issued and outstanding as of the date
hereof;
(iv) any declaration or payment of any dividends or any distributions,
whether in cash or property, with respect to any securities of the Corporation,
other than to the holders of the Series B Preferred Stock as provided in the
Certificate of Incorporation;
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(v) any redemption, purchase or acquisition for value of any securities
of the Corporation, other than pursuant to redemption or conversion of the
Series B Preferred Stock or Series C Preferred Stock as provided in the
Certificate of Incorporation; and
(vi) any liquidation, dissolution, winding up, sale, lease, license,
assignment, transfer or other disposition of all or substantially all of the
assets of the Corporation or of any subsidiary of the Corporation, or any share
exchange, consolidation or merger involving the Corporation or any subsidiary
of the Corporation, or any reclassification or other change of any stock or any
recapitalization of the Corporation.
4. Optional Redemptions.
(a) At any time and from time to time the Corporation, to the extent it
may lawfully do so, may call for redemption all or part of the shares of Series
C Preferred Stock then outstanding and not converted into Common Stock by
providing the holders with a written notice as provided in Section 4(c) below.
(b) The redemption price for the Series C Preferred Stock shall be the
Series C Preferred Stock Liquidation Value. In the event that fewer than all of
the then outstanding shares of the Series C Preferred Stock are redeemed, such
shares shall be redeemed on a pro rata basis among all holders of such shares
based on the number of shares of Series C Preferred Stock held by such holders
on the date of the written notice of redemption.
(c) Except as otherwise provided herein, the Corporation shall mail a
written notice of each redemption of Series C Preferred Stock to each record
holder thereof not less than twenty days prior to the redemption date, which
notice shall set forth (i) the redemption price for the shares to be redeemed
and (ii) the place at which such holders may obtain payment of the redemption
price upon surrender of their share certificates. The holders of Series C
Preferred Stock to be redeemed shall in any event have the right to convert
their shares into Common Stock at any time prior to the close of business on
the date that is two days prior to the redemption date. In case fewer than the
total number of shares represented by any certificate are redeemed, a new
certificate representing the number of unredeemed shares shall be issued to the
holder thereof without cost to such holder. 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 shares of Series C Preferred Stock designated for
redemption in the redemption notice as holders of Series C 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. Any shares of Series C 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 C Preferred Stock accordingly.
5. Conversion Rights. The holders of Series C Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Optional Conversion. Each share of Series C Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and without the
payment of additional consideration by the holder thereof, into such number of
shares of Common Stock as is determined by dividing $10.00 by the Conversion
Price (as hereinafter defined).
(b) Conversion Price. The conversion price for the Series C Preferred
Stock (the "Conversion Price") shall initially be $1.00. Such initial
Conversion Price shall be adjusted from time to time in accordance with this
Section 5. All references to the Conversion Price herein shall mean the
Conversion Price as so adjusted.
(c) Adjustment for Sale of Common Stock Below Conversion Price.
(i) If at any time or from time to time after the date that the first
share of Series C Preferred Stock is issued (the "Original Series C Issue
Date"), the Corporation issues or sells, or in accordance with this Section
5(c) is deemed to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), and other than a subdivision, dividend or combination of
shares of Common Stock as provided in Section 5(d) below, for an Effective
Price (as hereinafter defined) less than the then effective Conversion Price,
then and in each such case the then existing Conversion Price shall be reduced,
as of the opening of business on the date of such issue or sale, to a price
determined by multiplying such Conversion Price by a fraction (i) the numerator
of which shall be (1) the number of shares of Common Stock and Preferred Stock
(calculated on an as-converted-to Common Stock basis) outstanding immediately
prior to such issue or sale plus (2) the number of shares of Common Stock which
the aggregate consideration received (as defined in subsection (c)(ii)) by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price, and (ii) the denominator
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of which shall be the number of shares of Common Stock and Preferred Stock
(calculated on an as-converted-to Common Stock basis) outstanding immediately
prior to such issue or sale plus the total number of Additional Shares of
Common Stock so issued.
(ii) For the purpose of making any adjustment required under this
Section 5(c), the consideration received by the Corporation for any issue or
sale of securities shall (A) to the extent it consists of cash, be computed at
the net amount of cash received by the Corporation after deduction of any
underwriting or similar commissions, compensation or concessions paid or
allowed by the Corporation in connection with such issue or sale but without
deduction of any expenses payable by the Corporation, (B) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board of Directors, and (C) if
Additional Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of Common
Stock or Convertible Securities are issued or sold together with other stock or
securities or other assets of the Corporation for consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable
to such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment required under this Section
5(c), if the Corporation issues or sells any rights or options for the purchase
of, or stock or other securities convertible into, Additional Shares of Common
Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the applicable Conversion Price, in each case the
Corporation shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to
the total amount of the consideration, if any, received by the Corporation for
the issuance of such rights or options or Convertible Securities, plus, in the
case of such rights or options, the minimum amounts of consideration, if any,
payable to the Corporation upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided, that, if in the case of Convertible Securities the minimum
amounts of such consideration are subject to adjustment by reason of
antidilution or similar protective clauses, the Corporation shall be deemed to
have received the minimum amounts of consideration without reference to such
clauses; provided further that if the minimum amount of consideration payable
to the Corporation upon the exercise or conversion of rights, options or
Convertible Securities is reduced over time or on the occurrence or
non-occurrence of specified events other than by reason of antidilution
adjustments, the Effective Price shall be recalculated using the figure to
which such minimum amount of consideration is reduced; provided further that if
the minimum amount of consideration payable to the Corporation upon the
exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the corporation upon
the exercise or conversion of such rights, options or Convertible Securities.
No further adjustment of any Conversion Price, as adjusted upon the issuance of
such rights, options or Convertible Securities, shall be made as a result of
the actual issuance of Additional Shares of Common Stock or the exercise of any
such rights or options or the conversion of any such Convertible Securities. If
any such rights or options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, any
Conversion Price as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of
Common Stock, if any, actually issued or sold on the exercise of such rights or
options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Corporation (other
than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) on the conversion of such Convertible Securities,
provided, that, such readjustment shall not apply to prior conversions of
Series B Preferred Stock and Series C Preferred Stock.
(iv) "Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Corporation or deemed to be issued pursuant to this Section
5(c), whether or not subsequently reacquired or retired by the Corporation,
other than (1) shares of Common Stock issued upon conversion of the Series B
Preferred Stock and Series C Preferred Stock, (2) shares of Common Stock issued
pursuant to the exercise or conversion of options,
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warrants or convertible securities outstanding as of the Original Series C
Issue Date, and (3) shares of Common Stock issued pursuant to exercise of
options subsequently granted to employees, directors or consultants of the
Corporation with respect to their services to the Corporation. The "Effective
Price" of Additional Shares of Common Stock shall mean the quotient determined
by dividing the total number of Additional Shares of Common Stock issued or
sold, or deemed to have been issued or sold, by the Corporation under this
Section 5(c), into the aggregate consideration received, or deemed to have been
received (as set forth in subparagraph (iii) above), by the Corporation for
such issue under this Section 5(c), for such Additional Shares of Common Stock.
(d) Adjustment for Stock Splits and Combinations. If the Corporation shall
at any time or from time to time after the Original Series C Issue Date effect
a subdivision of the outstanding Common Stock without a corresponding
subdivision of the Series C Preferred Stock or pay a Common Stock dividend on
the outstanding Common Stock without a corresponding proportionate dividend on
the outstanding Series C Preferred Stock, the Conversion Price in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Corporation shall at any time or from time to time after the
Original Series C Issue Date combine the outstanding shares of Common Stock
into a smaller number of shares without a corresponding combination of the
Series C Preferred Stock, the Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 5(d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) No Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series C 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.
(f) Mechanics of Conversion.
(i) In order for a holder of Series C Preferred Stock to convert shares
of Series C Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series C Preferred
Stock at the principal office of the Corporation, together with written notice
that such holder elects to convert all or any number of the shares of the
Series C 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.
(ii) Promptly after the receipt of the written notice referred to in
Section 5(f)(i) and surrender of the certificate or certificates for the share
or shares of Series C Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder or
holders, registered in such name or names as such holder or holders may direct,
a certificate or certificates for the number of whole shares of Common Stock
issuable upon the conversion of such share or shares of Series C Preferred
Stock. To the extent permitted by law, such conversion shall be deemed to have
been effected and the Conversion Rate shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation, and at such time the rights of the holder or holders of such
share or shares of Series C Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
Shares of Series C Preferred Stock that are converted into shares of Common
Stock as provided herein shall not be reissued.
(iii) In case the number of shares of Series C Preferred Stock
represented by the certificate or certificates surrendered exceeds the number
of shares of Series C Preferred Stock converted, the Corporation shall upon
such conversion execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series C Preferred Stock represented by the certificate or certificates
surrendered that are not to be converted.
(g) Termination of Conversion Rights. In the event of a Liquidation the
Conversion Rights shall terminate at the close of business on the business day
preceding the date fixed for payment of any amounts distributable on the
Liquidation to the holders of Series C Preferred Stock.
(h) Reservation of Common Stock Issuable Upon Conversion. The Corporation
shall at all times when the Series C Preferred Stock shall be outstanding,
reserve, free from preemptive rights, out of its treasury stock or its
authorized but unissued shares of Common Stock, or both, solely for the purpose
of effecting the conversion of the Series C Preferred Stock, sufficient shares
to provide for the conversion of all outstanding shares of Series C Preferred
Stock.
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(i) Registrations, Listings or Approvals. If any shares of Common Stock
to be reserved for conversion of the Series C Preferred Stock require
registration or listing with, or approval of, any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise, before such shares may be validly issued or delivered upon
conversion, the Corporation will in good faith and as expeditiously as possible
at its expense endeavor to secure such a registration, listing or approval, as
the case may be.
(j) Common Stock Issued Upon Conversion Fully Paid and Nonassessable. All
shares of Common Stock issued upon conversion of the Series C Preferred Stock
will upon issuance by the Corporation be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof. Such shares shall also be issued without charge to the
holders thereof for any cost incurred by the Corporation in connection with the
conversion and issuance of certificates for the Common Stock.
(k) Share Exchanges, Mergers or Consolidations; Other. In the event of,
and as a condition to, (i) any share exchange, consolidation or merger of the
Corporation in which the Common Stock is converted into or exchanged for
securities of the surviving or acquiring entity (other than a share exchange,
consolidation, merger or sale covered by Subsection 2(b)), (ii) the issuance by
reclassification of shares of Common Stock (including any such reclassification
in connection with a consolidation or merger), or (iii) the distribution to all
holders of Common Stock of evidences of indebtedness or assets (including any
such distribution in connection with a share exchange, consolidation or merger
in which the Corporation is the surviving corporation), the holder of each
share of Series C Preferred Stock may elect that the holder's Series C
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock deliverable upon conversion of such Series C Preferred Stock
would have been entitled upon such share exchange, consolidation, merger, or
reclassification; and, in any such case, appropriate adjustment shall be made
in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of the Series C Preferred Stock
to the end that the provisions set forth herein shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
securities or property thereafter deliverable upon the conversion of the Series
C Preferred Stock.
(l) No Closing of Transfer Books. The Corporation will at no time close
its transfer books against the transfer of any Series C Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any shares
of Series C Preferred Stock in any manner that interferes with the timely
conversion of such Series C Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.
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IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its President this 30th day of December, 1998.
XYVISION, INC.
By: /s/ Kevin J. Duffy
---------------------
Kevin J. Duffy
President
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EXHIBIT 10.1
TUDOR TRUST
450 N. Roxbury Drive
4th Floor
Beverly Hills, CA 90210
December 31, 1998
Xyvision, Inc.
30 New Crossing Road
Reading, MA 01867
Ladies and Gentlemen:
This letter will set forth our agreement with respect to the following
outstanding evidences of indebtedness of Xyvision, Inc. ("Xyvision"): (i) 6%
convertible subordinated debentures in the principal aggregate amount of
$1,355,000; (ii) 15% promissory notes in the principal aggregate amount of
$60,000; and (iii) 4% promissory notes in the principal aggregate amount of
$512,000. All of those evidences of indebtedness are hereinafter referred to as
the "Obligations."
Tudor Trust ("Tudor") has made an offer to the holders of the Obligations
to purchase all of their rights with respect to the Obligations in
consideration for a cash payment of ten percent of the principal amount
thereof. A copy of the December 1, 1998 offer of Tudor to the holders is
attached hereto. As you know, Tudor is a substantial shareholder and creditor
of Xyvision. Accordingly, Tudor hereby agrees with respect to all Obligations
which may be purchased by it pursuant to such offer that:
(a) All defaults existing with respect to the purchased Obligations on the
date of purchase shall be waived;
(b) The principal amount of the purchased Obligations shall be reduced to
the purchase price thereof paid by Tudor;
(c) The interest rate of the purchased Obligations shall be eight percent
per annum accruing from and after the dates of purchase; and
(d) The principal and accrued interest of the purchased Obligations shall
be due and payable on March 31, 2000 or upon any earlier maturity of the
separate indebtedness of Xyvision to Tudor pursuant to the First Amendment to
the Second Amended and Restated Secured Advance Facility Loan Agreement dated
December 31, 1998, as amended from time to time.
If this letter correctly sets forth our agreement, please sign and return
the attached copy hereof.
Very truly yours,
TUDOR TRUST
By: /s/ Jeffrey L. Neuman
---------------------
Jeffrey L. Neuman, Trustee
Agreed this 31st day of December, 1998
XYVISION, INC.
By: /s/ Kevin J. Duffy
---------------------
Kevin J. Duffy, President
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EXHIBIT 10.2
FIRST AMENDMENT TO SECOND AMENDED
AND RESTATED SECURED ADVANCE FACILITY LOAN AGREEMENT
This FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED SECURED ADVANCE
FACILITY LOAN AGREEMENT (the "First Amendment") is entered into as of this 31st
day of December, 1998 (the "First Amendment Date") by and between XYVISION,
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 Board of Directors of the Borrower has approved a plan of
corporate restructuring whereby, among other things, substantially all of the
assets (the "Assets") and certain of the liabilities of the Borrower will be
transferred to a newly formed subsidiary (the "Subsidiary") of the Borrower
(the "Restructuring");
WHEREAS, the Borrower and the Lender are parties to a Second Amended and
Restated Secured Advance Facility Loan Agreement dated July 1, 1998 (the
"Agreement");
WHEREAS, pursuant to the Restructuring, the Lender has, contemporaneously
herewith, converted a portion of the principal indebtedness incurred by the
Borrower pursuant to the Agreement into the Borrower's Series C Convertible
Preferred Stock (the "Series C Stock");
WHEREAS, the Lender and the Borrower have agreed that the Lender shall
have the option, exercisable on and after June 1, 1999, to convert an
additional $5,000,000 of the principal indebtedness incurred by the Borrower
pursuant to the Agreement into the Borrower's Series C Stock at a conversion
ratio of $10.00 per share (as adjusted); and
WHEREAS, the parties hereto desire to make further 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:
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1. Definition. Each term in the First Amendment not otherwise defined
herein shall be deemed to have the same meaning ascribed to that term in the
Agreement.
2. Confirmation of Loan Amount. The Borrower and the Lender confirm and
acknowledge that afer giving effect to the contemporaneous conversion of
$1,750,000 of the principal amount of the Liabilities hereunder into 175,000
shares of Series C Stock, the outstanding Liabilities of the Borrower under the
Agreement as of the date of this First Amendment are as follows:
Principal $11,750,000
Accrued Interest $875,747
Lender's costs and Expenses
Associated with the Restructuring $26,620
3. Amendments to the Agreement. The provisions of the Agreement are hereby
amended as follows:
(a) A new section 1.8(3) is hereby added to the Agreement as follows:
"(e) Default shall be made by Xyvision Enterprise Solutions, Inc.
("XES") under that certain Secured Advance Facility Loan Agreement between XES
and the Lender, dated as of December 31, 1998, and as amneded from time to time
(the "XES" Loan Agreement")."
(b) Section 1.19 of the Agreement is amended and restated in its entirety
as follows:
"1.19. Maximum Loan Amount. Twelve Million Two Hundred Twenty-Six
Thousand Six Hundred Twenty Dollars ($12,226,620) less the principal amount of
any Liabilities of the Borrower converted from time to time into the Borrower's
Series C Convertible Preferred Stock (the "Series C Stock") pursuant to Section
3.7 of this Agreement."
(c) Section 1.25 of the Agreement is amended and restated in its entirety
as follows:
"1.25. Secured Promissory Note. The amended and restated secured
promissory note in the amount of Twelve Million Two Hundred Twenty-Six Thousand
Six Hundred Twenty Dollars ($12,226,620) dated December 31, 1998, executed by
the Borrower and delivered to the Lender."
(d) Section 2.1 of the Agreement is amended and restated in its entirety
as follows:
"2.1. Loan. Subject to the terms and conditions set forth herein and
prior to any Default hereunder and so long as no Insolvency Proceedings have
commenced against the Borrower, the Lender agrees that it shall lend to the
Borrower and the Borrower agrees that it may borrow and repay from time to time
amounts not to exceed the Maximum Loan Amount (the "Loan")."
(e) Section 2.2 of the Agreement is amended and restated in its entirety
as follows:
"2.2. Interest. Amounts advanced to the Borrower by the Lender under
this Agreement shall bear interest, payable as set forth in Section 3.1 of this
Agreement, from the date of each such Advance on the unpaid principal balance
thereof until paid in full at a rate of thirteen percent (13%) per annum;
provided, however, that from and after December 3, 1993, all of the unpaid
principal balance outstanding from time to time shall bear interest at the rate
of ten percent (10%) per annum provided, further, that from and after May 31,
1996, all of the unpaid principal balance outstanding from time to time shall
bear interest at the rate of eight percent (8%) per annum; provided, further,
that from and after November 10, 1997, all of the unpaid principal baance
outstanding from time to time shall bear interest at six percent (6%) per
annum; provided, further, that from and after December 1, 1997, all of the
unpaid principal balance outstanding from time to time shall bear interest at
eight percent (8%) per annum; and provided, further, that from and after
December 31, 1998, the first $5 million of the unpaid principal balance
outstanding hereunder, less any amounts converted from time to time into Series
C Stock pursuant to Section 3.7 hereof, shall bear interest at six percent (6%)
per annum and the remaining unpaid principal balance outstanding from time to
time shall bear interest at eight percent (8%) per annum. Notwithstanding the
foregoing, after any Default, amounts advanced to the Borrower by the Lender
under this Agreement shall bear interest from the date of such Default on the
unpaid principal balance thereof until paid in full at a rate of twelve percent
(12%) per annum."
(f) Section 2.4 of the Agreement is amended and restated in its entirety
as follows:
"2.4. Advances. The Lender agrees to make Advances to the Borrower upon
the Borrower's request, as
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set forth herein, provided that the Lender does not intend to make all or part
of any Advance requested by the Borrower which would cause the aggregate
principal balance of unpaid Advances made under this Agreement to exceed the
Maximum Loan Amount. Notwithstanding anything to the contrary herein, if the
Lender lends to the Borrower amoutns in excess of the Maximum Loan Amount, such
amounts shall be deemed amounts advanced under this Agreement and shall
constitute a portion of the Loan."
(g) Section 3.1 of the Agreement is amended and restated in its entirety
as follows:
"3.1. Scheduled Principal Payment. Except as provided in Sections 5.2
and 8, all Liabilities shall be paid in full on March 31, 2000; provided, that
in the event of (i) any Insolvency Proceeding, (ii) any acceleration of
payments by XES to the Lender under the XES Loan Agreement, or (iii) the sale
of all or substantially all of the assets of the Borrower or the merger or
consolidation of the Borrower with or into another corporation in which the
beneficial owners of the Borrower's voting stock immediately before the merger
or consolidation own less than a majority of the surviving or acquiring
entity's voting stock immediately after the merger or consolidation, the Lender
may by notice in writing to the Borrower declare all Liabilities due and
payable immediately prior to the cosummation of such Insolvency Proceeding,
sale, merger, or consolidation, withou presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived."
(h) Section 3.2 of the Agreement is hereby amended and restated in its
entirety as follows:
"3.2 Scheduled Interest Payments. Interest accrued shall be due and
payable in full on March 31, 2000, unless otherwise provided in this Section
3.2. For the period from December 1, 1997 through and including December 31,
1998, interest shall be paid in cash. For each calendar quarter during the
period from January 1, 1999 through and including March 31, 2000, Lender shall
have the option to receive the interest in cash or in shares of Common Stock of
the Borrower (the "Common Stock"). The number of shares of Common Stock
issuable in payment of interest shall be determined by dividing accrued
interest for the applicable quarter by the fair market value of the Common
Stock as of the end of such quarter determined based on the average fair market
value of the Common Stock on the last ten business days of such quarter. "Fair
market value" shall be deemed to equal the mean between the low bid and high
asked prices of the Common Stock as quoted on the OTC Bulletin Board display
service operated by the National Association of Securities Dealers, Inc., or
the closing market price of the Common Stock on a natioanl securities exchange
or the Nasdaq National Market on each applicable trading day, whichever is
applicable, or if none of these are applicable, as shall be reasonably
determined in good faith by the Board of Directors of the Borrower. If interest
is payable in shares of Common Stock, Borrower shall deliver such shares to
Lender on or before the 15th day following the end of such quarter. Cash
intereste payments shall be sent by wire transfer to an account specified by
Lender."
(i) A new Section 3.7 is hereby added to the Agreement as follows:
"3.7. Conversion of Liabilities.
(a) Optional Conversion. At any time from and after June 1, 1999, the
Lender may, at its written election, convert up to $5,000,000 of the unpaid
principal balance of the Liabilities (the "Convertible Liabilities") into the
Borrower's Series C Stock at a conversion ration of $10.00 per share (the
"Conversion Price").
(b) Adjustment for Dividends, Subdivisions, Stock Spits and Combinations.
In case the Borrower shall: (i) declare a dividend of Series C Stock on
its Series C Stock, (ii) subdivide outstanding Series C Stock into a
larger number of shares of Series C Stock by reclassification, stock
split or otherwise, or (iii) combine outstanding Series C Stock into a
smaller number of shares of Series C Stock by reclassification or
otherwise, the number of shares of Series C Stock issuable upon
conversion of the Convertible Liabilities immediately prior to any such
event shall be adjusted proportionately so that thereafter the Lender
shall be entitiled to receive upon conversion of the Convertible
Liabilities the number of shares of Series C Stock which the Lender would
have owned after the happending of any of the events decribed above had
the Convertible Liabilities been converted immediately prior to the
happening of such event, provided that the Conversion Price shall in no
event be reduced to less than the par value of the shares issuable upon
conversion. An adjustment made pursuant to this Section 3.7 shall become
effective immediately after the record date in the case of a dividend and
shall become effective immediately after the effective date in the case
of a subdivision or combination. If, prior to June 1, 1999, the Borrower
shall at any time consolidate or merge with another corporation (other
than a merger or consolidation in which the Borrower is the surviving
corporation), the Lender will thereafter be entitled to receive, upon the
conversion of the Covnertible Liabilities, the securities or property to
which a holder of the number of shares of Series C Stock then deliverable
upon the conversion of the Convertible Liabilities would have
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been entitled upon such consolidation or merger, and the Borrower shall
take such steps in connection with such consolidation or merger as may be
necessary to ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to any securities
or property thereafter deliverable upon the conversion of the Convertible
Liabilities."
(j) A new Section 3.8 is hereby added to the Agreement as follows:
"3.8. Application of Payments. All payments by the Borrower to the
Lender under this Article III shall be applied first to principal and then to
interest."
4. Waiver of Defaults. The Lender confirms and agrees that any and all
Defaults arising under or in connection with the Agreement or any document or
instrument executed from time to time in connection therewith, existing as of
the date of this Agreement, are hereby waived and released.
5. Confirmation of Security. The Borrower confirms and agrees that all of
the Liabilities constitute "Obligations" as defined in the Security Agreement,
constitute "Secured Obligations" as defined in the Intellectual Property
Agreement, and are secured pursuant to the terms of the Security Agreement and
the Intellectual Property Agreement and the Pledge Agreement of even date
herewith executed by the Borrower in favor of the Lender.
6. Consent to Restructuring and Release of Liens. Subject to, and
expressly conditioned upon, the execution and delivery by each of the Borrower
and the Subsidiary of the Contribution and Assumption Agreement of equal date
herewith (the "Contribution Agreement"), and compliance by each therewith, and
pursuant to Section 11.5 of the Agreement and Section 4 of the Intellectual
Property Agreement, the Lender hereby consents to the Restructuring and the
transactions contemplated thereby. Subject to, and expressly conditioned upon,
the execution and delivery by each of the borrower and the Subsidiary of the
Contribution Agreement, and compliance by each therewith, the Lender hereby
irrevocably releases any and all security interests in the Assets and hereby
undertakes to take such further actions and execute such additional documents,
instruments and certificates as may be necessary, appropriate adn reasonably
requested by the Borrower or the Subsidiary in order to effect the transfer of
the Assets to the Subsidiary free and clear of any and all liens and
encumbrances of the Borrower.
7. Effective Date. The changes effected by this First Amendment shall be
deemed to take effect as of the close of business on December 31, 1998.
8. Except as amended hereby, the Agreement shall remain in full force and
effect and is in all respects hereby ratified and affirmed.
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Witnessed: XYVISION, INC.
/s/ Wendy Darland
- --------------------- By: /s/ Kevin J. Duffy
---------------------
Name: Kevin J. Duffy
Title: President
/s/ Wendy Darland
- ---------------------
/s/ Jeffrey L. Neuman
---------------------
Jeffrey Neuman as trustee of
the Tudor Trust u/d/t
December 12, 1997 and not
individually
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PLEDGE AGREEMENT
This is a Pledge Agreement made as of the 31st day of December, 1998,
between XYVISION, INC., a Delaware corporation with its principal office at 30
New Crossing Road, Reading, Massachusetts ("Pledgor") 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 ("Pledgee").
1. Pledge of Collateral. Pledgor hereby grants Pledgee a security interest
in Two Million Eight Hundred Thousand (2,800,000) shares of the Common Stock of
Xyvision Enterprise Solutions, Inc. (the "Issuer"), $.001 par value (the
"Common Stock"), and all products and proceeds thereof including all other
instruments, documents, stock certificates, money and goods as may be issued or
distributed to Pledgee by the Issuer from time to time on or account of the
Common Stock (the "Collateral").
2. Obligations Secured. The security interest in the Collateral granted
hereby secures payment and performance of all debts, loans and liabilities of
Pledgor to Pledgee of every kind and description, whether now existing or
hereafter arising, under that certain Second Amended and Restated Secured
Advance Facility Loan Agreement, dated July 1, 1998, as amended to date and as
further amended from time to time (the "Loan Agreement"), together with all
interest, fees, charges and expenses with respect to any such debt, loan or
liability (the "Obligations").
3. Pledgee's Rights and Duties with Respect to the Collateral. Pledgee's
only duty with respect to the
Collateral shall be to exercise reasonable care to secure the safe custody
thereof. Upon the occurrence of a default hereunder, Pledgee shall have the
right but not the obligation to (a) demand, sue for, receive and collect all
money or money damages payable on account of any Collateral, (b) protect,
preserve or assert any other rights of Pledgor or take any other action with
respect to the Collateral, and (c) pay any taxes, liens, assessments, insurance
premiums or other charges pertaining to Collateral. Any expenses incurred by
Pledgee under the preceding sentence shall be paid by Pledgor upon demand,
become part of the Obligations secured by the Collateral and bear interest at
the rate provided in the Loan Agreement until paid. Pledgee shall be relieved
of all responsibility for the Collateral upon surrendering it to Pledgor.
4. Pledgor's Warranties and Indemnity. Pledgor represents, warrants and
covenants (a) that it is and will be the lawful owner of the Collateral, (b)
that the Collateral is and will be fully paid and non-assessable, (c) that the
Collateral is and will remain free and clear of all liens, encumbrances and
security interests other than the security interest granted by Pledgor
hereunder, (d) that Pledgor has the sole right and lawful authority to pledge
the Collateral and otherwise to comply with the provisions hereof, and (e) that
Pledgor has obtained the consent and agreement of the Issuer, and all other
persons who have contractual rights or restrictions with respect to the
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Collateral, to the pledge, disposition and other rights of Pledgee herein. In
the event that any adverse claim is asserted in respect of the Collateral or
any portion thereof, except such as may result from an act of Pledgee not
authorized hereunder, Pledgor promises and agrees to indemnify Pledgee and hold
Pledgee harmless from and against any losses, liabilities, damages, expenses,
costs and reasonable counsel fees incurred by Pledgee in exercising any right,
power or remedy of Pledgee hereunder or defending, protecting or enforcing the
security interests created hereunder. Any such loss, liability or expense so
incurred shall be paid by Pledgor upon demand, become part of the Obligations
secured by the Collateral and bear interest at the rate provided in the Loan
Agreement until paid.
5. Voting of Collateral. While Pledgor is not in default hereunder,
Pledgor may vote stock and other securities pledged as Collateral.
6. Dividends and Other Distributions. While Pledgor is not in default
hereunder, Pledgor may receive cash dividends, payments of principal and
interest, and other cash distributions payable with respect to Collateral,
provided, however, that Pledgor shall immediately inform Pledgee of the receipt
of any such dividend, payment or other distribution and shall hold the amount
thereof in trust for Pledgee unless and until Pledgee shall in writing release
Pledgor from such trust. Pledgor shall cause all non-cash dividends and
distributions with respect to Collateral to be distributed directly to Pledgee,
to be held by Pledgee as additional Collateral, and if any such distribution is
made to Pledgor, Pledgor shall receive such distribution in trust for Pledgee
and shall immediately transfer it to Pledgee.
7. Pledgor's Default. Pledgor shall be in default hereunder upon the
occurrence of a Default under the Loan Agreement.
8. Pledgee's Rights upon Default. Upon the occurrence of any default as
defined in the preceding section, Pledgee may, if Pledgee so elects in its sole
option:
(a) at any time and from time to time, sell, assign and deliver the whole
or any part of the Collateral at a sale through a broker in a public market
where securities of the type constituting such Collateral are usually traded,
without any advertisement, presentment, demand for performance, protest, notice
of protest, notice of dishonor or any other notice;
(b) at any time and from time to time sell, assign and deliver all or any
part of the Collateral, or any interest therein, at any other public or private
sale, for cash, on credit or for other property, for immediate or future
delivery
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without any assumption of credit risk, and for such price or prices and on such
terms as Pledgee in its absolute discretion may determine, provided that (i) at
least ten days' notice of the time and place of any such sale shall be given to
Pledgor, and (ii) in the case of any private sale, such notice shall also
contain the minimum terms of the proposed sale;
(c) exercise the right to vote, the right to receive cash dividends and
other distributions, and all other rights with respect to the Collateral as
though Pledgee were the absolute owner thereof, whether or not such rights were
retained by Pledgor as against Pledgee before default; and
(d) exercise all other rights available to a secured party under the
Uniform Commercial Code and other applicable law.
9. Application of Sale Proceeds. In the event of a sale of Collateral, the
proceeds shall first be applied to the payment of the expenses of the sale,
including brokers' commissions, counsel fees, any taxes or other charges
imposed by law upon the Collateral or the transfer thereof and all other
charges paid or incurred by Pledgee pertaining to the sale; and, second, to
satisfy outstanding Obligations, in the order in which Pledgee elects in its
sole discretion; and, third, the surplus (if any) shall be paid to Pledgor.
10. Notices. All notices made or required to be made hereunder shall be
sent by United States first class or certified or registered mail, with postage
prepaid, or delivered by hand to Pledgee or to Pledgor at the addresses first
above written. Notice by mail shall be deemed to have been made on the date
when the notice is deposited in the mail.
11. Successors and Assigns. This Pledge Agreement and all of its terms and
provisions shall benefit and bind the heirs, successors, assigns, transferees,
executors and administrators of each of the parties hereto.
12. Pledgee's Forbearance. Any forbearance, failure or delay by Pledgee in
exercising any right, power or remedy hereunder shall not be deemed a waiver of
such right, power or remedy. Any single or partial exercise of any right, power
or remedy of Pledgee shall continue in full force and effect until such right,
power or remedy is specifically waived in writing by Pledgee.
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EXECUTED under seal as of the date first above written.
XYVISION, INC.
By: /s/ Kevin J. Duffy
---------------------
Kevin J. Duffy
President
/s/ Jeffrey L. Neuman
---------------------
Jeffrey L. Neuman as trustee of
the Tudor Trust u/d/t
December 12, 1997 and not
individually
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SECURED PROMISSORY NOTE
$12,226,620
Boston, Massachusetts December 31, 1998
FOR VALUE RECEIVED, the undersigned XYVISION, 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 North Roxbury Drive, Beverly
Hills, California, the Liabilities then outstanding under the loan made by the
Lender to the Borrower pursuant to that certain Second Amended and Restated
Secured Advance Facility Loan Agreement executed between the Borrower and the
Lender dated July 1, 1998, as amended through the date hereof (the
"Agreement"). Advances made pursuant to the Agreement shall, from and after the
date hereof, bear interest at the rate from time to time provided in the
Agreement, 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 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
March 31, 2000.
All payments by the Borrower to the Lender under Article III of the
Agreement shall be applied first to principal and then to interest.
To secure the obligations of the Borrower under this Note, (i) 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
Sixth Amended and Restated Security Agreement executed between the Borrower and
the Lender dated November 10, 1997 (the "Security Agreement"), and (ii) the
Lender has been granted a security interest in 2,800,000 shares of Common Stock
of Xyvision Enterprise Solutions, Inc. held of record by the Borrower pursuant
to that certain Pledge Agreement executed between the Borrower and the Lender
dated as of December 31, 1998. 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.
WITNESS XYVISION, INC.
/s/ Linda M. Whalen
- --------------------- By: /s/ Kevin J. Duffy
---------------------
Name: Kevin J. Duffy
Title: President
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EXHIBIT 10.3
XYVISION ENTERPRISE SOLUTIONS, INC.
Series A Convertible Preferred Stock Purchase Agreement
This Agreement dated as of December 31, 1998 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 400,000 shares of its
Series A Convertible Preferred Stock, $.001 par value per share (the "Series A
Preferred"), having the rights, restrictions, privileges and preferences set
forth in the Certificate of Designations attached hereto as Exhibit A (the
"Certificate of Designations"). The Company has adopted and filed the
Certificate of Designations with the Secretary of State of the State of
Delaware.
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, 400,000
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 400,000 shares have been designated as
Series A Preferred, none of which shares are issued or outstanding. All of the
issued and outstanding shares of Common Stock 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
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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 September 30, 1998, there
has been no material adverse change in the business, results of operations or
financial condition of Xyvision, it being acknowledged that Xyvision 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 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.
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 of 1933, as amended. 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.
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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 J. Duffy
---------------------
Kevin Duffy
President
TUDOR TRUST
By: /s/ Jeffrey Neuman
---------------------
Jeffrey Neuman Trustee
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Exhibit A
CERTIFICATE OF DESIGNATIONS
OF THE
PREFERRED STOCK
OF
XYVISION ENTERPRISE SOLUTIONS, INC.
to be designated
Series A Convertible Preferred Stock
Xyvision Enterprise Solutions, Inc., a Delaware corporation (the
"Corporation"), pursuant to the 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 Delaware,
hereby 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 400,000 shares to be
designated "Series A Convertible Preferred Stock" (hereinafter "Series A
Preferred Stock"); that the Board of Directors be and hereby is authorized to
issue such shares of Series A 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, optional or
other special rights of, and the qualifications, limitations or restrictions
upon, the Series A Preferred Stock shall be as follows:
Series A Preferred Stock.
A total of 400,000 shares of the authorized and unissued Preferred Stock
of the Corporation is hereby designated "Series A Preferred Stock" (the "Series
A Preferred Stock") with the following rights, preferences, powers, privileges,
restrictions, qualifications and limitations:
1. Dividends.
(a) Each holder of Series A Preferred Stock, in preference to the
holders of any other stock of the Corporation, shall be entitled to receive,
when and as declared by the Board of Directors, but only out of funds that are
legally available therefor, cash dividends at the rate of $0.15 per annum on
each outstanding share of Series A Preferred Stock (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares). Such dividends shall be payable only when, as and if declared by
the Board of Directors and to the extent not so declared shall accrue without
interest thereon and be due upon liquidation as provided in Section 2, but
shall not accrue and be due upon any conversion pursuant to Section 5.
(a) So long as any shares of Series A Preferred Stock shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Common Stock, nor
shall any shares of any Common Stock of the Corporation be purchased, redeemed,
or otherwise acquired for value by the Corporation, until all dividends
declared or required to be declared under Section 1(a) on the Series A
Preferred Stock shall have been paid or declared and set apart.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (a "Liquidation"), and except to
the extent Section 5(k) below requires, the holders of the Series A Preferred
Stock then outstanding shall thereupon be entitled to be paid from the assets
of the Corporation available
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for distribution to its stockholders the following amount per share:
(i) The holders of Series A Preferred Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders an amount with respect to each share of Series A Preferred Stock
(subject to appropriate proportionate adjustment for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) the amount of $2.50 plus any dividends declared or accrued but unpaid
thereon (the "Series A Preferred Stock Liquidation Value"). If the assets of
the Corporation available for distribution are insufficient for the payment of
the foregoing liquidation preference amounts to the holders of Series A
Preferred Stock, the assets available for distribution to stockholders shall be
distributed pro rata among the holders of the Series A Preferred Stock based
upon the number of shares of Series A Preferred Stock held by each holder; and
(ii) After payment of all preferential amounts required to be paid to
the holders of Series A Preferred Stock and any other class or series of stock
of the Corporation ranking with respect to Liquidation on parity with the
Series A Preferred Stock, upon the Liquidation of the Corporation the holders
of shares of Series A Preferred Stock then outstanding shall not be entitled to
receive any of the remaining assets and funds of the Corporation available for
distribution to its stockholders.
(b) The sale, lease, license or other disposition of all or
substantially all of the Corporation's assets or the share exchange, merger or
consolidation of the Corporation with or into another corporation in which the
beneficial owners of the Corporation's voting stock immediately before the
share exchange, merger or consolidation own less than a majority of the
surviving or acquiring entity's voting stock immediately after the share
exchange, merger or consolidation, shall be deemed to be a Liquidation of the
Corporation for purposes of this Section 2.
(c) In the event the Corporation shall propose to take any action which
would constitute a Liquidation, the Corporation shall, within five days after
the date the Board of Directors approves such action, at least twenty days
prior to any stockholders' meeting called to approve such action, or at least
twenty days prior to the consummation or effectiveness of such action,
whichever is earlier, provide the holders of the Series A Preferred Stock with
written notice of the proposed action. Such written notice shall describe the
material terms and conditions and anticipated timing of such proposed action,
including a description of the stock, cash and/or property to be received by
the holders of the Series A Preferred Stock upon consummation of the proposed
action. The Corporation shall thereafter provide prompt notice of all material
changes to such information, as well as of the consummation or effectiveness of
the action. No such action shall in any event be consummated or take effect
sooner than twenty days after the Corporation has given the first such notice;
provided, however, that any of the foregoing notice periods may be amended by
vote or written consent of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, voting as a single class.
(d) In the event of any Liquidation involving the distribution of assets
other than cash, the amount of such distribution shall be deemed to be the fair
market value of such assets at the time of such distribution as determined in
good faith by the Board of Directors of the Corporation.
3. Voting Rights.
(a) General. Each holder of outstanding shares of Series A 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 A Preferred Stock held
by such holder are then convertible (as determined pursuant to Section 5
hereof) at each meeting of stockholders of the Corporation (and with respect to
written consents of stockholders in lieu of meetings) regarding 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 Section 3(b)
below, or by the provisions establishing any other series of Preferred Stock,
holders of Series A Preferred Stock and Common Stock shall vote together and
not as separate classes.
(b) Requirement for Series A Preferred Stock Class Vote or Consent. So
long as any shares of Series A Preferred Stock which are issued by the
Corporation remain outstanding, in addition to any other vote or consent
required herein or by law, the affirmative vote or consent of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock shall be
necessary for effecting or validating the following actions by the Corporation:
(i) any amendment, alteration, waiver or repeal of any provision of
the Certificate of Incorporation or Bylaws of the Corporation that affects
adversely the voting powers, preferences, or other special rights or
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privileges, qualifications, limitations or restrictions of the Series A
Preferred Stock;
(ii) any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any other
securities convertible into equity securities of the Corporation ranking on a
parity with or senior to the Series A Preferred Stock in right of redemption,
liquidation preference, voting or dividends, or any increase in the authorized
or designated number of any such new class or series;
(iii) any declaration or payment of any dividends or any
distributions, whether in cash or property, with respect to any securities of
the Corporation, other than to the holders of the Series A Preferred Stock as
provided in Section 1;
(iv) any redemption, purchase or acquisition for value of any
securities of the Corporation, other than pursuant to redemption or conversion
of the Series A Preferred Stock as provided herein; and
(v) any liquidation, dissolution, winding up, sale, lease, license,
assignment, transfer or other disposition of all or substantially all of the
assets of the Corporation or of any subsidiary of the Corporation, or any share
exchange, consolidation or merger involving the Corporation or any subsidiary
of the Corporation, or any reclassification or other change of any stock or any
recapitalization of the Corporation, or any approval of any subsidiary of the
Corporation to issue or sell, or obligate itself t o issue or sell, except to
the Corporation or any wholly owned subsidiary of the Corporation, any stock of
such subsidiary.
4. Optional Redemptions.
(a) At any time and from time to time the Corporation, to the extent it
may lawfully do so, may call for redemption all or part of the shares of Series
A Preferred Stock then outstanding and not converted into Common Stock by
providing the holders with a written notice as provided in Section 4(c) below.
(b) The redemption price for the Series A Preferred Stock shall be the
Series A Preferred Stock Liquidation Value. In the event that fewer than all of
the then outstanding shares of the Series A Preferred Stock are redeemed, such
shares shall be redeemed on a pro rata basis among all holders of such shares
based on the number of shares of Series A Preferred Stock held by such holders
on the date of the written notice of redemption. a
(c) Except as otherwise provided herein, the Corporation shall mail a
written notice of each redemption of Series A Preferred Stock to each record
holder thereof not less than twenty days prior to the redemption date, which
notice shall set forth (i) the redemption price for the shares to be redeemed
and (ii) the place at which such holders may obtain payment of the redemption
price upon surrender of their share certificates. The holders of Series A
Preferred Stock to be redeemed shall in any event have the right to convert
their shares into Common Stock at any time prior to the close of business on
the date that is two days prior to the redemption date. In case fewer than the
total number of shares represented by any certificate are redeemed, a new
certificate representing the number of unredeemed shares shall be issued to the
holder thereof without cost to such holder. 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 shares of Series A Preferred Stock designated for
redemption in the redemption notice as holders of Series A 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. Any shares of Series A 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 A Preferred Stock accordingly.
5. Conversion Rights. The holders of Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Optional Conversion. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and without the
payment of additional consideration by the holder thereof, into such number of
shares of Common Stock as is determined by dividing $2.50 by the Conversion
Price (as hereinafter defined).
(b) Conversion Price. The conversion price for the Series A Preferred
Stock (the "Conversion Price") shall initially be $2.50. Such initial
Conversion Price shall be adjusted from time to time in accordance with this
Section 5. All references to the Conversion Price herein shall mean the
Conversion Price as so adjusted.
(c) Adjustment for Sale of Common Stock Below Conversion Price.
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(i) If at any time or from time to time after the date that the first
share of Series A Preferred Stock is issued (the "Original Series A Issue
Date"), the Corporation issues or sells, or in accordance with this Section
5(c) is deemed to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), and other than a subdivision, dividend or combination of
shares of Common Stock as provided in Section 5(d) below, for an Effective
Price (as hereinafter defined) less than the then effective Conversion Price,
then and in each such case the then existing Conversion Price shall be reduced,
as of the opening of business on the date of such issue or sale, to a price
determined by multiplying such Conversion Price by a fraction (i) the numerator
of which shall be (1) the number of shares of Common Stock and Preferred Stock
(calculated on an as-converted-to Common Stock basis) outstanding immediately
prior to such issue or sale plus (2) the number of shares of Common Stock which
the aggregate consideration received (as defined in subsection (c)(ii)) by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price, and (ii) the denominator of which
shall be the number of shares of Common Stock and Preferred Stock (calculated
on an as-converted-to Common Stock basis) outstanding immediately prior to such
issue or sale plus the total number of Additional Shares of Common Stock so
issued.
(ii) For the purpose of making any adjustment required under this
Section 5(c), the consideration received by the Corporation for any issue or
sale of securities shall (A) to the extent it consists of cash, be computed at
the net amount of cash received by the Corporation after deduction of any
underwriting or similar commissions, compensation or concessions paid or
allowed by the Corporation in connection with such issue or sale but without
deduction of any expenses payable by the Corporation, (B) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board of Directors, and (C) if
Additional Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of Common
Stock or Convertible Securities are issued or sold together with other stock or
securities or other assets of the Corporation for consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable
to such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment required under this Section
5(c), if the Corporation issues or sells any rights or options for the purchase
of, or stock or other securities convertible into, Additional Shares of Common
Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the applicable Conversion Price, in each case the
Corporation shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to
the total amount of the consideration, if any, received by the Corporation for
the issuance of such rights or options or Convertible Securities, plus, in the
case of such rights or options, the minimum amounts of consideration, if any,
payable to the Corporation upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided, that, if in the case of Convertible Securities the minimum
amounts of such consideration are subject to adjustment by reason of
antidilution or similar protective clauses, the Corporation shall be deemed to
have received the minimum amounts of consideration without reference to such
clauses; provided further that if the minimum amount of consideration payable
to the Corporation upon the exercise or conversion of rights, options or
Convertible Securities is reduced over time or on the occurrence or
non-occurrence of specified events other than by reason of antidilution
adjustments, the Effective Price shall be recalculated using the figure to
which such minimum amount of consideration is reduced; provided further that if
the minimum amount of consideration payable to the Corporation upon the
exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the corporation upon
the exercise or conversion of such rights, options or Convertible Securities.
No further adjustment of any Conversion Price, as adjusted upon the issuance of
such rights, options or Convertible Securities, shall be made as a result of
the actual issuance of Additional Shares of Common Stock or the exercise of any
such rights or options or the conversion of any such Convertible Securities. If
any such rights or options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, any
Conversion Price as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of
Common Stock, if any, actually issued or sold on the exercise of such rights or
options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the
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Corporation upon such exercise, plus the consideration, if any, actually
received by the Corporation for the granting of all such rights or options,
whether or not exercised, plus the consideration received for issuing or
selling the Convertible Securities actually converted, plus the consideration,
if any, actually received by the Corporation (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) on the
conversion of such Convertible Securities, provided, that, such readjustment
shall not apply to prior conversions of Series A Preferred Stock.
(iv) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation or deemed to be issued pursuant to this
Section 5(c), whether or not subsequently reacquired or retired by the
Corporation, other than (1) shares of Common Stock issued upon conversion of
the Series A Preferred Stock, (2) shares of Common Stock issued pursuant to the
exercise or conversion of options, warrants or convertible securities
outstanding as of the Original Series A Issue Date, and (3) shares of Common
Stock issued pursuant to the exercise of options subsequently granted to
employees, directors or consultants of the Corporation with respect to their
services to the Corporation. The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the Corporation under this Section 5(c), into the aggregate
consideration received, or deemed to have been received (as set forth in
subparagraph (iii) above), by the Corporation for such issue under this Section
5(c), for such Additional Shares of Common Stock.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Series A Issue Date
effect a subdivision of the outstanding Common Stock without a corresponding
subdivision of the Series A Preferred Stock or pay a Common Stock dividend on
the outstanding Common Stock without a corresponding proportionate dividend on
the outstanding Series A Preferred Stock, the Conversion Price in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Corporation shall at any time or from time to time after the
Original Series A Issue Date combine the outstanding shares of Common Stock
into a smaller number of shares without a corresponding combination of the
Series A Preferred Stock, the Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 5(d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) No Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A 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.
(f) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to convert
shares of Series A Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series A
Preferred Stock at the principal office of the Corporation, together with
written notice that such holder elects to convert all or any number of the
shares of the Series A 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.
(ii) Promptly after the receipt of the written notice referred to in
Section 5(f)(i) and surrender of the certificate or certificates for the share
or shares of Series A Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder or
holders, registered in such name or names as such holder or holders may direct,
a certificate or certificates for the number of whole shares of Common Stock
issuable upon the conversion of such share or shares of Series A Preferred
Stock. To the extent permitted by law, such conversion shall be deemed to have
been effected and the Conversion Rate shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation, and at such time the rights of the holder or holders of such
share or shares of Series A Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
Shares of Series A Preferred Stock that are converted into shares of Common
Stock as provided herein shall not be reissued.
(iii) In case the number of shares of Series A Preferred Stock
represented by the certificate or certificates surrendered exceeds the number
of shares of Series A Preferred Stock converted, the Corporation shall upon
such conversion execute and deliver to the holder, at the expense of the
Corporation, a new certificate or
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certificates for the number of shares of Series A Preferred Stock represented
by the certificate or certificates surrendered that are not to be converted.
(g) Termination of Conversion Rights. In the event of a Liquidation the
Conversion Rights shall terminate at the close of business on the business day
preceding the date fixed for payment of any amounts distributable on the
Liquidation to the holders of Series A Preferred Stock.
(h) Reservation of Common Stock Issuable Upon Conversion. The
Corporation shall at all times when the Series A Preferred Stock shall be
outstanding, reserve, free from preemptive rights, out of its treasury stock or
its authorized but unissued shares of Common Stock, or both, solely for the
purpose of effecting the conversion of the Series A Preferred Stock, sufficient
shares to provide for the conversion of all outstanding shares of Series A
Preferred Stock.
(i) Registrations, Listings or Approvals. If any shares of Common Stock
to be reserved for conversion of the Series A Preferred Stock require
registration or listing with, or approval of, any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise, before such shares may be validly issued or delivered upon
conversion, the Corporation will in good faith and as expeditiously as possible
at its expense endeavor to secure such a registration, listing or approval, as
the case may be.
(j) Common Stock Issued Upon Conversion Fully Paid and Nonassessable.
All shares of Common Stock issued upon conversion of the Series A Preferred
Stock will upon issuance by the Corporation be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof. Such shares shall also be issued without charge to the
holders thereof for any cost incurred by the Corporation in connection with the
conversion and issuance of certificates for the Common Stock.
(k) Share Exchanges, Mergers or Consolidations; Other. In the event of,
and as a condition to, (i) any share exchange, consolidation or merger of the
Corporation in which the Common Stock is converted into or exchanged for
securities of the surviving or acquiring entity (other than a share exchange,
consolidation, merger or sale covered by Subsection 2(b)), (ii) the issuance by
reclassification of shares of Common Stock (including any such reclassification
in connection with a consolidation or merger), or (iii) the distribution to all
holders of Common Stock of evidences of indebtedness or assets (including any
such distribution in connection with a share exchange, consolidation or merger
in which the Corporation is the surviving corporation), the holder of each
share of Series A Preferred Stock may elect that the holder's Series A
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock deliverable upon conversion of such Series A Preferred Stock
would have been entitled upon such share exchange, consolidation, merger, or
reclassification; and, in any such case, appropriate adjustment shall be made
in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of the Series A Preferred Stock
to the end that the provisions set forth herein shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
securities or property thereafter deliverable upon the conversion of the Series
A Preferred Stock.
(l) No Closing of Transfer Books. The Corporation will at no time close
its transfer books against the transfer of any Series A Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any shares
of Series A Preferred Stock in any manner that interferes with the timely
conversion of such Series A Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.
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IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its President this ____ day of December, 1998.
XYVISION ENTERPRISE SOLUTIONS, INC.
By:________________________
Kevin J. Duffy
President
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EXHIBIT 10.4
XYVISION ENTERPRISE SOLUTIONS, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Xyvision
Enterprise Solutions, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any of the Company's present or future subsidiary corporations as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant."
3. Administration, Delegation
a. Administration by Board of Directors. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem
advisable. The Board may correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Award in the manner and to the extent it
shall deem expedient to carry the Plan into effect and it shall be the sole and
final judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
b. Delegation to Executive Officers. To the extent permitted by applicable
law, the Board may delegate to one or more executive officers of the Company
the power to make Awards and exercise such other powers under the Plan as the
Board may determine, provided that the Board shall fix the maximum number of
shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
c. Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
a. Number of Shares. Subject to adjustment under Section 8, Awards may be
made under the Plan for up to 480,000 shares of common stock, $.001 par value
per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive
Stock Options (as hereinafter defined), to any limitation required under the
Code. Shares issued under the Plan may consist in
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whole or in part of authorized but unissued shares or treasury shares.
b. Per-Participant Limit. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which an Award may be granted to any Participant
under the Plan shall be 250,000 per calendar year. The per-Participant limit
described in this Section 4(b) shall be construed and applied consistently with
Section 162(m) of the Code.
5. Stock Options
a. General. The Board may grant options to purchase Common Stock (each, an
"Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
b. Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
c. Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
d. Duration of Options. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Board may specify in the applicable
option agreement.
e. Exercise of Option. Options may be exercised by delivery to the Company
of a written notice of exercise signed by the proper person or by any other
form of notice (including electronic notice) approved by the Board together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
f. Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
1. in cash or by check, payable to the order of the Company;
2. except as the Board may, in its sole discretion, otherwise provide in
an option agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (ii) delivery by the Participant
to the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
3. when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their
fair market value as determined by (or in a manner approved by) the Board in
good faith ("Fair Market Value"), provided (i) such method of payment is then
permitted under applicable law and (ii) such Common Stock was owned by the
Participant at least six months prior to such delivery;
4. to the extent permitted by the Board, in its sole discretion by (i)
delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or
5. by any combination of the above permitted forms of payment.
6. Restricted Stock
a. Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all
or part of such shares at their issue price or other stated or formula price
(or to require forfeiture of such shares if issued at no cost) from the
recipient in the event that conditions specified by the Board in the applicable
Award are not satisfied prior to the end of the applicable restriction period
or periods established by the Board for such Award (each, a "Restricted Stock
Award").
b. Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name
of the Participant and, unless otherwise
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determined by the Board, deposited by the Participant, together with a stock
power endorsed in blank, with the Company (or its designee). At the expiration
of the applicable restriction periods, the Company (or such designee) shall
deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including
the grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
a. Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this
Plan, (ii) the per-Participant limit set forth in Section 4(b), (iii) the
number and class of securities and exercise price per share subject to each
outstanding Option, (iv) the repurchase price per share subject to each
outstanding Restricted Stock Award, and (v) the terms of each other outstanding
Award shall be appropriately adjusted by the Company (or substituted Awards may
be made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 8(a) applies and Section 8(c) also applies to any event, Section 8(c)
shall be applicable to such event, and this Section 8(a) shall not be
applicable.
b. Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least ten business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation
or dissolution on any Restricted Stock Award or other Award granted under the
Plan at the time of the grant of such Award.
c. Acquisition Events
1. Definition. An "Acquisition Event" shall mean: (a) any merger or
consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a statutory share exchange
transaction.
2. Consequences of an Acquisition Event on Options. Upon the occurrence
of an Acquisition Event, or the execution by the Company of any agreement with
respect to an Acquisition Event, the Board shall provide that all outstanding
Options shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof). For purposes
hereof, an Option shall be considered to be assumed if, following consummation
of the Acquisition Event, the Option confers the right to purchase, for each
share of Common Stock subject to the Option immediately prior to the
consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held immediately prior
to the consummation of the Acquisition Event (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if
the consideration received as a result of the Acquisition Event is not solely
common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise of
Options to consist solely of common stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in fair market value to the
per share consideration received by holders of outstanding shares of Common
Stock as a result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or succeeding corporation
(or an affiliate thereof) does not agree to assume, or substitute for, such
Options, then the Board shall, upon written notice to the Participants, provide
that all then unexercised Options will become exercisable in full as of a
specified time prior to the Acquisition Event and will terminate immediately
prior to the consummation of such Acquisition Event, except to the extent
exercised by the Participants before the consummation of such Acquisition
Event; provided, however,
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that in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), then the Board may instead provide that all outstanding
Options shall terminate upon consummation of such Acquisition Event and that
each Participant shall receive, in exchange therefor, a cash payment equal to
the amount (if any) by which (A) the Acquisition Price multiplied by the number
of shares of Common Stock subject to such outstanding Options (whether or not
then exercisable), exceeds (B) the aggregate exercise price of such Options.
(3) Consequences of an Acquisition Event on Restricted Stock Awards.
Upon the occurrence of an Acquisition Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner and to the same extent as
they applied to the Common Stock subject to such Restricted Stock Award.
(4) Consequences of an Acquisition Event on Other Awards. The Board
shall specify the effect of an Acquisition Event on any other Award granted
under the Plan at the time of the grant of such Award.
9. General Provisions Applicable to Awards
a. Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred,
pledged or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable
only by the Participant. References to a Participant, to the extent relevant in
the context, shall include references to authorized transferees.
b. Documentation. Each Award shall be evidenced by a written instrument in
such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
c. Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms
of each Award need not be identical, and the Board need not treat Participants
uniformly.
d. Termination of Status. The Board shall determine the effect on an Award
of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
e. Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law
to be withheld in connection with Awards to such Participant no later than the
date of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange
Act, Participants may, to the extent then permitted under applicable law,
satisfy such tax obligations in whole or in part by delivery of shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to a Participant.
f. Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be
required unless the Board determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
g. Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been
satisfied, including any applicable securities laws and any applicable stock
exchange or stock market rules and regulations, and (iii) the Participant has
executed and delivered to the Company such representations or agreements as the
Company may consider appropriate to satisfy the requirements of any applicable
laws, rules or regulations.
h. Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other
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Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
10. Miscellaneous
a. No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any
other relationship with the Company. The Company expressly reserves the right
at any time to dismiss or otherwise terminate its relationship with a
Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
b. No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
c. Effective Date and Term of Plan. The Plan shall become effective on the
date on which it is adopted by the Board. No Awards shall be granted under the
Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Awards previously granted may extend beyond
that date.
d. Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time.
e. Governing Law. The provisions of the Plan and all Awards made hereunder
shall be governed by and interpreted in accordance with the laws of the State
of Delaware, without regard to any applicable conflicts of law.
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EXHIBIT 10.5
SECURED ADVANCE FACILITY LOAN AGREEMENT
This SECURED ADVANCE FACILITY LOAN AGREEMENT (the "Agreement") is entered
into as of this 31st day of December, 1998, by and between Xyvision Enterprise
Solutions, Inc., a Delaware corporation with its principal office at 30 New
Crossing Road, Reading, Massachusetts 01867 (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 90210 (the
"Lender").
I. DEFINITIONS
Each reference in this Agreement to the following terms shall be deemed to
have the following meanings.
1.1. Advances: Advances by the Lender made pursuant to Section 2 of this
Agreement.
1.2 Default. Each of the following events is hereby defined as and is
declared to be and to constitute a "Default" without further notice by the
Lender to the Borrower:
(a) Failure by the Borrower to make payments within ten days of the due
date of any Liability.
(b) Failure to perform or observe the covenants, agreements or
conditions of the Borrower contained (i) in Section 10 of this Agreement, (ii)
in any other section of this Agreement after the expiration of thirty (30) days
from the receipt by the Borrower of written notice from the Lender that an
event giving rise to grounds for such a Default has occurred, (iii) in the
Secured Promissory Note after the expiration of any applicable cure period or
(iv) in the Security Agreement after the expiration of any applicable cure
period.
(c) The occurrence of any Insolvency Proceeding.
(d) If any representation or warranty of the Borrower herein or in any
certificate delivered hereunder shall prove to have been false in any material
respect upon the date when made.
(e) Default shall be made by the Borrower in the performance of any
other covenant or agreement contained in any agreement or instrument that
results in the acceleration of the maturity of any Indebtedness to others of
Borrower under such agreement or instrument.
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(f) The occurrence of an unanticipated material adverse change in the
business or financial condition of the Borrower which in the reasonable
judgment of the Lender creates material uncertainty with respect to the ability
of the Borrower to discharge the Liabilities.
1.3. Financing Statements. Uniform Commercial Code financing statements,
substantially in the form attached hereto as Exhibit 1.3, covering all of the
now-existing or after-acquired property of the Borrower.
1.4. First Advance. The advance of Six Hundred Thousand Dollars
($600,000) in United States funds to the Borrower by the Lender. Such advance
was in the form of a loan by the Lender to Xyvision, Inc., the proceeds of
which have been used for the business of the Borrower and the liability for
which has been assumed by the Borrower.
1.5. GAAP. Generally accepted accounting principles.
1.6. Indebtedness. (a) All indebtedness or other obligations that in
accordance with GAAP would be reflected on the balance sheet as a liability;
(b) all indebtedness or other obligations, the payment or collection of which
has been guaranteed (except by reason of endorsement for collection in the
ordinary course of business) or in respect of which the guarantor is liable,
contingently or otherwise, including, without limitation, liable by way of
agreement to purchase, to provide funds for payment, to supply funds to or
otherwise to invest, or otherwise to assure a creditor against loss; (c) all
indebtedness or other obligations for borrowed money or for the deferred
purchase price of property or services secured by (or for which the holder of
such indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, or other encumbrance upon or in property (including, without
limitation, accounts and contract rights) owned by the Borrower whether or not
the Borrower has assumed or become liable for the payment of such indebtedness
or obligations; and (d) capitalized lease obligations.
1.7. Insolvency Proceedings. The (i) filing of a petition or request for
liquidation, reorganization, arrangement, adjudication as a bankrupt, relief as
a debtor, or other relief under the bankruptcy, insolvency or similar laws of
the United States of America or any state or territory thereof or any foreign
jurisdiction now or hereafter in effect; (ii) making of a general assignment
for the benefit of creditors; (iii) consent to the appointment of a receiver or
trustee, including, without limitation, a "custodian" as defined in the
Bankruptcy Code set forth in Title 11 of the United States Code for a party or
any of its assets; (iv) execution of a consent to any other type of insolvency
proceeding (under the Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of, or settlement of claims
against or winding up of affairs of a party; (v) the appointment
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of a receiver, trustee, custodian or officer performing similar functions,
including, without limitation, a "custodian" as defined in the foregoing
Bankruptcy Code, for a party or any of its assets, or (vi) the filing of a
request or petition for liquidation, reorganization, arrangement, adjudication
as a bankrupt or similar laws of the United States of America, any state or
territory thereof, or any foreign jurisdiction now or hereafter in effect, or
of any other type of insolvency proceeding (under the Bankruptcy Code or
otherwise) or any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against or winding up of affairs of a
party.
1.8. Liabilities. All amounts advanced and unpaid under this Agreement,
the accrued and unpaid interest on such amounts and any and all other expenses
or charges due from the Borrower to the Lender under this Agreement and the
Secured Promissory Note.
1.9. Maximum Loan Amount. One Million Dollars ($1,000,000).
1.10. Minimum Draw. The minimum amount of any Advance under this
Agreement shall be Fifty Thousand Dollars ($50,000).
1.11. Minimum Partial Payment Amount. The minimum amount of any partial
prepayment under this Agreement shall be One Hundred Thousand Dollars
($100,000).
1.12. Permitted Indebtedness, All of the following:
(a) Indebtedness owing to the Lender;
(b) Indebtedness incurred in favor of trade creditors and in the
ordinary course of business and not outstanding more than 180 days; and
(c) Indebtedness existing on the date hereof and fully described in
Schedule 1.12 hereto.
1.13. Secured Promissory Note. The secured promissory note dated
December 31, 1998 in the amount of One Million Dollars ($1,000,000) executed by
the Borrower and delivered to the Lender on or about the date hereof.
1.14. Security Agreement. The Security Agreement, dated December 31,
1998, executed by the Borrower and delivered to the Lender as security for the
Secured Promissory Note, as it may be further amended from time to time
hereafter.
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1.15. Intellectual Property Assignment. The Assignment of Patents and
Trademarks, dated December 31, 1998, executed by the Borrower and delivered to
the Lender as security for the Secured Promissory Note, as it may be amended
from time to time.
II. THE LOAN
2.1. Loan. Subject to the terms and conditions set forth herein and
prior to any Default hereunder and so long as no Insolvency Proceedings have
commenced against the Borrower, the Lender agrees that it will lend to the
Borrower and the Borrower agrees that it may borrow and repay from time to time
amounts not to exceed the Maximum Loan Amount (the "Loan").
2.2. Interest. Amounts advanced to the Borrower by the Lender under this
Agreement shall bear interest, payable as set forth in Section 3.2 of this
Agreement, from the date of each such Advance on the unpaid principal balance
thereof until paid in full at a rate of eight percent (8%) per annum and after
any Default at the rate of twelve percent (12%) per annum.
2.3. Advances. The Lender agrees to make Advances to the Borrower upon
the Borrower's request, as set forth herein.
2.4. Requests For Advances. The Borrower may at any time, and from time to
time, request Advances from the Lender in amounts not less than the Minimum
Draw, unless at the time the Advance is requested the difference between the
aggregate principal amount of unpaid Advances then outstanding and the Maximum
Loan Amount is less than the Minimum Draw, in which event the Borrower may
request Advances in an aggregate amount which is less than the Minimum Draw.
All requests for Advances shall be made by the Borrower to the Lender in
writing and the Borrower may deliver any such written request for an Advance by
telecopy transmission. III. PAYMENTS
3.1. Scheduled Principal Payment. All Liabilities shall be paid in full
on March 31, 2000, unless declared due and payable earlier by the Lender as set
forth herein. Notwithstanding the foregoing, all Liabilities shall be paid in
full upon any sale of all or substantially all of the assets of the Borrower or
the merger or consolidation of the Borrower with or into another corporation in
which the beneficial owners of the Borrower's voting stock immediately before
the merger or consolidation own less than a majority of the surviving or
acquiring entity's voting stock immediately after the merger or consolidation.
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3.2. Scheduled Interest Payments. Interest accrued shall be due and
payable in cash annually in arrears on the first day of each calendar quarter.
3.3. Prepayment. The Borrower may from time to time prepay any amount
outstanding under this Agreement or the Secured Promissory Note, in whole or in
part, without premium or penalty, by wire transfer; provided, however, that any
such partial prepayment shall be made in an aggregate amount of not less than
the Minimum Partial Payment Amount, and that payments in excess of the Minimum
Partial Payment Amount shall only be an integral multiple thereof.
IV. SECURITY
As security for the full and timely payment of the principal and interest
on the Secured Promissory Note and the Liabilities, whether now existing or
hereafter arising:
4.1. Security Agreement. The Borrower has duty executed and delivered to
the Lender the Security Agreement and Financing Statements covering all of the
now existing or after-acquired property of the Borrower, as more fully
described therein.
4.2. Recording. The Borrower shall, at its cost and expense, cause all
instruments and documents given as security pursuant to the Security Agreement,
including the Financing Statements, to be duty recorded and/or filed in all
places necessary, in the opinion of the Lender to perfect and protect the
security interest of the Lender in the property covered thereby.
V. USE OF PROCEEDS
5.1. Ordinary Course of Business. The Borrower agrees that the
Advanceswill be used solely in the ordinary course of the Borrower's business.
VI. CLOSING
6.1. Closing. The execution and delivery of this Agreement and the other
documents to be delivered in connection with this Agreement shall take place at
the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts on
December 31, 1998 or at such other place and time as the parties in writing
shall agree.
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VII. CONDITIONS PRECEDENT
The obligation of the Lender to make the Loan, and each Advance
thereunder, is subject to the satisfaction of the following conditions
precedent.
7.1 Secured Promissory Note. The Lender shall have received a duly
executed and delivered Secured Promissory Note in a form substantially similar
to that attached hereto as Exhibit 7.1.
7.2. Documents. The Lender shall have received all instruments and documents
required to be delivered pursuant to Article IV, and the same shall be in full
force and effect.
7.3. Representations and Warranties. All representations and warranties
of the Borrower contained herein shall be true and correct.
7.4. No Event of Default. There shall exist no Default and no condition,
event or act which, with notice or lapse of time or both, would constitute a
Default.
VIII. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
8.1. Corporate Authority.
(a) Incorporation; Good Standing. The Borrower (i) is a corporation
duty organized, existing and in good standing under the laws of the State of
its incorporation; (ii) has all requisite corporate power to own its property
and conduct its business as now conducted and as presently contemplated; and
(iii) is in good standing as a foreign corporation and is duly authorized to do
business in each jurisdiction where the failure to be so qualified would have a
material adverse effect on the business and financial condition of the
Borrower.
(b) Authorization. The execution, delivery and performance of this
Agreement, the Secured Promissory Note, the Security Agreement (together, the
"Loan Documents") and the transactions contemplated hereby (i) are within the
corporate authority of the Borrower, (ii) have been authorized by proper
corporate proceedings and (iii) will not contravene any provision of law, its
Certificate of Incorporation or By- Laws or any other agreement, instrument or
undertaking binding upon the Borrower. Each of the Loan Documents constitutes
the legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms.
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8.2. Title to Properties; Absence of Liens. The Borrower has good and
valid title to all properties, assets and rights of every name and nature now
purported to be owned by it free from all defects, liens, charges and
encumbrances whatsoever, except as set forth in Schedule 8.2 hereof.
8.3. No Default. The Borrower is not in default in any material
respect under any material contract, agreement or obligation, which default
could result in a significant impairment of the ability of the Borrower to
fulfill its obligations hereunder or a significant impairment of its financial
position or business, except as set forth on Schedule 8.3 attached hereto.
8.4. Litigation. There is no litigation, proceeding or governmental
investigation pending, or to the knowledge of its officers, threatened against
the Borrower that will adversely affect the ability of the Borrower to perform
its obligations hereunder, that is likely to affect the Lender's security
interest in the Collateral (as defined in the Security Agreement), or that if
determined adversely to the Borrower is reasonably likely to have a material
adverse effect on the financial condition or business of the Borrower or result
in any material liability on the part of the Borrower nor is there any basis in
fact therefor known to the Borrower, except as set forth in Schedule 8.4
attached hereto.
8.5. Insurance. The Borrower maintains in force fire, casualty,
comprehensive liability and other insurance covering its properties and
business that is adequate and customary for the type and scope of its
properties and business.
8.6. Patents, Copyrights, etc. Schedule 8.6 hereof sets forth a true,
correct and complete list and, where appropriate, a description of, all
patents, copyrights, trademarks, trade names and service marks that are
material to the conduct of the Borrower's business as now or as proposed to be
conducted (the "Intellectual Property"). The Borrower owns or has the full
right to use all Intellectual Property. The Borrower has received no notice of,
and has no knowledge of any basis for, a claim against it that any of its
operations, activities, products or publications infringe on any patent,
trademark, trade name, copyright or other property rights of a third party, or
that it is illegally or otherwise using the trade secrets, formulae or any
property rights of others. The Borrower has no disputes with or claims against
any third party for infringement by such third party of any Intellectual
Property.
IX. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that from the date hereof and as long as
any indebtedness is outstanding hereunder:
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9.1. Notices. It will promptly notify the Lender in writing of the
occurrence of any act, event or condition which constitutes or which after
notice or lapse of time, or both, would constitute a Default hereunder.
9.2. Financial Statements. It will furnish to the Lender:
(a) Within 90 days after the end of each fiscal year, the
consolidated balance sheet of the Borrower, as at the end of, and the related
consolidated statements of earnings and of changes in financial position for,
such year reported upon by independent certified public accountants, together
with a written statement by the accountants certifying such financial
statements to the effect that in the course of the audit upon which their
certification of such financial statements was based (but without any special
or additional audit procedures for the purpose) they obtained knowledge of no
condition or event relating to financial matters which constitutes a Default
under this Agreement, or, if such accountants shall have obtained in the course
of such audit knowledge of any Default, they shall disclose in such written
statement the nature and period of existence thereof, it being understood that
such accountant shall be under no liability, directly or indirectly, to the
Lender for failure to obtain knowledge of any such Default;
(b) Upon written request of the Lender, a quarterly report showing
any variance from the operating budget to actual results of operations and a
monthly statement of profit and loss, with such report accompanied by a
narrative explaining the variances;
(c) Annually, a copy of Borrower's operating budget for the ensuing
fiscal year, and upon request of the Lender, the Borrower's cash flow
projections on a monthly basis;
(d) From time to time such other financial data and information as
the Lender may reasonably request; and
(e) The financial statements referred to above in this Section 9.2
shall be prepared in accordance with GAAP.
9.3. Corporate Existence of Properties. It will do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence, rights and franchises and to operate its business in
conformity with all applicable laws and regulations. It will cause all of its
properties used or useful in the conduct of its business to be maintained and
kept in good condition, repair and working order and supplied with all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Borrower may
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be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section 9.3 shall prevent the Borrower from discontinuing the
operation and maintenance of any of its properties if such discontinuance is,
in the judgment of the Borrower, desirable in the conduct of its business and
not disadvantageous in any material respect to the Lender.
9.4. Insurance. It will maintain, with financially sound and reputable
insurance companies, funds or underwriters insurance of the kinds covering the
risks and in the relative proportionate amounts usually carried by companies
conducting business similar to that of the Borrower.
9.5. Taxes. It will pay or cause to be paid all taxes, assessments or
governmental charges on or against it or its properties prior to the time when
they become delinquent; provided that this covenant shall not apply to any tax,
assessment or charge which is being in good faith contested and with respect to
which adequate reserves have been established and are being maintained in
accordance with GAAP.
9.6. Expenses. It will reimburse the Lender for all reasonable out-of-
pocket expenses, including but not limited to, the reasonable fees and costs of
special counsel for the Lender and other reasonable attorneys' fees and costs
incurred or expended in connection with the enforcement of any obligations of
the Borrower under this Agreement, the Secured Promissory Note or the Security
Agreement.
9.7. Certain Taxes. It will pay any documentary stamp taxes or similar
excise taxes which may at any time be determined to be payable by the Lender
with respect to the execution and delivery of this Agreement or the note issued
hereunder and indemnify the Lender against any expense or liability resulting
from any nonpayment or delay in the payment of any such tax.
9.8. Further Assurances. It will execute and deliver to the Lender such
further instruments, provide it with such further data and information and take
such further action as it may reasonably request or as may be necessary or
desirable further to effect the purposes of this Agreement.
9.9. Inspection. It will permit during reasonable business hours any
person designated by the Lender to visit and inspect its properties, corporate
books and financial records and to discuss its affairs, finances and accounts
with its officers and employees as often as the Lender may reasonably request.
9.10. Legal Expenses. It will pay the legal fees and out-of-pocket
expenses of the Lender's counsel incurred in connection with the preparation,
execution and delivery of the Loan Documents.
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X. NEGATIVE COVENANTS
The Borrower covenants and agrees that from the date hereof, and as long
as any Liability is outstanding hereunder, except with the written consent of
the Lender:
10.1. Dividends. The Borrower will pay no dividends either in cash or
kind on any class of its capital stock nor make any distribution (other than in
kind) on account of its stock, nor redeem, repurchase or otherwise acquire
directly or indirectly any of its stock.
10.2. Loans. The Borrower will not make any loans or advances to any
individual, firm or corporation, including without limitation its officers and
employees; provided, however, that it may make advances to its employees,
including its officers, with respect to reasonable business expenses incurred
by such employees which expenses are reimbursable by it.
10.3. Purchase of Securities. The Borrower will not invest in or
purchase any stock or securities of any individual, firm or corporation other
than U.S. Government obligations with a maturity not greater than one (1) year
or certificates of deposits with banks having a principal office within the
United States.
10.4. Merger. The Borrower will not merge or consolidate or be merged or
consolidated with or into any other corporation.
10.5. Sale of Assets. The Borrower will not sell or dispose of any of
its assets except in the ordinary and usual course of its business.
Notwithstanding the foregoing, nothing herein shall prohibit or be applied to
limit the Borrower from exchanging or trading in old equipment toward the
purchase of new equipment.
10.6. Other Security Interests. The Borrower will not grant or suffer to
exist any security interest in, or mortgage of, any of its properties or
assets, except for liens set forth in Schedule 8.2 attached hereto and except
for the granting of a purchase money security interest on specific items of new
equipment acquired by Borrower.
10.7. Not To Engage in Other Business. The Borrower will not engage in
any business other than the business in which it is currently engaged or a
business reasonably allied thereto.
10.8. Capital Expenditures. The Borrower will not in any fiscal year
make or incur any obligation to make any expenditures for the acquisition of or
improvements or addition to any real property, machinery, equipment, fixtures
or furniture, by purchase or by lease purchase agreement or option, the
aggregate cost or annual
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rental of which is in excess of Six Hundred Thousand Dollars ($600,000),
exclusive of such fixed assets to be acquired with the proceeds of the Loan or
any part thereof.
10.9. Indebtedness. The Borrower will not create, incur, assume or
suffer to exist any Indebtedness other than Permitted Indebtedness.
XI. DEFAULTS BY BORROWER AND REMEDIES
11.1 Acceleration. Upon the occurrence of a Default, the Lender may by
notice in writing to the Borrower declare the principal of all Advances then
remaining unpaid and the interest accrued thereon and all other Liabilities of
the Borrower hereunder immediately due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
expressly waived.11.2. Suits for Enforcement. In case any one or more Defaults
shall occur and be continuing, the Lender may proceed to protect and enforce
its rights or remedies either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, agreement or other
provision contained herein, in the Secured Promissory Note, the Security
Agreement or in any other document or instrument delivered in connection with
or pursuant to this Agreement, or to enforce the payment of the Secured
Promissory Note or any other legal or equitable right or remedy.
11.3. Rights and Remedies Cumulative. No right or remedy herein
conferred upon the Lender is
intended to be exclusive of any other right or remedy contained herein, in the
Secured Promissory Note, the Security Agreement or in any other instrument or
document delivered in connection with or pursuant to this Agreement, and every
such right or remedy shall be cumulative and shall be in addition to every
other such right or remedy contained herein and therein or now or hereafter
existing at law or in equity or by statute, or otherwise.
11.4. Rights Not Waived. No course of dealing between the Borrower and
the Lender, nor any failure on the part of the Lender to complain of any action
or non- action on the part of the Borrower, no matter how long the same may
continue, shall ever be deemed to be a waiver by the Lender of any of its
rights hereunder. Further, no waiver by the Lender at any time of any of the
provisions hereof shall be construed as a waiver of any of the other provisions
hereunder, or a waiver at any subsequent time of the same provision. The
consent or approval by the Lender to or of any action by the Borrower requiring
the Lender's consent or approval shall not waive or render unnecessary the
Lender's consent or approval to or of any subsequent similar act by the
Borrower.
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XII. GENERAL
12.1. Notice. Except as expressly provided herein, all notices required
or permitted to be given hereunder be in writing and sent certified mail as
follows:
(a) To the Lender:
Tudor Trust
450 North Roxbury Drive,
4th Floor Beverly Hills, California 90210
with a copy to:
Roger C. Cohen, Esq.
Ballard Spahr Andrews & Ingersoll
1225 17th Street, Suite 2300
Denver, Colorado 80202
(b) To the Borrower
Xyvision Enterprise Solutions, Inc.
30 New Crossing Road
Reading, Massachusetts 01867-3254
Attn: President
with a copy to:
Patrick J. Rondeau, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
12.2. Successors and Assigns. The obligations of the Borrower hereunder
shall be binding upon its successors and assigns (but such reference is not
intended as a consent to any assignment not specifically permitted by the
Lender) and shall inure to the benefit of the successors and assigns of the
Lender.
12.3. Term. The term of this Agreement shall be until all of the
Borrower's indebtedness to the Lender, or its assignee, is paid in full.
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12.4. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of The Commonwealth of Massachusetts and shall
constitute an agreement under seal.
12.5. Entire Agreement. This Agreement together with the other Loan
Documents constitute the entire understanding and agreement between the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, whether written or oral, between the parties
with respect to such subject matter.
12.6. Confirmation of Security. The Borrower confirms and agrees that
all of the Liabilities constitute "Obligations" as defined in the Security
Agreement, constitute "Secured Obligations" as defined in the Intellectual
Property Agreement and are secured pursuant to the terms of the Security
Agreement and the Intellectual Property Assignment.
XYVISION ENTERPRISE SOLUTIONS, INC.
By: /s/ Kevin J. Duffy
---------------------
Kevin J. Duffy
President
/s/ Jeffrey L. Neuman
---------------------
Jeffrey L. Neuman, as Trustee of the Tudor Trust
u/d/t
December 12, 1997 and not individually
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SECURED PROMISSORY NOTE
$1,000,000
Boston, Massachusetts December 31, 1998
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 (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 March
31, 2000.
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
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SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of this 31st day of December, 1998 (the
"Agreement") between XYVISION ENTERPRISE SOLUTIONS, INC., a Delaware
corporation, having its principal place of business at 30 New Crossing Road,
Reading, Massachusetts 01867 (the "Debtor"), and Jeffrey L. Neuman as trustee
of the Tudor Trust u/d/t dated December 12, 1997, having a principal place of
business at 450 North Roxbury Drive, 4th Floor, Beverly Hills, California 90210
(the "Secured Party").
WHEREAS, the Debtor and the Secured Party are parties to a Secured Advance
Facility Loan Agreement dated as of December 31, 1998 (such agreement, as it
may be amended from time to time hereafter, the "Loan Agreement"); and
WHEREAS, as an inducement to the Secured Party to execute and deliver the
Loan Agreement, and to make the loans contemplated thereunder, the Debtor has
agreed to enter into this Agreement and grant the security interests specified
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 Debtor and the Secured Party hereby agree as follows:
1.0 SECURITY INTEREST. The Debtor, for valuable consideration, receipt of
which is acknowledged, hereby grants to the Secured Party a security interest
in the Debtor's now owned or hereafter acquired: (a) inventory, (b) accounts,
contract rights, chattel paper, documents and instruments; (c) general
intangibles, including but not limited to trademarks, patent rights,
copyrights, goodwill, records, computer programs and rights in premises used in
the conduct of the Debtor's business; (d) equipment, including but not limited
to all vehicles, machinery, tools, furniture and fixtures; (e) other personal
property of every kind whatsoever, including tax refunds or interests in and
claims under policies of insurance; and all products and proceeds of the above
(the "Collateral").
2.0 OBLIGATIONS SECURED. The security interest granted hereby secures
payment and performance of all debts, loans, liabilities and agreements of the
Debtor to the Secured Party of every kind and description, whether now existing
or hereafter arising, under the Loan Agreement and that certain $1,000,000
Secured Promissory Note made by the Debtor and delivered to the Secured Party
of even date herewith, or any replacement note or any other note issued under
the Loan Agreement (the "Obligations").
3.0 THE DEBTOR'S REPRESENTATIONS AND WARRANTIES. The Debtor represents and
warrants that:
3.1 The Debtor has no place of business other than that shown above and on
Schedule 3.1 attached hereto, and that the Debtor keeps its inventory and
records concerning accounts, contract rights and substantially all its assets
at the location shown above, which is its chief executive office. The Debtor
will promptly notify the Secured Party in writing of any change in the location
of its chief executive office or the establishment of any new place of business
where its inventory or records are kept.
3.2 The Debtor is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. The execution, delivery and
performance of this Agreement has been duly authorized.
3.3 The Debtor will at all times keep in a manner satisfactory to the
Secured Party accurate and complete records of the Debtor's inventory and
accounts, will maintain the Collateral in good repair and working order and
will keep the Collateral insured, naming the Secured Party as a loss payee.
3.4 The Debtor's execution and delivery of this Agreement and its grant of
the security interest provided herein does not violate any law, regulation or
agreement by which the Debtor is bound.
4.0 FINANCING STATEMENTS. The Debtor hereby agrees to execute, deliver and
pay the cost of filing any financing statement, or other notices or assignments
appropriate under applicable law, in respect of any security interest created
pursuant to this Agreement which may at any time be required or which, in the
opinion of the Secured Party, may at any time be desirable. In the event that
any re-recording or refiling thereof (or the filing of any statements of
continuation or assignment of any financing statement) is required to protect
and preserve such lien or security interest, the Debtor shall, at its cost and
expense, cause the same to be re-recorded and/or refiled at the time and in the
manner requested by the Secured Party. The Debtor hereby irrevocably designates
the Secured Party, its agents, representatives and designees as agents and
attorneys-in-fact for the Debtor to sign such financing statements on behalf of
the Debtor.
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5.0 THE DEBTOR'S RIGHTS UNTIL DEFAULT. In the absence of any Default as
defined in the Loan Agreement and any Default hereunder, the Debtor shall have
the right to possess the Collateral, manage its property and sell its inventory
in the ordinary course of business.
6.0 DEFAULT. The Debtor shall be in default under this Agreement upon the
happening of any of the following events or conditions, upon receipt from the
Secured Party of a written notice of default and the expiration of any
applicable grace period:
6.1 Failure by the Debtor to observe or perform any of its agreements,
warranties or representations in this Agreement, after notice and expiration of
thirty (30) days during which the Debtor may cure any such default;
6.2 Failure by the Debtor to pay when due any liability, whether by
maturity, acceleration or otherwise;
6.3 The occurrence of a Default under the Loan Agreement;
6.4 Dissolution, termination of existence, insolvency, business failure,
voluntary appointment of a receiver or custodian, or involuntary appointment of
a receiver or custodian not removed within ninety (90) days of its appointment,
of any part of the Debtor's Property, assignment or trust mortgage for the
benefit of creditors by the Debtor, the voluntary commencement of any
proceeding under any bankruptcy or insolvency laws of any state or of the
United States by the Debtor or any involuntary commencement of a case under any
bankruptcy or insolvency laws which is not dismissed within ninety (90) days.
7.0 THE SECURED PARTY'S RIGHTS UPON DEFAULT. Upon default and at any time
thereafter, the Secured Party, without presentment, demand, notice, protest or
advertisement of any kind, may:
7.1 Notify account debtors that the Collateral has been assigned to the
Secured Party and that payments shall be made directly to the Secured Party and
upon request of the Secured Party, the Debtor will so notify such account
debtors that their accounts must be paid to the Secured Party. After
notification, the Debtor shall immediately upon receipt of all checks, drafts,
cash and other remittances deliver the same in kind to the Secured Party. The
Secured Party shall have full power to collect, compromise, endorse, sell or
otherwise deal with the Collateral or Proceeds thereof in its own name or in
the name of the Debtor and the Debtor hereby irrevocably appoints the Secured
Party its attorney-in-fact for this purpose.
7.2 Notify the Debtor to assemble the Collateral at a place designated by
the Secured Party.
7.3 Take possession of the Collateral and the premises at which any
Collateral is located and sell all or part of the Collateral at a public or
private sale.
7.4 In the case of any sale or disposition of the Collateral, or the
realization of funds therefrom, the proceeds thereof shall first be applied to
the payment of the expenses of such sale, commissions, reasonable attorneys
fees and all charges paid or incurred by the Secured Party Pertaining to said
sale or this Agreement, including any taxes or other charges imposed by law
upon the Collateral and/or the owning, holding or transferring thereof;
secondly, to pay, satisfy and discharge the Obligations secured hereby; and,
thirdly, to pay the surplus, if any, to the Debtor, provided that the time of
any application of the proceeds shall be at the sole and absolute discretion of
the Secured Party. To the extent such proceeds do not satisfy the foregoing
items, the Debtor hereby promises and agrees to pay any deficiency. Except for
Collateral that is perishable or is a type customarily sold in a recognized
market, the Secured Party will give the Debtor at least ten (10) days written
notice of the time and place of any sale of the Collateral.
8.0 MISCELLANEOUS. (a) This Agreement constitutes the entire agreement
between the parties; the Agreement or any part thereof cannot be changed,
waived, or amended except by an instrument in writing signed by the Secured
Party; and waiver on one occasion shall not operate as a waiver on any
occasion. (b) Any notice required or permitted hereunder shall be in writing
and shall be duly given to any party if hand delivered or sent by nationally
recognized overnight mail carrier, in each case with a return receipt
requested, or if sent by certified first class United States Mail, postage
prepaid to the address set forth above or to such other address as may be
specified by notice in writing. (c) The Uniform Commercial Code and other laws
of Massachusetts shall govern the construction of this Agreement.
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EXECUTED as an instrument under seal by the duly authorized officers of
the parties as of the date first above written.
DEBTOR: SECURED PARTY:
XYVISION ENTERPRISE TUDOR TRUST
SOLUTIONS, INC.
By: /s/ Kevin J. Duffy By: /s/ Jeffrey L. Neuman
- --------------------- ---------------------
Name: Kevin J. Duffy Jeffrey L. Neuman, as
Title: President Trustee of the Tudor Trust u/d/t
dated December 12, 1997
and not individually
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SCHEDULE 3.1
Office Locations
1. 246 Bedford Avenue, Slough, Berkshire SL1 4RJ, United Kingdom
2. 69 Rue d'Aquesseau, F-92100 Boulogne-Billancourt, France
3. N14205 SE 36th Street, Suite 100, Bellevue, WA 98006-1597
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ASSIGNMENT OF PATENTS AND TRADEMARKS
THIS ASSIGNMENT OF PATENTS AND TRADEMARKS (hereinafter referred to as the
"Assignment"), is made as of December 31, 1998 by and between XYVISION
ENTERPRISE SOLUTIONS, INC., a Delaware corporation with its principal place of
business at 30 New Crossing Road, Reading, Massachusetts 01867, Massachusetts
01867 (hereinafter referred to as the "Company"), and Jeffrey L. Neuman as
trustee of the Tudor Trust, u/d/t dated December 12, 1997, having a principal
office at 450 North Roxbury Drive, 4th Floor, Beverly Hills, California 90210
(hereinafter referred to as the "Lender").
WHEREAS, the Company and the Lender have entered into a Secured Advance
Facility Loan Agreement of even date herewith (the "Agreement") pursuant to
which the Lender has agreed to make available to the Company a working capital
line of credit in the principal amount of $1,000,000 (the "Loan"); and
WHEREAS, as an inducement to the Lender to execute and deliver the
Agreement, and to make the Loan pursuant to the Agreement and as security for
the Secured Promissory Note (the "Note") related thereto, the Company has
agreed to enter into this Assignment and grants the security interests
specified herein;
NOW THEREFORE, for good and valuable consideration, and to secure the
payment and performance of all the Secured Obligations (as defined below), the
parties hereto agree as follows:
1. Definitions. All capitalized terms used herein and not defined shall
have the meanings prescribed therefor in the Agreement. The term "Secured
Obligations" means all obligations of the Company to the Lender, whether
currently existing or hereafter incurred or created, under the Agreement
including, without limitation, (a) all principal of and interest (including,
without limitation, any interest which accrues after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company) on any advance to the Company under, or the Note
issued by the Company pursuant to, the Agreement; (b) all other amounts payable
by the Company under the Agreement; (c) all other amounts payable by the
Company hereunder; and (d) any renewals or extensions of any of the foregoing.
2. Assignment and Grant of Agreement and Security Interest. As collateral
security for the prompt and
complete payment and performance of all the Secured Obligations, together with
any and all expenses which may be incurred by the Lender in collecting any or
all of such Secured Obligations or enforcing any rights, obligations or
liabilities under this Assignment, the Company hereby grants to the Lender a
security interest in, and, contingent only upon the occurrence of a Default
under the Agreement, assigns, transfers and conveys to the Lender all of the
Company's right, title and interest in, to and under, the following (all of
which are hereinafter collectively called the "Collateral"):
a. (i) all patents registered with the United States Office of Patents
and Trademarks (the "Patent and Trademark Office") or any foreign patent
offices listed on Schedule I attached hereto (the "Patents") and all United
States and foreign Patent applications listed on Schedule I ("Patent
Applications"); (ii) all trademarks registered with the Patent and Trademark
Office or any foreign trademark offices listed on Schedule I (the
"Trademarks"), together with the goodwill of the business connected with the
use of, and symbolized by, such Trademarks and all United States and foreign
Trademark applications listed on Schedule I ("Trademark Applications"); (iii)
all re-issues, divisions, continuations, renewals, extensions and
continuations-in-part of the Patents and Trademarks; and (iv) the right to sue
for past, present and future infringements of the Patents and Trademarks;
b. all inventions, processes, production methods, proprietary
information, know-how and trade secrets used or useful in the business of the
Company, all trade names, service marks, logos, copyrights and the like owned
or used by the Company and used or useful in the business of the Company and
goodwill relating to the same; and, to the extent assignable pursuant to their
terms, all licenses or other agreements granted to the Company with respect to
any of the foregoing, in each case whether now or hereafter owned or used; all
information, customer lists, identification of suppliers, data, plans,
blueprints, specifications, designs, drawings, recorded knowledge, surveys,
engineering reports, test reports, manuals, materials standards, catalogs,
computer and automatic machinery, software and programs, and the like
pertaining to operations by the Company in, on or about any of its facilities;
sales data and other information relating to sales; and all accounting
information pertaining to operations in, on or about any of its facilities and
all media in which or on which any of the information or knowledge or data or
records relating to its facilities may be recorded or stored and all computer
programs used for the relating to sales; and all accounting information
pertaining to operations in, on or about any of its facilities and all media in
which or on which any of the information or knowledge or data or records
relating to its facilities may be recorded or stored and all computer programs
used for the compilation or printout of such information, knowledge, records
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or data; and
c. all proceeds of any and all of the foregoing.
3. Representations and Warranties. As an inducement to the Lender to enter
into this Assignment, the Company makes the following representations and
warranties:
a. Schedule I correctly sets forth all Patents, Patent Applications,
Patent Licenses, Trademarks, Trademark Applications and Trademark Licenses in
which the Company has any right, title or interest.
b. The Company is the absolute owner of the entire right, title and
interest in and to the Patents and Trademarks and has used and is now using in
interstate commerce the material protected by the Patents and Trademarks, and
has duly and properly deposited a copy of such material in the Patent and
Trademark Office and any foreign patent and trademark offices in which such
marks are registered.
c. There has been no decision adverse to the Company's claim of
ownership of the material protected by the Patents and Trademarks or to its
right to register the same, and there is no proceeding involving said materials
or rights threatened or pending in the Patent and Trademark Office or the
courts, except as otherwise expressly disclosed in the Agreement.
d. The Company has the right to the exclusive use of the material
protected by the Patents and Trademarks, free and clear of all liens, charges
and encumbrances in favor of other persons, with full right to pledge, sell,
assign, transfer and grant a security interest therein, and, except as
expressly disclosed in Schedule I, has granted no licenses, security interests
(other than those granted to the Lender by this Assignment) or other rights or
encumbrances to such material.
The Company agrees that it will at its expense forever warrant and, at the
Lender's request, defend the same from any and all claims and demands of any
other person and that it will not create or permit to exist any lien upon or
security interest in the Collateral in favor of any other person, except as
otherwise permitted by the Agreement. The Company hereby agrees to pay,
indemnify, and hold the Lender harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses of disbursements of any kind or nature whatsoever with
respect to the Collateral, including, without limitation, claims of patent or
trademark infringement provided that the Company shall have no obligation
hereunder with respect to such indemnification arising from the Lender's gross
negligence or willful misconduct.
e. This Assignment constitutes and shall at all times constitute a valid
first lien on the Collateral and shall at all times constitute the only lien on
the Collateral except for statutory liens imposed on the Collateral without the
consent of the Company. The Company agrees that it will not grant, create or
permit to exist any lien upon or security interest in the Collateral in favor
of any person other than the Lender.
4. Continued Use of the Patents and Trademarks. During the term of this
Assignment, the Company shall employ the Patents and Trademarks in the same or
similar manner as it has in the past, and shall employ the appropriate notice
of such Patents and Trademarks in connection with the works for which such
Patents and Trademarks were granted. The Company agrees to use its best ability
to maintain the registration of the Patents and Trademarks in full force and
effect by taking any action which it believes necessary, through attorneys of
its choice, all at its expense. To the extent that such appointment is required
by law, the Lender hereby appoints the Company as its attorney-in-fact to pay
maintenance fees and to take such action to maintain the registration of the
Patents and Trademarks. In the event that any Patent or Trademark is infringed
by a third party, so as to have a material adverse effect on the business,
properties or financial condition of the Company or any subsidiary thereof or
if such infringement gives rise to litigation or to the filing of a claim or
notice of opposition with the Patent and Trademark Office, the Company shall
promptly notify the Lender and shall take such actions as may be required to
terminate such infringement. Any damages recovered from the infringing party
shall be deemed to be part of the Collateral. The Company shall not assign this
Assignment or any rights in the Patents and Trademarks or the material
protected thereby without the prior written approval of the Lender (except for
the escrow of software in the ordinary course of business) and such attempted
assignment shall be void ab initio.
5. Continuing Liability. The Company hereby expressly agrees that,
anything herein to the contrary notwithstanding, it shall remain liable under
each license, interest and obligation assigned to the Lender hereunder to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with and pursuant to the terms
and provisions thereof. The Lender shall not have any obligation or liability
under any such license, interest or obligation by reason of or arising out of
this Assignment or the assignment thereof to the Lender or the receipt by the
Lender of any payment relating to any such license, interest
20
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or obligation pursuant hereto, nor shall the Lender be required or obligated in
any manner to perform or fulfill any of the obligations of the Company
thereunder or pursuant thereto, or to make any payment, or to make any inquiry
as to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any such license, interest or
obligation, or to present or file any claim, or to take any action to collect
or enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
6. Remedies. If an Event of Default under the Agreement has occurred and
is continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it under this Assignment and any other Loan Document, all
rights and remedies of a secured party under the Uniform Commercial Code.
Without limiting the generality of the foregoing, the Company expressly agrees
that in any such event the Lender, without demand of performance or other
demand, advertisement or notice of any kind (except to such extent as notice
may be required by applicable law with respect to the time or place of any
public or private sale) to or upon the Company or any other person (all and
each of which demands, advertisements and/or notices are hereby expressly
waived), may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, license,
assign, give an option or options to purchase, or sell or otherwise dispose of
and deliver said Collateral (or contract to do so), or any part thereof, in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or at any of the Lender's offices or elsewhere at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption in the Company, which right or equity is hereby
expressly waived and released. To the extent permitted by applicable law, the
Company waives all claims, damages and demands against the Lender arising out
of the repossession, retention or sale of the Collateral.
7. Grant of License to Use Intangibles. For the purpose of enabling the
Lender to exercise rights and
remedies under Section 6 hereof at such time as the Lender, without regard to
this Section 7, shall be lawfully entitled to exercise such rights and remedies
and for no other purpose, the Company hereby grants to the Lender an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to the Company) to use, assign, license or sublicense any of
the Collateral, now owned or hereafter acquired by the Company, and wherever
the same may be located, including in such license reasonable access to all
media in which any of the licensed items may be recorded or stored and to all
computer programs used for the compilation or printout thereof.
8. Notices. All notices under this Assignment shall be in writing, and
shall be delivered by hand or by first class mail delivered or addressed to the
addresses set forth below. Such notices shall be effective (a) in the case of
hand deliveries, when received, (b) in the case of mail, three days after
deposit in the postal system, first class postage prepaid. Either party may
change its address and telecopy number by written notice to the other.
To the Lender:
Jeffrey L. Neuman, Trustee
Tudor Trust
450 North Roxbury Drive
4th Floor
Beverly Hills, California 90210
With a copy to:
Roger C. Cohen, Esq.
Ballard Sparh Andrews & Ingersoll
1225 17th Street, Suite 2300
Denver, Colorado 80202
To the Company:
Xyvision Enterprise Solutions, Inc.
30 New Crossing Road
Reading, Massachusetts 01867
Attn: President
21
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With a copy to:
Patrick J. Rondeau, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
9. Severability. Any provision of this Assignment which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
hereof, and any such prohibition or enforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
10. No Waiver; Cumulative Remedies. The Lender shall not, by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Lender, and then only to the extent therein set forth. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise have
had on any other occasion. No failure to exercise nor any delay in exercising
on the part of the Lender any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law.
11. Waivers; Amendments. None of the terms and provisions of this
Assignment may be waived, altered, modified or amended except by an instrument
in writing executed by the parties hereto.
12. Limitation by Law. All rights, remedies and powers provided herein may
be exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions hereof are intended to be
subject to all applicable mandatory provisions of law which may be controlling
and to be limited to the extent necessary so that they will not render this
Assignment invalid, unenforceable in whole or in part or not entitled to be
recorded, registered, or filed under the provisions of any applicable law.
13. Successors and Assigns. This Assignment shall be binding upon and
inure to the benefit of the parties hereto and shall inure to the benefit of
the Lender and its successors and assigns, and nothing herein or in the
Agreement or any other Loan Document is intended or shall be construed to give
any other person any right, remedy or claim under, to or in respect of this
Assignment, the Agreement or any other Loan Document.
14. Termination and Reassignment. The Lender agrees that upon the payment
in full and satisfaction of all the Secured Obligations, this contingent
assignment of the Collateral and any proceeds thereof or distributions in
respect thereto shall be released from all liens created hereby and the Lender
will execute all such documents as may be reasonably requested by the Company
to release the security interests created hereby and to terminate the
contingent assignment (without representation or warranty) of any or all of the
Company's Collateral.
15. Applicable Law. This Assignment shall be governed by, and be construed
and interpreted in accordance with, the laws of the Commonwealth of
Massachusetts and the United States of America.
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IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
XYVISION ENTERPRISE SOLUTIONS, INC.
By: /s/ Kevin J. Duffy
---------------------
Name: Kevin J. Duffy
Title: President
TUDOR TRUST
By: /s/ Jeffrey L. Neuman
---------------------
Jeffrey L. Neuman, as
Trustee of the Tudor Trust u/d/t
dated December 12, 1997 and not individually
23
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Schedule I
to
Assignment of Patents and Trademarks
Proprietary Software Source Code
The Xyvision Publishing Systems family of electronic publishing
applications. The family of products consists of several software products
including, Xyvision Production Publisher and Parlance Document Manager.
Proprietary Hardware
Designs, drawings, parts list, instructions and manuals relating to the
manufacture and maintenance of Xyvision's family of proprietary hardware;
specifically, the following: Xyvision 55, Xyvision 65, Xyvision 85, Xyvision
95, Xyview II, Xyview III, and Xytext.
<TABLE>
<S> <C> <C>
U.S. Patents
- -------------------------------
U.S. Patent No. Title of Invention Issue Date
- ------------------------------- --------------------------------------- -----------------------
D291,086 Monitor Bezel 07/28/87
D290,952 Panel for Phototypesetter or the like 7/21/87
U.S. Patent applications
- -------------------------------
None
U.S. Trademarks
Registration No. Mark Registration Date
- ------------------------------- --------- -----------------------
1,271,680 Xyvision 03/27/84
1,271,679 Xygraphix 03/27/84
Webporter 03/12/98
U.S. Trademark Applications
- -------------------------------
Mark Filing No. Filing Date
- --------- --------------------------------------- -----------------------
WEBCONDUCTOR 75/099243 05/06/96
SGML CONDUCTOR 75/371285 10/10/97
PARLANCE 75/399334 12/03/97
Foreign Trademarks
- -------------------------------
None
Foreign Trademark Applications
- -------------------------------
Serial No. Filing Date Country
- ------------------------------- --------------------------------------- --------
591197 02/16/97 Canada
89301583 2/17/89 European Patent Office
8936404 02/17/89 Japan
</TABLE>
24
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25
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EXHIBIT 10.6
SERVICES AGREEMENT
This Services Agreement is made as of December 31, 1998, by and between
Xyvision, Inc., a Delaware corporation ("Xyvision"), and Xyvision Enterprise
Solutions, Inc., a Delaware corporation ("XES").
WITNESSETH:
WHEREAS, Xyvision and XES have entered into a Contribution and Assumption
Agreement of equal date herewith (the "Contribution Agreement") which
contemplates the contribution, transfer, assignment and delivery to XES of
substantially all of the assets and certain of the liabilities of the
publishing business of Xyvision (the "Contribution"); and
WHEREAS, each of Xyvision and XES wishes to provide for an orderly and
efficient Contribution; and
WHEREAS, the successful operation of Xyvision's post-Contribution business
will require the performance of certain administrative services which Xyvision
has previously provided itself and XES is willing to provide to Xyvision;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SERVICES
1.1. Services to be Made Available. In accordance with the terms and
provisions of this Agreement, XES agrees to perform for Xyvision the services
described in the Annexes hereto (collectively, the "Services"), which Annexes
may be amended, and additional Annexes may be added, from time to time by
mutual agreement of the parties hereto, in the amounts and to the extent
specified with respect to each such Service in the applicable Annex.
1.2. Fees for Services. Xyvision agrees to pay to XES a fee for each of the
Services as specified in the applicable Annex hereto.
Not more often than once per fiscal month, XES shall forward to Xyvision
invoices for the Services listing the Services provided hereunder and listing
the fees for such Services, setting forth in reasonable detail the calculation
of the amounts charged. Invoices for Services provided for partial fiscal
months and relating to Services for which the fees are to be calculated on a
monthly basis shall be based upon (a) the number of business days during which
Services were provided, divided by (b) the number of business days in such
fiscal month. Within fifteen days of receiving an invoice, Xyvision shall pay
to XES the amount invoiced unless it shall in good faith dispute the types
and/or amounts of Services set forth on such invoice as having been provided
during the period covered by such invoice. In the event of such good faith
dispute, Xyvision shall pay the fees set forth on such invoice for all Services
the amounts of which are not in dispute and the parties hereto agree to use
their respective best efforts to resolve such dispute within ten days. If such
dispute is not resolved within ten days, either party hereto may seek binding
arbitration of such dispute in accordance with the provisions of Section 3.8
hereof. With respect to any task that XES agrees to perform hereunder, XES
shall, at Xyvision's request, inform Xyvision of the person(s) who are expected
to perform such tasks, hourly rates applicable thereto and an estimate of the
time such tasks will require to complete.
1.3. Term of Agreement. This Agreement shall become effective as of the
date of the Contribution (the "Contribution Date") and shall terminate with
respect to each Service on the date specified for such Service in the
applicable Annex hereto.
1.4. Timely Performance and Cooperation. XES shall use all reasonable
efforts in the timely performance of the Services and Xyvision shall use all
reasonable efforts to cooperate with XES in connection with the provision of
the Services.
2. REPRESENTATIONS AND WARRANTIES.
As an inducement to enter into this Agreement, each party represents to
and agrees with the other that:
(a) it is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
to own, lease and operate its properties, to carry on its business as presently
conducted and to carry out the transactions contemplated by this Agreement;
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(b) it has duly and validly taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby; and
(c) this Agreement has been duly executed and delivered by it and constitutes
its legal, valid and binding obligation enforceable against it in accordance
with its terms, except as such enforceability may be affected by laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
3. OTHER TERMS AND PROVISIONS
3.1. Independent Contractor Status. XES shall perform all services under
this Agreement as an "independent contractor" and not as an agent of Xyvision.
XES is not authorized to assume or create any obligation or responsibility,
express or implied, on behalf of, or in the name of Xyvision or to bind
Xyvision in any manner.
3.2. Limitation of Liability and Reimbursement. Neither XES, nor any of
its officers, employees, agents or affiliates (including its attorneys and
accountants), shall in any event be liable for any damages, including but not
limited to loss of profits or revenue, which arise out of XES' (or any such
officer's, employee's, agent's or affiliate's) performance or failure to
perform any of its obligations under this Agreement, other than those damages
caused by XES' (or such person's) willful misconduct or gross negligence.
Xyvision hereby agrees to indemnify XES and hold XES harmless for all costs
(including attorneys' fees) and damages incurred by XES to third parties as a
result of the provision by XES pursuant to this Agreement of the Services,
other than costs or damages incurred by XES as a result of its willful
misconduct or gross negligence. Notwithstanding any other provision of this
Agreement, XES shall under no circumstances have any liability or
responsibility for Xyvision's compliance with any law or regulation, including
but not limited to any law or regulation relating to securities.
3.3. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any
of such which may be hereafter declared invalid, void or unenforceable, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
3.4. Assignment. Except by operation of law or in connection with the sale
of all or substantially all the business or assets of a party hereto, this
Agreement shall not be assignable, in whole or in part, directly or indirectly,
by either party hereto without the prior written consent of the other, and any
attempt to assign any rights or obligations arising under this Agreement
without such consent shall be void; provided, however, that the provisions of
this Agreement shall be binding upon, inure to the benefit of and be
enforceable by XES and Xyvision and their respective successors and permitted
assigns.
3.5. Further Assurances. Subject to the provisions hereof, each of XES and
Xyvision shall make, execute, acknowledge and deliver such other agreements,
documents or instruments and take or cause to be taken such other actions as
may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby. Subject to
the provisions hereof, each of XES and Xyvision shall, in connection with
entering into this Agreement, performing its obligations hereunder and taking
any and all actions relating hereto, comply with all applicable laws,
regulations, orders and decrees, obtain all required consents and approvals and
make all required filings with any governmental agency, or other regulatory or
administrative agency, commission or similar authority and promptly provide the
other with all such information as the other may reasonably request in order to
be able to comply with the provisions of this sentence.
3.6. Parties in Interest. Nothing in this Agreement expressed or implied
is intended or shall be construed to confer any right or benefit upon any
person or entity other than XES and Xyvision and their respective successors
and permitted assigns.
3.7. Waivers, Etc. No failure or delay on the part of XES or Xyvision in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure by XES or Xyvision therefrom shall in any event be
effective unless the same shall be in writing and signed by the party against
whom such modification or waiver is asserted and then such modification or
waiver shall be effective only in the specific instance and for the purpose for
which given.
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3.8. Arbitration. Each party hereto may refer any dispute arising under
this Agreement or the matters contemplated hereby (including without limitation
the fees for Services provided hereunder) to binding arbitration in the
Commonwealth of Massachusetts under the commercial arbitration rules of the
American Arbitration Association before a panel of three arbitrators, one
selected by each party and the third selected by the other two arbitrators or,
if they are unable to agree, by the American Arbitration Association. Any award
made in such arbitration may be enforced in any court of competent
jurisdiction.
3.9. Confidentiality. Subject to any contrary requirement of law and the
right of each party to enforce its rights hereunder in any legal action, each
party shall keep strictly confidential and shall cause its employees and agents
to keep strictly confidential any information which it or any of its agents or
employees may acquire pursuant to, or in the course of performing its
obligations under, any provision of this Agreement; provided, however, that
such obligation to maintain confidentiality shall not apply to information
which (a) at the time of disclosure was in the public domain not as a result of
acts by the receiving party, (b) was in the possession of the receiving party
at the time of disclosure, or (c) was received by the receiving party from a
third party that does not require the receiving party to maintain the
confidentiality of such information, and that is not in violation of any
contractual, legal or fiduciary obligation to the disclosing party with respect
to such information.
3.10. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the provisions of Services from XES to Xyvision.
3.11. Titles and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
3.12. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
3.13. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the Commonwealth of
Massachusetts without regard to any choice or conflict of law rule or provision
that would result in the application of the domestic substantive laws of any
other jurisdiction.
3
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IN WITNESS WHEREOF, the parties have caused this Services Agreement to be
duly executed as of the day and year first above written.
XYVISION, INC.
/s/ Kevin J. Duffy
---------------------
Name: Kevin J. Duffy
Title: President
XYVISION ENTERPRISE SOLUTIONS, INC.
/s/ Wendy Darland
---------------------
Name: Wendy Darland
Title: Vice President
4
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EXHIBIT 10.7
AGREEMENT
THIS AGREEMENT is made the 31st day of December, 1998 between Xyvision
Enterprise Solutions, Inc., a Delaware corporation ("XES") and Jeffrey L.
Neuman, as Trustee of The Tudor Trust u/d/t December 12, 1997 ("Tudor Trust").
1. Recitals. XES entered into Contribution and Assumption Agreement dated
December 31, 1998 with Xyvision, Inc. pursuant to which XES assumed an
indebtedness of Xyvision, Inc. to Tudor Trust in the principal amount of
$600,000. XES entered into a Secured Advance Facility Loan Agreement with Tudor
Trust dated December 31, 1998 (the "Loan Agreement") pursuant to which Tudor
Trust agreed to loan XES up to $1,000,000. Pursuant to section 1.4 of the Loan
Agreement, the $600,000 principal indebtedness of Xyvision, Inc. to Tudor Trust
assumed by XES is treated as the first loan advance by Tudor Trust to XES. Xes
and Tudor Trust entered into a Series A Convertible Preferred Stock Purchase
Agreement dated December 31, 1998 (the "Preferred Stock Purchase Agreement")
pursuant to which Tudor Trust agreed to pay XES $1,000,000 for the purchase of
400,000 shares of the Series A Convertible Preferred Stock of XES.
2. Amendment. XES and Tudor Trust hereby agree that the $600,000
indebtedness of Xyvision, Inc. to Tudor Trust assumed by XES shall not
constitute the first loan advance under the Loan Agreement but shall constitute
a partial payment of $600,000 for the purchase by Tudor Trust of 400,000 shares
of the Series A. Convertible Preferred Stock of XES. The Loan Agreement and the
Preferred Stock Purchase Agreement are hereby amended as set forth in this
paragraph 2.
3. Miscellaneous.
(a) Except as amended by this Agreement, the Loan Agreement and the
Preferred Stock Purchase Agreement shall remain in full force and effect.
(b) This Agreement may be executed in counterparts, each of which shall
be deemed to be an original and all of which shall constitute one and the same
document, and may be executed by facsimile signatures.
1
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IN WITNESS WHEREOF, this Agreement has been executed as of the year and
date set forth above.
XYVISION ENTERPRISE SOLUTIONS, INC.
By: /s/ Kevin Duffy
---------------------
Kevin Duffy, President
TUDOR TRUST
By: /s/ Jeffrey L. Neuman
---------------------
Jeffrey L. Neuman, Trustee
2
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EXHIBIT 10.8
TUDOR TRUST
450 No. Roxbury Drive, 4th Floor
Beverly Hills, CA 90210
Telephone: 212/475-4791
E-Mail: [email protected]
November 30, 1998
Xyvision, Inc.
30 New Crossing Road
Reading, MA 01867
Ladies and Gentlemen:
This letter will set forth our agreement with respect to the making of
additional loans by Tudor Trust ("Tudor") to Xyvision, Inc. ("Xyvision").
1. Xyvision is indebted to Tudor in the principal amount of $13,500,000.
Tudor shall loan to Xyvision an additional $600,000 (the "Loan"). The
Loan shall be utilized to fund the payroll, accounts payable and other
overhead expenses of Xyvision for the period through December 18, 1998.
The disbursement of the Loan shall be made to Xyvision on behalf of Tudor
by Braverman, Codron & Co. in increments upon instructions to them by
Jeffrey L. Neuman or his counsel, Roger C. Cohen.
2. The Board of Directors of Xyvision has preliminarily approved a
restructuring plan as described in the November 17, 1998 memorandum of
Hale and Dorr to the Board of Directors of Xyvision (the "Plan")
involving, among other elements, the transfer of its publishing software
business assets to a new subsidiary ("NewCo"). An element of the Plan is
the provision of a line of credit by Tudor to NewCo of a mutually agreed
upon amount (the "NewCo Line of Credit").
3. Provided that the Plan is consummated in substantially its present form by
January 1, 1999, the Loan shall become a part of the NewCo Line of
Credit. If the Plan is not consummated in substantially its present form
by January 1, 1999, the Loan will thereafter be due upon demand.
4. The Loan, which shall be evidenced by a promissory note in the form
attached hereto, will bear interest at eight percent per annum prior to
any default and following any default will bear interest at 12 percent
per annum. The Loan will be secured by a first lien on all of the assets
of Xyvision and accordingly the Loan shall constitute an "Advance" under
the Loan Agreement as amended and shall be deemed a part of the
"Obligations" and the "Secured Obligations" under the Amended and
Restated Security Agree ment and the Amended Assignment of Patents and
Trademarks between Xyvision and Tudor pursuant to the provisions of, and
as such documents are described in, the December 2, 1997 Agreement
between Xyvision and Tudor. Following the consummation of the Plan, the
Loan shall be secured solely by all of the assets of NewCo. Xyvision and
Tudor shall execute such additional documents as counsel for either may
determine are reasonably necessary to carry out the provisions of this
paragraph.
5. Prior to any disbursement of the Loan proceeds, the Board of Directors of
Xyvision shall approve the Loan
1
<PAGE>
<PAGE>
and the provisions of this letter agreement.
6. The provisions of this letter agreement shall be binding upon and inure to
the benefit of Xyvision and Tudor and their respective successors and
assigns.
7. This letter agreement may be signed in counterparts by facsimile.
If this letter correctly sets forth our agreement, please sign and return
a copy hereof.
Very truly yours,
TUDOR TRUST
By: /s/ Jeffrey L. Neuman
---------------------
Trustee
Agreed this 30th day of November, 1998
XYVISION, INC.
By: /s/ Kevin J. Duffy
---------------------
President
2
<PAGE>
<PAGE>
PROMISSORY NOTE
$600,000
November 30, 1998
Payment. The undersigned, Xyvision, Inc., a Delaware corporation,
("Maker"), hereby promises to pay on demand to the order of Tudor Trust
("Holder"), at c/o Braverman, Codron & Company, 450 N. Roxbury Drive, 4th
Floor, Beverly Hills, CA 90210, the principal sum of Six Hundred Thousand
Dollars ($600,000), or such lesser amount as may be borrowed hereunder by
Maker, together with interest thereon at eight percent (8%) per annum.
Notwithstanding the foregoing, the principal sum and accrued interest of this
Promissory Note shall become a part of the loan to be made by Holder to a new
subsidiary of Maker provided that the plan for the restructuring of Maker set
forth in the memorandum of Hale and Dorr to the Board of Directors of Maker
dated November 17, 1998 is consummated substantially in accordance with the
provisions thereof on or before December 31, 1998. All payments shall be
delivered to Holder at the address set forth above or at such other place as
Holder shall hereafter designate in writing.
Default Interest: Acceleration. Any amount of principal and/or interest
which remains unpaid after the due date thereof shall thereafter bear default
interest at the rate of twelve percent (12%) per annum until paid.
Security. Maker's obligation to pay Holder under this Promissory Note is
secured by a pledge of and security interest in all of the assets of Maker.
Attorneys' Fees. Maker shall reimburse Holder for all costs and expenses,
including reasonable attorneys' fees and court costs, incurred to enforce this
Promissory Note.
Waiver. Maker hereby waives presentment, demand for payment, protest for
nonpayment, notice of dishonor, diligence in collection, and all other
indulgences.
General Provisions. This Promissory Note may not be amended, modified, or
changed unless set forth in an instrument in writing and signed by Holder and
Maker. Whenever used herein, the words "Maker" and "Holder" shall be deemed to
include their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned has duly executed this Promissory Note
as of the day and year first above written.
XYVISION, INC.
By: /s/ Kevin J. Duffy
---------------------
President
3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 484 484
<SECURITIES> 0 0
<RECEIVABLES> 2,159 2,159
<ALLOWANCES> (727) (727)
<INVENTORY> 29 29
<CURRENT-ASSETS> 288 288
<PP&E> 5,553 5,553
<DEPRECIATION> (4,336) (4,336)
<TOTAL-ASSETS> 3,450 3,450
<CURRENT-LIABILITIES> 18,126 18,126
<BONDS> 0 0
235 235
1,750 1,750
<COMMON> (15,493) (15,493)
<OTHER-SE> (1,168) (1,168)
<TOTAL-LIABILITY-AND-EQUITY> 3,450 3,450
<SALES> 7,805 2,746
<TOTAL-REVENUES> 7,805 2,746
<CGS> 4,895 1,369
<TOTAL-COSTS> 4,895 1,369
<OTHER-EXPENSES> 9,083 2,570
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,085 412
<INCOME-PRETAX> (7,258) (1,605)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,258) (1,605)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,258) (1,605)
<EPS-PRIMARY> (2.57) (0.57)
<EPS-DILUTED> (2.57) (0.57)
</TABLE>
