<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1996
REGISTRATION NO. 333-06617
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
RASTER GRAPHICS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3577 94-3046090
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
3025 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA 95134 (408) 232-4000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
RAKESH KUMAR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RASTER GRAPHICS, INC.
3025 ORCHARD PARKWAY
SAN JOSE, CALIFORNIA 95134
(408) 232-4000
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL W. HALL BROOKS STOUGH
EDMUND S. RUFFIN, JR. ROBERT G. SPECKER
KEITH A. MILLER Gunderson Dettmer Stough
Venture Law Group, A Professional Corporation Villeneuve Franklin & Hachigian, LLP
2800 Sand Hill Road 600 Hansen Way
Menlo Park, California 94025 Palo Alto, California 94303
(415) 854-4488 (415) 843-0500
</TABLE>
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
RASTER GRAPHICS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
- ------------------------------------------------- --------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Facing Page; Cross Reference Sheet; Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................ Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................. Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
5. Determination of Offering Price............. Outside Front Cover Page; Underwriting
6. Dilution.................................... Dilution
7. Selling Security Holders.................... Principal and Selling Stockholders
8. Plan of Distribution........................ Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered................................ Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel...... Not Applicable
11. Information with Respect to the
Registrant................................ Outside and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Legal Matters; Experts; Additional
Information; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 15, 1996
PROSPECTUS
3,000,000 SHARES
LOGO
COMMON STOCK
Of the 3,000,000 shares of Common Stock offered hereby, 2,000,000 are being
sold by the Company and 1,000,000 shares are being sold by Selling Stockholders.
The Company will not receive any proceeds from the sale of shares by Selling
Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $9.00 and $11.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol RGFX.
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- -------------------------------------------------------------------------------------------------
Per Share........................ $ $ $
- -------------------------------------------------------------------------------------------------
Total (3)........................ $ $ $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $850,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for
delivery on or about , 1996 at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST PRUDENTIAL SECURITIES INCORPORATED
, 1996
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Raster Graphics logo, ColorStation(R) and PrimaScript(R) are registered
trademarks of the Company. PosterShop(TM) and DuraPrint(TM) are trademarks of
the Company. This Prospectus also contains the trademarks of other companies.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
Raster Graphics, Inc. ("Raster Graphics" or the "Company") develops,
manufactures and markets high-performance, large format color printing systems
and sells related consumables for the on-demand, large format digital printing
("LFDP") market. The LFDP market consists of color print jobs with run lengths
ranging from one to 200 copies and output sizes of 20-inches by 30-inches or
larger. Applications include point of purchase ("POP") signs, trade show exhibit
graphics, banners, billboards, courtroom graphics and backlit signage. The
primary users of the Company's products are color photo labs, reprographic
houses, graphic arts service bureaus, exhibit builders, digital color printers,
screen printers and in-house print shops. The Company's Digital Color Station
("DCS") printing system, consisting of the DCS Printer and PosterShop system
software, allows users to print short runs of high quality color graphics on
demand at substantial time and cost savings relative to traditional printing
methods.
According to IT Strategies, the LFDP printers and consumables market is
projected to grow from annual sales of approximately $319 million in 1995 to
approximately $1.9 billion in 1998. The rapid growth in this market is being
driven primarily by the increasing desire and need for customized, large format
color graphics, as well as significant advances in short-run printing and
desktop publishing technologies. Traditional graphics printing methods,
consisting of photographic, screen and offset printing, do not meet the
requirements for production short-run print jobs due to the time consuming,
multi-step processes and set up costs involved. As a result, digital printing
was developed to fulfill the unmet demand of short-run users by allowing
graphics to be printed directly from desktop publishing systems to paper.
Raster Graphics offers a complete printing solution, consisting of its DCS
printers, integrated image processing software and related consumables, to meet
the performance, cost, versatility and quality demands of the on-demand
production LFDP market. With a production printing speed of 600 to 1,000 square
feet per hour, the DCS printing system can produce 50 to 60, full-color, 36- by
48-inch posters in one hour, which the Company believes is significantly faster
than comparable digital printers. DCS printing systems are more cost-effective
for short-run print jobs in comparison to traditional methods which have high
set-up and labor costs. Using digital printing technology, DCS systems allow
content to be customized on a print-by-print basis. DCS printing systems also
offer two printing resolution modes, which allow the user to adjust the quality
level depending on the application. The Company also markets a line of
consumables, including specialized inks and print media, which the Company
believes will continue to generate increasing recurring revenues to the extent
that the installed base of DCS printing systems expands.
Raster Graphics' objective is to build on its position as a market leader
in providing digital printing systems and related consumables and services, for
the on-demand production LFDP market. In August 1995, as part of the Company's
strategy to provide a complete system solution, the Company acquired Onyx
Graphics Corporation ("Onyx"), a leading developer of image processing software.
The Company was established in 1987 initially to develop low-cost
electrostatic printers for computer aided design ("CAD") applications. In 1993,
the Company shifted its product focus to leverage its proprietary print head
technology to address the new opportunities in the high performance production
LFDP market. The Company currently sells DCS products to a wide range of
customers both domestically through direct and independent sales forces,
original equipment manufacturers ("OEMs") and value-added resellers ("VARs") and
internationally through distributors, OEMs and VARs.
Raster Graphics has received five highly acclaimed industry awards for its
contribution to digital printing technology, including Digital Printing and
Imaging Association's 1994 Product of the Year; Top 10 New Repro Products for
1994 by Modern Reprographics; Hot Product for 1994 by Electronic Publishing;
1994 Editor's Choice from Computer Graphics World; and 1994 Industry Excellence
Award by IEEE Computer Graphics and Applications.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY THE COMPANY.............. 2,000,000 shares(1)
COMMON STOCK OFFERED BY THE SELLING
STOCKHOLDERS................................... 1,000,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THE
OFFERING....................................... 8,341,350 shares(2)
USE OF PROCEEDS.................................. General corporate purposes including
working capital, capital expenditures,
research and development and potential
acquisitions of businesses and
technologies. See "Use of Proceeds."
NASDAQ NATIONAL MARKET SYMBOL.................... RGFX
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
---------------------------------------------------- -------------------
DEC. 27, DEC. 25, DEC. 31, DEC. 30, DEC. 31, JUNE 30, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues.................. $ 7,770 $ 8,525 $ 14,719 $ 13,235 $ 26,045 $ 11,652 $ 18,151
Gross profit.................. 1,659 2,410 4,777 3,531 9,447 3,951 7,165
Operating income (loss)....... (1,919) (1,725) 106 (2,229) 111 550 1,322
Net income (loss)............. $ (1,963) $ (2,061) $ 41 $ (2,128) $ 77 $ 275 $ 1,201
Net income (loss) per
share(3)................... $ 0.01 $ 0.04 $ 0.16
Shares used in per share
calculation................ 7,187 7,095 7,412
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 1,775 $ 19,525
Total assets........................................................ 16,052 33,802
Long-term debt...................................................... 318 318
Total stockholders' equity.......................................... 7,942 25,692
</TABLE>
- ---------------
(1) Excludes up to 450,000 shares of Common Stock that may be sold by the
Company pursuant to the
Underwriters' over-allotment option. See "Underwriting."
(2) Excludes 167,789 shares of Common Stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $2.18 per
share and 1,355,652 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $2.33 per share
at June 30, 1996. See "Management--Stock Options and Incentive Plans and
note 7 of Notes to Consolidated Financial Statements."
(3) See note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net income (loss) per
share.
(4) Adjusted to reflect the sale of shares of Common Stock offered hereby at an
assumed initial public offering price of $10.00 per share and the receipt
of the estimated proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
------------------------------------
Except as otherwise noted, all information in this Prospectus (i) assumes a
1-for-5 reverse stock split of the Common Stock and Preferred Stock to be
effective prior to this offering, (ii) assumes the conversion of all outstanding
shares of Preferred Stock into Common Stock upon the closing of this offering,
(iii) reflects the reincorporation of the Company from California to Delaware
prior to the closing of the offering and (iv) assumes no exercise of the
Underwriters' over-allotment option. See "Description of Capital Stock" and
"Underwriting."
4
<PAGE> 7
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following factors should be
considered carefully in evaluating an investment in the shares of Common Stock
offered by this Prospectus. The Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth below and elsewhere in this
Prospectus.
Limited History of Profitability and Uncertainty of Future Financial
Results. The Company has incurred a net operating loss in each year subsequent
to its inception in 1987, except for the years ended December 31, 1993 and
December 31, 1995. As a result, the Company had an accumulated deficit as of
June 30, 1996 of approximately $17.2 million. The Company has a limited history
of profitability. There can be no assurance that sales of the Company's products
will generate significant revenues or that the Company can sustain profitability
on a quarterly or annual basis in the future.
The Company expects to expand its manufacturing and administrative
capabilities, technical and other customer support, research and product
development activities. The anticipated increase in the Company's operating
expenses caused by this expansion could have a material adverse effect on the
Company's operating results if revenues do not increase at an equal or greater
rate. Also, the Company's expenses for these and other activities are based in
significant part on its expectations regarding future revenues and are fixed to
a large extent in the short term. The Company may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview" and the Consolidated
Financial Statements.
Significant Fluctuations in Quarterly Results. The Company's quarterly
operating results have varied significantly in the past and are likely to vary
significantly in the future based upon a number of factors including general
economic conditions, the introduction or market acceptance of new products
offered by the Company and its competitors, changes in the pricing polices of
the Company or its competitors, the volume and timing of customer orders, the
level of product and price competition, the relative proportion of printer and
consumables sales, the continued availability of sole source components, the
continued availability of consumables from independent vendors, fluctuations in
research and development expenditures, the impact of future Company
acquisitions, the continued availability of financing arrangements for certain
of the Company's customers, the Company's success in expanding its direct sales
force and indirect distribution channels and the risks related to international
operations, as well as other factors. Additionally, because the purchase of a
DCS printer or printing system involves a significant capital commitment, the
Company's DCS printer and printing system sales cycle is susceptible to delays
and lengthy acceptance procedures associated with large capital expenditures.
Moreover, due to the Company's high average sales price and low unit volume per
month, a delay in the sale of a few units could have a material adverse effect
on the results of operations for a financial quarter.
Quarterly revenues and operating results depend primarily on the volume,
timing, shipping and acceptance of orders during the quarter, which are
difficult to forecast due to the length of the sales cycle. A significant
portion of the Company's operating expenses are relatively fixed in the short
term, and planned expenditures are based on sales forecasts. If revenue levels
are below expectations, net income, if any, may be disproportionately affected
because only a small portion of the Company's expenses vary with revenue in the
short term, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Although the Company
has experienced growth in revenue in recent years, there can be no assurance
that the Company will sustain such revenue growth or be profitable on an
operating basis in any future period. For the foregoing reasons, the Company
believes that period-to-period comparisons of its results are not necessarily
meaningful and should not be relied upon as indications of future performance.
Further, it
5
<PAGE> 8
is likely that in some future quarter the Company's revenues or operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Common Stock could be materially adversely
affected.
Dependence on a Single Product Line. Substantially all of the Company's
sales are derived from one principal product line, the DCS printing systems,
printers and related software and consumables, such as specialized inks,
varnish, vinyls and papers. The Company anticipates that it will continue to
derive substantially all of its revenues in the next several years from sales of
this product line. Dependence on a single product line makes the Company
particularly vulnerable to the successful introduction of competing products.
The Company's inability to generate sufficient sales of the DCS product line and
to achieve profitability due to competitive factors, manufacturing difficulties,
or other reasons, would have a material adverse effect on its business,
financial condition and results of operations. Moreover, some of the Company's
DCS printing system and printer customers have purchased and will continue to
purchase consumables such as ink and paper from suppliers other than the
Company. If a significant number of current or future purchasers of the DCS
printing systems and printers were to purchase consumables from suppliers other
than the Company, the Company's business would be materially adversely affected.
See "Business--Products" and "--Competition."
Competition. The market for printing equipment and related software and
consumables is extremely competitive. Suppliers of equipment for the LFDP market
compete on the basis of speed, print quality, price and the ability to provide
complete solutions, including service. Certain of the Company's competitors are
developing or have introduced products to address the LFDP market. Among these
companies are Xerox ColorgrafX Systems, a subsidiary of Xerox Corporation,
("ColorgrafX"), Encad, Inc. ("Encad"), Hewlett-Packard Corporation
("Hewlett-Packard") and Lasermaster Corporation ("Lasermaster"), which
manufacture LFDP printers, and Cactus, Infographix Technologies, Inc.
("Infographix") and Visual Edge Technology Digital Printing Systems ("Visual
Edge"), which develop LFDP image processing software. A variety of potential
actions by any of the Company's competitors, especially those with substantial
market presence such as ColorgrafX, could have a material adverse effect on the
Company's business, financial condition and results of operations. Such actions
may include reduction of product prices, increased promotion, announcement or
accelerated introduction of new or enhanced products, product giveaways, product
bundling or other competitive actions. In addition, companies that are currently
targeting the photographic enlargement, screen and offset printing markets may
enter the LFDP market in the future or may increase the performance or lower the
costs of such alternate printing processes in a manner that would allow them to
compete more directly with the Company for LFDP customers. Furthermore,
companies that supply consumables, such as ink and paper, to the Company could
compete with the Company by not selling such consumables to the Company or by
widely selling such consumables directly or through other channels to the
Company's customers. Such competition would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition" and "-- Suppliers."
Many of the companies that currently compete with the Company or that may
compete with the Company in the future have longer operating histories and
significantly greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base, than
the Company. As a result, these competitors may be able to respond more quickly
and/or effectively to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion, sale
and support of their products than the Company. Consequently, the Company
expects to continue to experience increased competition, which could result in
significant price reductions, loss of market share and lack of acceptance of new
products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to compete against current or future
competitors successfully or that competitive pressures faced by the Company will
not have a material adverse effect upon its business, financial condition and
results of operations. See "Business--Competition" and "--Intellectual
Property."
6
<PAGE> 9
Reliance on Third-Party Distribution. The Company relies heavily on
original equipment manufacturers ("OEMs"), value added resellers ("VARs") and a
network of distributors for both domestic and international sales. In
particular, OEM sales to Oce Graphics France S.A. ("Oce") accounted for 10.9% of
the Company's revenue in 1995. While the total percentage of Company revenue
represented by sales to Oce has been reduced significantly in recent years as
the Company has expanded its distribution channels, Oce remains one of the
Company's largest single customers. The Company's agreement with Oce expires in
October 1997. There can be no assurance that the Company will continue to sell
substantial quantities of its products to Oce or that, upon any termination of
the Company's relationship with Oce, the Company will be able to obtain suitable
distribution of its products in Europe through alternate distributions channels.
Such failure would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company also currently maintains OEM, VAR and distribution agreements
for its printing systems and printers with 3M Commercial Graphics, a division of
Minnesota Mining and Manufacturing Company ("3M"), Cactus, C-4 Network, Inc.,
Management Graphics Inc. and Ahearn & Soper Inc. for distribution of its
products in North America; Sumisho Electronics Ltd. ("Sumisho"), Sumitomo-3M
Ltd. ("Sumitomo-3M"), Marubeni Electronics Co. Ltd. ("Marubeni") and Kimoto Co.,
Ltd. ("Kimoto") for distribution of its products in Japan; and Oce and
Sign-Tronic ("Sign-Tronic") for distribution of its products in Europe. In
addition, the Company distributes its image processing software products through
a number of domestic and international OEMs, VARs and distributors such as CIS
Graphik and Bildverarbeitung GmbH, The David Group, Access Graphics and Encad.
There can be no assurance that the Company's independent OEMs, VARs and
distributors will maintain their relationships with the Company or that the
Company will be able to recruit additional or, if necessary, replacement OEMs,
VARs or distributors. The loss of one or more of the Company's OEMs, VARs or
distributors could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's agreements with its OEMs, VARs and distributors are not
exclusive, and each of the Company's OEMs, VARs and distributors can cease
marketing the Company's products with limited notice and with little or no
penalty. Some of the Company's OEMs, VARs and distributors offer competitive
products manufactured by third parties. In addition, some of these customers may
consider Onyx's products to be competitive offerings and, as a result, there can
be no assurance that such customers will continue marketing the Company's
products. Further, there can be no assurance that the Company's OEMs, VARs and
distributors will give a high priority to the marketing of the Company's
products as compared to competitors' products or alternative solutions or that
such OEMs, VARs and distributors will continue to offer the Company's products.
Any reduction or delay in sales of the Company's products by its OEMs, VARs or
distributors could have a material adverse effect on the Company's business,
financial condition and results of operations. For further description of the
Company's OEM, VAR and distribution agreements, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Customers, Sales and Marketing."
Although the Company seeks information from foreign customers that purchase
products from the Company's OEMs, VARs and distributors, it generally does not
deal directly with them and cannot directly observe their experience with the
Company's products. The Company also does not have direct control over the
marketing and support efforts of its OEMs, VARs and distributors in foreign
countries. This may result in the inability of the Company to identify potential
opportunities with these customers and a potential delay by the Company in the
recognition and correction of any problems with such OEM, VAR or distributor
sales or support organizations. Failure of the Company to respond to customer
preferences or experience with its products or the failure of OEM, VAR or
distributor supported customers to market and support the Company's products
successfully, could have a material adverse effect on the Company's business,
financial condition and results of operations. Further, third-party distribution
provides the Company with less information regarding the amount of inventory
that is in the process of distribution. This lack of information can reduce the
Company's ability to predict fluctuations in revenues resulting from a surplus
or a shortage in its distribution
7
<PAGE> 10
channels and contribute to volatility in the Company's financial results, cash
flow, and inventory balances. See "Business--Customers, Sales and Marketing."
Limited History of Product Manufacturing and Use; Product Defects. The
Company's DCS printers are based on relatively new technology, are complex and
must be reliable and durable. Companies engaged in the development and
production of new, complex technologies and products often encounter
difficulties and delays. The Company began commercial production of the DCS 5400
in June 1994 and the DCS 5442 in January 1996. The DCS 5442 was developed as a
second generation to the DCS 5400 and, consequently, the Company has been slowly
phasing out production of the DCS 5400. The Company is continuing to make
upgrades and improvements in the features of the DCS 5442. Despite extensive
research and testing, the Company's experience with volume production of the DCS
5442 and with the reliability and durability of the DCS 5442 during customer use
is limited. Consequently, customers may experience reliability and durability
problems that arise only as the product is subjected to extended use over a
prolonged period of time. The Company and certain DCS 5442 users have
encountered some operational problems which the Company believes it has
successfully addressed. However, given the recent introduction of the DCS 5442,
there can be no assurance that the Company has successfully resolved these
operational issues or that the Company will successfully resolve any future
problem in the manufacture or operation of the DCS printers or any new product.
Failure by the Company to resolve manufacturing or operational problems with the
DCS printers or any new product in a timely manner would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Manufacturing" and "-- Competition."
The Company's image processing software products are extremely complex as a
result of such factors as advanced functionality, the diverse operating
environments in which they may be deployed, the need for interoperability, the
multiple versions of such products that must be supported for diverse operating
platforms and languages and the underlying technological standards. These
products may contain undetected errors or failures when first introduced or as
new versions are released. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found in
new software products after commencement of commercial shipments, resulting in
loss of or delay in market acceptance. Such loss or delay would likely have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Products."
Susceptibility of Certain Customers to Economic and Financing
Conditions. Many of the Company's end user customers are small businesses that
are more susceptible than large businesses to general downturns in the economy.
In some cases, these customers finance the purchase of the Company's products
through third-party financing arrangements. To the extent that such customers
are unable to obtain acceptable financing terms or to the extent that a rise in
interest rates makes financing arrangements generally unattractive, such
customers could forgo the purchase of a LFDP product. Consequently, the
Company's access to a significant portion of its present customer base would be
limited. Moreover, competitors, such as ColorgrafX, that have significantly
greater financial resources than the Company may be able to provide more
attractive financing terms to potential customers than those available through
the Company or through third parties. There can be no assurance that the
Company's small business customers will, if necessary, be able to obtain
acceptable financing terms or that the Company will be able to offer financing
terms that are competitive with those offered by the Company's competitors. The
Company's inability to continue to generate sufficient levels of product revenue
from sales to such customers due to the unavailability of financing arrangements
or due to a general economic downturn would have a material adverse effect on
the Company's business, financial condition and results of operations.
Uncertainty Regarding Development of LFDP Market; Uncertainty Regarding
Market Acceptance of New Products. The LFDP market is relatively new and
evolving. The Company's future financial performance will depend in large part
on the continued growth of this market and the continuation of present large
format printing trends such as use and customization of large format
advertisements, use
8
<PAGE> 11
of color, transferring of color images onto a variety of substrates,
point-of-purchase printing, in-house graphics design and production and the
demand for limited printing runs of less than 200 copies. The failure of the
LFDP market to achieve anticipated growth levels or a substantial change in
large format printing customer preferences would have a material adverse effect
on the Company's business, financial condition and results of operations.
Additionally, in a new market, customer preferences can change rapidly and new
technology can quickly render existing technology obsolete. Failure by the
Company to respond effectively to changes in the LFDP market, to develop or
acquire new technology or to successfully conform to industry standards would
have a material adverse effect on the business, financial condition and results
of operations of the Company. See "Business--Industry Background."
The Company's products currently target the high-performance production
segment of the LFDP market. The future success of the Company will likely depend
on its ability to develop and market new products that provide superior
performance at acceptable prices within this segment. In addition, the Company's
future success will likely depend on the Company's ability to successfully
introduce lower-cost products aimed at a broader segment of the LFDP market. Any
quality, durability or reliability problems with such new products, regardless
of materiality, or any other actual or perceived problems with new Company
products, could have a material adverse effect on market acceptance of such
products. There can be no assurance that such problems or perceived problems
will not arise or that, even in the absence of such problems, new Company
products will receive market acceptance. A failure of future Company products to
receive market acceptance for any reason would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the announcement by the Company of new products and technologies could
cause customers to defer purchases of the Company's existing products, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Products," "--Product
Technology, Research and Development."
International Revenues. The Company's international revenues accounted for
approximately 48.1%, 55.9%, 51.3% and 54.3% of the Company's revenues in 1993,
1994, 1995, and the first six months of 1996, respectively. The Company expects
that international sales will continue to account for a significant portion of
its total revenues in future periods. International sales are subject to certain
inherent risks, including unexpected changes in regulatory requirements and
tariffs, government controls, political instability, longer payment cycles,
increased difficulties in collecting accounts receivable and potentially adverse
tax consequences. The Company's inability to obtain foreign regulatory approvals
on a timely basis could have a material adverse effect on the Company's
business, financial condition and results of operations. Fluctuations in
currency exchange rates could cause the Company's products to become relatively
more expensive to end users in a particular country, leading to a reduction in
sales in that country. The impact of future exchange rate fluctuations cannot be
predicted adequately. To date, the Company has not found it appropriate to hedge
the risks associated with fluctuations in exchange rates, as substantially all
of the Company's foreign sales have been transacted in U.S. dollars. However, it
is possible that the Company may undertake such transactions in the future.
There can be no assurance that any hedging techniques implemented by the Company
would be successful or that the Company's results of operations will not be
materially adversely affected by exchange rate fluctuations. In general, certain
seasonal factors and patterns impact the level of business activities at
different times in different regions of the world. For example, sales in Europe
are adversely affected in the third quarter of each year as many customers and
end users reduce their business activities during the summer months. These
seasonal factors and currency fluctuation risks could have a material adverse
effect on the Company's quarterly results of operations. Further, because the
Company has operations in different countries, the Company's management must
address differences in regulatory environments and cultures. Failure to address
these differences successfully could be disruptive to the Company's operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "Business--Customers, Sales and
Marketing."
9
<PAGE> 12
Dependence on Sole Source Subcontractors and Suppliers. The Company relies
on subcontractors and suppliers to manufacture, subassemble, and perform
first-stage testing of DCS printer components and may, in the future, rely on
third parties to develop or provide printer components, some of which are, or
may be, critical to the operation of the Company's products. The Company relies
on single suppliers for certain critical components, such as rubber drive
rollers, electrostatic writing head circuit boards, and application-specific
integrated circuits. In addition, the Company relies on limited source suppliers
for consumables, such as specialized inks, varnish, vinyls and papers, that the
Company sells under the Raster Graphics brand name. The Company's agreements
with its subcontractors and suppliers are not exclusive, and each of the
Company's subcontractors and suppliers can cease supplying DCS printing system
components or consumables with limited notice and with little or no penalty. In
the event it becomes necessary for the Company to replace a key subcontractor or
supplier, the Company could incur significant manufacturing set-up costs and
delays while new sources are located and alternate components and consumables
are integrated into the Company's manufacturing process. There can be no
assurance that the Company will be able to maintain its present subcontractor
and supplier relationships or that the Company will be able to find suitable
replacement subcontractors and suppliers, if necessary. Further, there can be no
assurance that the Company's present subcontractors and suppliers will continue
to provide sufficient quantities of suitable quality DCS product components and
consumables at acceptable prices. The loss of subcontractors or suppliers or the
failure of subcontractors or suppliers to meet the Company's price, quality,
quantity and delivery requirements would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Products," "--Suppliers" and "--Manufacturing."
Risks Associated with Intellectual Property. The Company relies primarily
on a combination of patent, copyright, trademark and trade secret laws,
confidentiality procedures and contractual provisions to protect its proprietary
technology. The Company has been issued nine United States patents related to
its printer technology and one United States patent related to its image
processing software. Despite the Company's precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's technologies
without authorization or to develop competing technologies independently.
Furthermore, the laws of certain countries in which the Company does business
may not protect the Company's software and intellectual property rights to the
same extent as do the laws of the United States. There can be no assurance that
the Company's means of protecting its proprietary rights will be adequate or
that the Company's competitors will not independently develop similar
technology. If unauthorized copying or misuse of the Company's products were to
occur to any substantial degree, or if a competitor of the Company were to
effectively duplicate the Company's proprietary technology, the Company's
business, financial condition and results of operations would be materially
adversely affected. See "Business -- Intellectual Property."
Although the Company has not received notices from third parties alleging
infringement claims that the Company believes would have a material adverse
effect on the Company's business, there can be no assurance that third parties
will not claim that the Company's current or future products or manufacturing
processes infringe the proprietary rights of others. Any such claim, with or
without merit, could result in costly litigation or might require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all, which could have a material adverse effect upon the
Company's business, financial condition and results of operations. See
"Business--Intellectual Property."
Recent Acquisition of Onyx. In August 1995, the Company acquired Onyx,
which, like Raster Graphics, is at an early stage of development. There can be
no assurance that Onyx will be able to successfully develop, manufacture and
commercialize its products in the future. In addition, there can be no assurance
that the managements and operations of the two companies can be successfully
combined. Furthermore, some of Onyx's current customers may perceive the Company
as a potential competitor. As a result, there can be no assurance that such
customers would continue to purchase Onyx's products which would cause a
material adverse effect on the Company's business, financial
10
<PAGE> 13
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Certain Transactions."
Difficulties in Managing Growth. The Company has experienced significant
growth in its business over the past two years, which has placed demands on the
Company's administrative, operational and financial personnel and systems,
manufacturing operations, research and development, technical support and
financial and other resources. Certain of the Company's officers have recently
joined the Company, including the Company's Chief Financial Officer, and the
Company anticipates further increases in the number of its senior managers.
Failure to manage these changes and to expand effectively any of these areas
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business--Manufacturing."
Key Personnel. The success of the Company depends to a large extent upon
its ability to retain and continue to attract highly skilled personnel.
Competition for employees in the high technology sector in general, and in the
LFDP industry in particular, is intense, and there can be no assurance that the
Company will be able to attract and retain enough qualified employees. If the
business of the Company increases, it may become increasingly difficult to hire,
train and assimilate the new employees needed. The Company's inability to retain
and attract key employees would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Employees," and "Management--Officers and Directors."
Environmental. The Company is subject to local laws and regulations
governing the use, storage, handling and disposal of the inks sold for use with
the Company's printers. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, and while the Company is not aware of
any notice or complaint alleging any violation of such laws or regulations, risk
of accidental contamination, improper disposal or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there can be no assurance that the
Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future.
Concentration of Stock Ownership. Upon completion of this offering, the
present directors and officers and their affiliates will beneficially own
approximately 28.6% of the outstanding Common Stock. As a result, these
stockholders will be able to exercise significant influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. Such concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Stockholders."
No Prior Public Market; Possible Volatility of Stock Price. There has been
no public market for the Common Stock prior to this offering, and there can be
no assurance that an active trading market will develop or be sustained after
this offering. The initial public offering price will be determined through
negotiations among the Company, the representatives of the Underwriters and the
selling stockholders. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The negotiated
public offering price may not be indicative of the market price for the Common
Stock following this offering. In recent years, the stock market in general, and
the stock prices of technology companies in particular, have experienced extreme
price fluctuations, sometimes without regard to the operating performance of
particular companies. Factors such as quarterly variation in actual or
anticipated operating results, changes in earnings estimates by analysts, market
conditions in the industry, announcements by competitors, regulatory actions and
general economic conditions may have a significant effect on the market price of
the Common Stock. Following fluctuations in the market price of a corporation's
securities, securities class action litigation has often resulted. There can be
no assurance that such litigation will not occur in the future with respect to
the Company. Such litigation could result in substantial costs and a diversion
of management's attention
11
<PAGE> 14
and resources, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dilution. The initial public offering price is substantially higher than
the book value per share of Common Stock. Investors purchasing shares of Common
Stock in this offering will therefore incur immediate, substantial dilution. See
"Dilution."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding 8,341,350 shares of Common Stock, assuming no
exercise of any outstanding stock options or warrants after June 30, 1996. On
the date of this Prospectus, 3,007,500 shares of Common Stock (including the
3,000,000 shares offered hereby and assuming no exercise of the Underwriters'
over-allotment option) will be immediately eligible for sale in the public
market. An additional 120,000 shares of Common Stock will be eligible for sale
beginning 91 days after the effective date of the Registration Statement unless
earlier released, in whole or in part, by Hambecht & Quist LLC. An additional
4,844,744 shares of Common Stock (including approximately 687,033 shares
issuable upon exercise of vested options) will be eligible for sale beginning
181 days after the date of this Prospectus, unless earlier released, in whole or
in part, by Hambrecht & Quist LLC. In addition, at various times after 181 days
after the date of this Prospectus, an additional 1,056,139 shares will become
eligible for sale in the public market upon expiration of their respective
two-year holding periods, subject to certain volume and resale restrictions as
set forth in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). In addition, holders of warrants exercisable for an aggregate
of 79,626 shares of Common Stock will be eligible to sell such shares beginning
181 days after the date of this Prospectus, unless earlier released, in whole or
in part, by Hambrecht & Quist LLC. Certain stockholders holding 4,478,786 shares
of Common Stock (assuming exercise of outstanding warrants for 167,789 shares of
Common Stock) are entitled to registration rights with respect to their shares
of Common Stock. The Securities and Exchange Commission has recently proposed to
reduce the Rule 144 holding periods. If enacted, such modification will have a
material effect on the timing of when shares of Common Stock become eligible for
resale. Sales of substantial amounts of such shares in the public market or the
prospect of such sales could adversely affect the market price of the Common
Stock. See "Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."
Blank Check Preferred Stock; Anti-Takeover Provisions. The Company's Board
of Directors has the authority to issue up to 2,000,000 shares of Preferred
Stock and to determine the price, rights, preferences and privileges of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change of control of the Company without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of Common Stock. The Company has no present plans to issue shares
of Preferred Stock. The Company's Certificate of Incorporation and Bylaws
provide for, among other things, the prospective elimination of cumulative
voting with respect to the election of directors, the elimination of actions to
be taken by written consent of the Company's stockholders and certain procedures
such as advance notice procedures with regard to the nomination, other than by
or at the direction of the Board of Directors, of candidates for election as
directors. In addition, the Company's charter documents provide that the
Company's Board of Directors be divided into three classes, each of which serves
for a staggered three-year term. The foregoing provisions could have the effect
of making it more difficult for a third party to effect a change in the control
of the Board of Directors. In addition, these provisions could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of the outstanding voting
stock of the Company, and may complicate or discourage a takeover of the
Company. See "Description of Capital Stock."
12
<PAGE> 15
THE COMPANY
The Company was incorporated in July 1987 in the State of California and
was reincorporated in Delaware in July 1996. The Company's principal executive
offices are located at 3025 Orchard Parkway, San Jose, California 95134. Its
telephone number at that location is (408) 232-4000.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby are estimated to be $17,750,000 ($21,935,000 if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses and
assuming an initial public offering price of $10.00 per share. The Company
intends to use the net proceeds from this offering for general corporate
purposes, including working capital, capital expenditures and research and
development. A portion of the proceeds may also be used to acquire or invest in
complementary businesses or products, to obtain the right to use complementary
technologies and to acquire or expand distribution channels. From time to time,
the Company evaluates potential acquisitions of such businesses, products or
technologies. However, the Company has no present understandings, commitments or
agreements with respect to any material acquisition of other businesses,
products or technologies. Pending use of the net proceeds for the above
purposes, the Company intends to invest such funds in short-term,
interest-bearing, investment-grade obligations.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on an actual basis and as adjusted to give effect to the conversion
of all outstanding Preferred Stock of the Company into Common Stock upon the
closing of this offering and the changes in the number of authorized shares of
Common and Preferred Stock (all of which will occur in connection with the sale
of Common Stock offered hereby) and (ii) as adjusted to give effect to the sale
by the Company of the shares of Common Stock offered hereby at an assumed
initial public offering price offered hereby of $10.00 per share and the
application of the estimated proceeds therefrom. This table should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
(IN THOUSANDS)
Current portion of long-term debt.................................... $ 361 $ 361
======= =======
Long-term debt....................................................... $ 318 $ 318
Stockholders' equity:
Preferred Stock,
2,000,000 shares authorized;
no shares issued or outstanding................................. -- --
Convertible Preferred Stock, $0.001 par value,
6,030,000 shares authorized, actual
5,892,716 shares issued and outstanding, actual;
no shares authorized, none issued or outstanding, as adjusted... 6 --
Common Stock, $0.001 par value, 50,000,000 shares authorized,
448,634 shares issued and outstanding, actual; 8,341,350 shares
issued and outstanding, as adjusted(1).......................... -- 8
Additional paid-in capital......................................... 25,596 43,344
Retained earnings (accumulated deficit)............................ (17,222) (17,222)
Deferred compensation.............................................. (418) (418)
Notes receivable from stockholders................................. (20) (20)
------- -------
Total stockholders' equity...................................... 7,942 25,692
------- -------
Total capitalization....................................... $ 8,260 $26,010
======= =======
</TABLE>
- ---------------
(1) Excludes, as of June 30, 1996, 167,789 shares of Common Stock issuable upon
exercise of outstanding warrants at a weighted average exercise price of
$2.18 per share, 1,355,652 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $2.33 per share
and 39,197 shares available for future issuance under the 1988 Stock Option
Plan. See "Management--Stock Option and Incentive Plans," "Description of
Capital Stock" and note 7 of Notes to Consolidated Financial Statements.
14
<PAGE> 17
DILUTION
The net tangible book value (total tangible assets less total liabilities)
of the Company at June 30, 1996 was approximately $7,816,000, or $1.23 per share
of Common Stock. After giving effect to the sale by the Company of the 2,000,000
shares of Common Stock offered hereby, the Company's pro forma net tangible book
value at June 30, 1996 would have been $25,566,000, or $3.07 per share. This
represents an immediate increase in net tangible book value of $1.84 per share
to existing stockholders and an immediate dilution in net tangible book value of
$6.93 per share to new investors purchasing shares in the offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $10.00
Net tangible book value per share before the offering................... $1.23
Increase per share attributable to new investors........................ 1.84
------
Pro forma net tangible book value per share after the offering............ 3.07
Dilution per share to new investors....................................... $ 6.93
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by (i) existing
stockholders and (ii) new investors (before deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 6,341,350 76.0% $24,235,000 54.8% $ 3.82
New investors(1)................ 2,000,000 24.0 20,000,000 45.2 10.00
----- ------ ----- ------
Total......................... 8,341,350 100.0% $44,235,000 100.0%
===== ====== ===== ======
</TABLE>
The foregoing computations assume no exercise of the Underwriters'
over-allotment option, outstanding warrants or outstanding options after June
30, 1996. As of June 30, 1996, there were outstanding warrants to purchase
167,789 shares of Common Stock at an exercise price of $2.18 per share, and
outstanding options to purchase 1,355,652 shares of Common Stock, at a weighted
average exercise price of $2.33 per share. To the extent these warrants and
options are exercised, there will be further dilution to new investors. See
"Capitalization," "Management--Stock Option and Incentive Plans," "Description
of Capital Stock" and note 7 of Notes to Consolidated Financial Statements.
- ---------------
(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 5,341,350 shares or approximately
64.0% of the total shares of Common Stock outstanding after this offering
and will increase the number of shares held by new investors to 3,000,000
shares or approximately 36.0% of the total shares of Common Stock
outstanding after the offering.
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The following selected
consolidated financial data for the years ended December 31, 1993, December 30,
1994 and December 31, 1995 and as of December 30, 1994 and December 31, 1995
have been derived from the Company's Consolidated Financial Statements included
elsewhere in this Prospectus which have been audited by Ernst & Young LLP,
independent public auditors, whose report thereon is also included elsewhere in
this Prospectus. The following selected consolidated financial data for the
years ended December 27, 1991 and December 25, 1992 and as of December 27, 1991,
December 25, 1992 and December 31, 1993 have been derived from the audited
financial statements of the Company not included in this Prospectus. The
selected financial data for the six months ended June 30, 1995 and 1996, and as
of June 30, 1996, have been derived from unaudited interim consolidated
financial statements of the Company contained elsewhere herein and reflect, in
management's opinion, all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results of operations for
these periods. Results of operations for interim periods are not necessarily
indicative of results to be expected for the entire year.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
---------------------------------------------------- ---------------------
DEC. 27, DEC. 25, DEC. 31, DEC. 30, DEC. 31, JUN. 30, JUN. 30,
1991 1992 1993 1994 1995(1) 1995 1996
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net revenues................................ $ 7,770 $ 8,525 $14,719 $13,235 $26,045 $11,652 $18,151
Cost of revenues............................ 6,111 6,115 9,942 9,704 16,598 7,701 10,986
------- ------- ------- ------- ------- ------- -------
Gross profit................................ 1,659 2,410 4,777 3,531 9,447 3,951 7,165
Operating expenses:
Research and development.................. 1,497 1,638 2,179 2,748 3,373 1,426 2,244
Sales, general and administrative......... 2,081 2,497 2,492 3,012 5,074 1,975 3,599
Acquired in-process research and
development(1).......................... -- -- -- -- 889 -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses.................... 3,578 4,135 4,671 5,760 9,336 3,401 5,843
------- ------- ------- ------- ------- ------- -------
Operating income (loss)..................... (1,919 ) (1,725 ) 106 (2,229 ) 111 550 1,322
Interest income (expense), net.............. (44 ) (336 ) (60 ) 101 49 22 3
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for income
taxes..................................... (1,963 ) (2,061 ) 46 (2,128 ) 160 572 1,325
Provision for income taxes.................. -- -- 5 -- 83 297 124
------- ------- ------- ------- ------- ------- -------
Net income (loss)........................... $(1,963 ) $(2,061 ) $ 41 $(2,128 ) $ 77 $ 275 $ 1,201
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share(2).............. $ 0.01 $ 0.04 $ 0.16
======= ======= =======
Shares used in per share calculation........ 7,187 7,095 7,412
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DEC. 27, DEC. 25, DEC. 31, DEC. 30, DEC. 31, JUN. 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents.............................. $ 1,440 $ 1,695 $ 4,148 $ 1,607 $ 1,550 $ 1,775
Total assets........................................... 4,397 5,899 9,010 7,912 12,343 16,052
Long-term debt......................................... 108 10 -- 338 504 318
Total stockholders' equity............................. (798 ) (2,861 ) 5,900 3,801 6,713 7,942
</TABLE>
- ---------------
(1) In August 1995, the Company acquired Onyx and incurred a charge of $889,000
for acquired in-process research and development. See note 3 of Notes to
Consolidated Financial Statements.
(2) See note 1 of Notes to Consolidated Financial Statements for an explanation
of the computation of net income (loss) per share.
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Raster Graphics was established in 1987 initially to develop low-cost
electrostatic raster printers for the computer-aided design ("CAD") market.
Raster Graphics commenced shipments of its first printer, a 22-inch printer, in
1989, followed by a 24-inch printer in 1990 and a 36-inch printer in 1992.
In 1993, the Company identified the on-demand production LFDP market as a
new opportunity to leverage its proprietary print head technology. As a result,
in 1993 the Company shifted its product focus and began to develop the DCS 5400
specifically for the LFDP market. The Company began shipping the DCS 5400 in
July 1994.
In order to provide a complete digital printing solution to its customers,
the Company began shipping Onyx's image processing software with its DCS 5400
printer in July 1994. Onyx develops and markets image processing software for
digital printers such as the Company's DCS 5400 and 5442 printers as well as
printers manufactured by companies such as CalComp, Encad, Hewlett-Packard and
ColorgrafX. In August 1995, the Company acquired Onyx. Onyx supplies its
software to Raster Graphics and also sells its software products to OEMs, VARs,
systems integrators and other printer manufacturers.
Raster Graphics also sells related consumables, including specialized inks
and papers which it acquires from third party suppliers and resells under the
Raster Graphics name. The sale of consumables generates recurring revenues which
the Company believes will continue to increase to the extent that the installed
base of DCS printing systems expands. See "Risk Factors -- Competition" and
"-- Dependence on Sole Source Subcontractors and Suppliers."
In the United States, Raster Graphics also derives revenues from
maintenance contracts of installed DCS systems and printers, as well as the
Company's installed base of 22-inch, 24-inch and 36-inch printers. Revenue is
also generated from the sale of spare parts.
Raster Graphics' end user customers, OEMs, VARs, and international
distributors submit purchase orders that generally require product shipment
within two to eight weeks from receipt of order. Accordingly, the Company does
not use order backlog as a primary basis for management planning for longer
periods. Revenues are recognized upon shipment if there are no contingencies. If
contingencies exist, revenues are recognized only when such contingencies are
removed by the customer.
Cost of revenues includes materials, labor, overhead and software
royalties. Cost of revenues as a percentage varies depending upon the revenue
mix generated through end user, OEM, VAR and distributor revenues, and the
revenue mix generated from Onyx software license fees, DCS printing systems
sales, consumables sales and service fees.
Raster Graphics expenses research and development costs as incurred.
Research and development expenses have increased from year to year, and Raster
Graphics expects further increases in research and development expenses in the
future due to the development of new products.
Raster Graphics' sales and marketing expenses and general and
administrative expenses have also increased to support the revenue growth of the
Company. The Company's strategy is to distribute its products through a direct
sales force and independent representatives in selected markets (currently the
United States and Germany), as well as through OEMs, VARs and distributors.
Raster Graphics also incurs sales and marketing expenses in connection with
product promotional activities.
The Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets. To address these risks, the
Company must, among other things, respond to competitive developments, attract,
retain and motivate qualified persons, and continue to upgrade its technologies
and commercialize products and services incorporating such
17
<PAGE> 20
technologies. There can be no assurance that the Company will be successful in
addressing these risks. As of June 30, 1996, the Company had an accumulated
deficit of $17.2 million. Although the Company was profitable in 1995 and the
six months ended June 30, 1996, there can be no assurance that the Company will
be profitable in the future. See "Risk Factors -- Significant Fluctuations in
Quarterly Results," "-- Limited History of Profitability and Uncertainty of
Future Financial Results," "-- Uncertainty Regarding LFDP Market; Uncertainty
Regarding Market Acceptance of New Products," "-- Competition," "-- Dependence
on a Single Product Line," "-- Reliance on Third-Party Distribution,"
"-- Dependence on Sole Source Subcontractors and Suppliers," "-- Difficulties in
Managing Growth" and "-- Key Personnel."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items of
the Company's consolidated statements of operations expressed as a percentage of
its net revenues:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
------------------------------------------ --------------------
DECEMBER 31, DECEMBER 30, DECEMBER 31, JUNE 30, JUNE 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................... 67.6 73.3 63.7 66.1 60.5
----- ----- ----- ----- -----
Gross profit........................... 32.4 26.7 36.3 33.9 39.5
Operating expenses:
Research and development............. 14.8 20.8 13.0 12.2 12.4
Sales and marketing.................. 10.8 15.5 14.0 11.8 15.1
General and administrative........... 6.1 7.2 5.5 5.2 4.7
Acquired in-process research and
development(1).................... -- -- 3.4 -- --
----- ----- ----- ----- -----
Total operating expenses............. 31.7 43.5 35.9 29.2 32.2
----- ----- ----- ----- -----
Operating income (loss)................ 0.7 (16.8) 0.4 4.7 7.3
Interest income (expense), net......... (0.4) 0.7 0.2 0.2 --
----- ----- ----- ----- -----
Income (loss) before provision for
income taxes......................... 0.3 (16.1) 0.6 4.9 7.3
Provision for income taxes............. -- -- 0.3 2.5 0.7
----- ----- ----- ----- -----
Net income (loss)...................... 0.3% (16.1)% 0.3% 2.4% 6.6%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) In August 1995 the Company acquired Onyx and incurred a charge of $889,000
for acquired in-process research and development. See note 3 of Notes to
Consolidated Financial Statements.
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
The Company's results of operations for the six months ended June 30, 1996
include the results of operations of Onyx, which the Company acquired in August
1995. See Onyx Financial Statements appearing on page F-24.
Net Revenues. Net revenues increased from $11.7 million in the six months
ended June 30, 1995 to $18.2 million for the comparable period in 1996 for an
increase of 55.8%. The increase was primarily due to increased sales of printer
systems following introduction of the DCS 5442 printing system in January 1996,
increased sales of consumables, sales by the Company's new German subsidiary and
consolidation of sales following the acquisition of Onyx.
For the six months ended June 30, 1995, one customer accounted for 14.2% of
net revenues.
Gross Profit. Gross profit was $4.0 million, or 33.9% of net revenues, for
the six months ended June 30, 1995, compared to gross profit of $7.2 million, or
39.5% of net revenues, for the comparable
18
<PAGE> 21
period in 1996. The absolute dollar increase in gross profit was primarily the
result of increased net revenues, while the improvement in gross profit as a
percentage of net revenues was due to improvements in manufacturing efficiency,
the allocation of fixed costs over a larger number of units sold and increased
sales of higher margin DCS printing systems and software products.
Research and Development. Research and development expenses were $1.4
million, or 12.2% of net revenues for the six months ended June 30, 1995,
compared to expenses of $2.2 million, or 12.4% of net revenues, for the
comparable period in 1996. The absolute dollar increase in research and
development expenses was primarily the result of new product development
activities.
Sales and Marketing. Sales and marketing expenses were $1.4 million, or
11.8% of net revenues, for the six months ended June 30, 1995, compared to
expenses of $2.7 million, or 15.1% of net revenues, for the comparable period in
1996. This increase was due primarily to the personnel and related costs
associated with the Company's acquisition of Onyx, the establishment of the
Company's German subsidiary and increased sales activities.
General and Administrative. General and administrative expenses were
$600,000, or 5.2% of net revenues, for the six months ended June 30, 1995,
compared to expenses of $864,000, or 4.7% of net revenues, for the comparable
period in 1996.
Provision for Income Taxes. For the six months ended June 30, 1995 and June
30, 1996, income taxes have been provided for based upon estimated annualized
effective tax rates of 51.9% and 9.4%, respectively, applied to the earnings for
the period. The provision for income taxes for the six months ended June 30,
1995 reflects unbenefited foreign losses and the tax benefits of utilizing net
operating loss carryforwards. The provision for the comparable period in 1996
reflects the tax benefits of utilizing net operating loss carryforwards.
FISCAL YEARS ENDED DECEMBER 1993, 1994 AND 1995
Net Revenues. Net revenues were $14.7 million, $13.2 million and $26.0
million in 1993, 1994 and 1995, respectively. The decrease in net revenues in
1994 primarily resulted from a decrease in sales of 24-inch and 36-inch raster
printers (which the Company no longer actively markets) in the first six months
of 1994, which the Company believes was due to competitive pressures attributed
to introduction of ink jet printers by Hewlett-Packard. In the second half of
1994, the Company's DCS 5400 began gaining market acceptance, which partially
offset the decrease in net revenues in the first six months of 1994. In
addition, sales of consumables increased in 1994 as a result of increased orders
for DCS printing systems, further offsetting the reduction in sales of 24-inch
and 36-inch printers. The primary reason for the $12.8 million increase from
1994 to 1995 was continued growth in sales of DCS printing systems and increased
sales of consumables, spare parts and the consolidation of net revenues from
Onyx after August 10, 1995.
Future revenue growth will depend on a number of factors, including the
Company's ability to develop, manufacture, market and sell innovative and
reliable new products, customer satisfaction, market growth, competitive
developments, product mix, vendor performance and the Company's ability to
handle growth. There can be no assurance that the Company's revenues will
continue to grow at current rates, or at all. See "Risk Factors -- International
Revenues."
International sales, which include export sales and sales shipped by the
Company's European operations, were $7.1 million, $7.4 million and $13.4 million
for 1993, 1994 and 1995, respectively. These sales represented 48.1%, 55.9% and
51.3% of net revenues. The increases in international sales were a result of the
increased international customer acceptance of the DCS printing systems and
establishment of new distribution arrangements. Future international revenues
will depend on the factors set forth above, and will be subject to unexpected
changes in regulatory requirements and tariffs, longer customer payment cycles,
fluctuation in currency exchange rates, seasonal factors and risks associated
with managing business operations in geographically distant locations. No
assurance can be given that international revenues will continue to grow at
current rates, or at all. See "Risk Factors -- International Revenues."
19
<PAGE> 22
One customer, a related party in 1993, accounted for 33.4%, 20.6% and 10.9%
of net revenues for 1993, 1994 and 1995, respectively. Another customer
accounted for 18.4% of net revenues in 1993. There were no other customers which
accounted for more than 10% of net revenues during these years. Any material
reduction in purchases by the first customer could have a material adverse
effect on the Company and its operations and financial condition.
Gross Profit. Gross profit was $4.8 million, $3.5 million and $9.4 million,
or 32.4%, 26.7% and 36.3% of revenues, for 1993, 1994 and 1995, respectively.
The decrease in gross margin from 1993 to 1994 was primarily due to competitive
pricing pressures from Hewlett-Packard with respect to the Company's 24-inch and
36-inch printers (which the Company no longer markets) and higher fixed overhead
costs being allocated over fewer units in the first six months of 1994. In 1994,
this decrease was partially offset by sales of the new DCS systems, which
contributed a higher margin. The improved gross margin in 1995 was primarily due
to a change in product mix to a greater percentage of relatively higher-margin
DCS printing systems. The Company's future level of gross profit will depend on
a number of factors, including product mix and its abilities to control variable
expenses relative to revenue levels, maintain a revenue base over which to
allocate fixed costs and continue to develop, manufacture, market and sell
innovative and reliable new products.
Research and Development. Research and development expenses were $2.2
million, $2.7 million and $3.4 million, or 14.8%, 20.8% and 13.0% of net
revenues, for 1993, 1994 and 1995, respectively. The absolute dollar increase
from 1993 to 1994 was primarily due to engineering material expenditures related
to the development of new products. The absolute dollar increase from 1994 to
1995 was primarily due to increased payroll and related expenses, including the
Onyx engineering staff, and to a lesser degree increased engineering material
expenditures and increased facility costs related to the Company's new facility.
The Company has a purchase commitment of approximately $1.0 million to a
supplier over the next year in connection with research and development
activities. The Company intends to continue to dedicate substantial resources to
research and development activities. Accordingly, the Company believes that
research and development expenses generally will continue to increase in dollar
amounts, and may increase as a percentage of revenues, in the future.
Sales and Marketing. Sales and marketing expenses were $1.6 million, $2.1
million and $3.6 million, or 10.8%, 15.5% and 14.0% of net revenues, for 1993,
1994 and 1995, respectively. The primary causes of the absolute dollar increase
have been increases in payroll and payroll-related expenses due to increases in
personnel, and to a lesser degree, travel-related expenses. Spending also
increased in 1995 due to the opening of sales offices in Germany and the United
Kingdom to support increased sales activities in Europe. The Company believes
that sales and marketing expenses will continue to increase in dollar amounts,
and may increase as a percentage of revenues, in the future.
General and Administrative. General and administrative expenses were
$901,000, $958,000 and $1.4 million, or 6.1%, 7.2% and 5.5% of net revenues, for
1993, 1994 and 1995, respectively. The absolute dollar amounts of general and
administrative expenses were comparable in 1993 and 1994. The increase in 1995
was primarily related to increased payroll and payroll-related expenses and
increased costs related to the Company's new facility. The Company believes that
general and administrative expenses will continue to increase in dollar amounts,
and may increase as a percentage of revenues, in the future.
Acquired In-Process Research and Development. In August 1995, the Company
acquired Onyx for stock and other consideration valued at $1.5 million. The
assets acquired included tangible assets valued at $866,000, intangible assets
of $454,000, less liabilities assumed of $570,000, and software in the
development stage valued at approximately $750,000 which was expensed in the
September 1995 quarter as it had not yet reached technological feasibility and
did not have alternative future uses. In addition, the Company wrote off
$139,000 in the September 1995 quarter for redundant PostScript licenses that
the Company had purchased for the Company's development of a similar image
processing software product.
20
<PAGE> 23
Interest Income (Expense), net. The Company's net interest expense was
$60,000 in 1993, due to interest expense of $173,000 primarily related to
interest on related-party notes, which was offset in part by interest income.
Net interest income was $101,000 and $49,000 in 1994 and 1995, respectively.
Provisions for Income Taxes. The provision for income taxes was $5,000 and
$83,000 for 1993 and 1995, respectively. There was no provision for income taxes
for 1994 as the Company incurred operating losses. The provision for income
taxes for 1993 differs from the statutory federal income tax rate, primarily due
to the utilization of net operating loss carryforwards. The provision for income
taxes for 1995 differs from the statutory income tax rate, primarily due to
unbenefited foreign losses and the tax benefits of utilizing net operating loss
carryforwards.
As of December 31, 1995, the Company had federal and state net operating
loss carryforwards of approximately $13.2 million and $4.4 million,
respectively. The Company also has federal and California research and
development tax credit carryforwards of approximately $753,000 and $325,000,
respectively. The net operating loss and credit carryforwards will expire, if
not utilized, at various dates beginning in 1996 through 2010.
Utilization of the net operating losses and credits will be subject to an
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986, as amended (the "Code") and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
Under Statement of Financial Accounting Standards No. 109, deferred tax
assets and liabilities are determined based on the difference between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Based on the weight of available evidence, which includes
the Company's historical operating performance, the reported loss in 1994, only
marginal profitability in 1993 and 1995, and the uncertainties regarding future
results of operations, the Company has provided a full valuation allowance
against its net deferred tax assets of $7.3 million at December 31, 1995, as it
is more likely than not that the deferred tax assets will not be realized.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information for the six quarters ended June 30, 1996, as well as such data
expressed as a percentage of the Company's net revenues for the periods
indicated. In the opinion of management, the data has been prepared on a basis
consistent with the Company's audited consolidated financial statements included
elsewhere in the Prospectus and includes all necessary adjustments, consisting
only of normal recurring accruals, that management considers necessary for a
fair presentation. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future period.
21
<PAGE> 24
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $ 5,720 $5,932 $ 6,835 $7,558 $ 8,591 $9,560
Cost of revenues................. 3,792 3,909 4,315 4,582 5,305 5,681
------ ------ ------ ------ ------ ------
Gross profit..................... 1,928 2,023 2,520 2,976 3,286 3,879
Operating expenses:
Research and development....... 642 784 948 999 934 1,310
Sales and marketing............ 632 743 975 1,290 1,364 1,371
General and administrative..... 284 316 408 426 421 443
Acquired in-process research
and development(1).......... -- -- 889 -- -- --
------ ------ ------ ------ ------ ------
Total operating expenses.... 1,558 1,843 3,220 2,715 2,719 3,124
------ ------ ------ ------ ------ ------
Operating income (loss).......... 370 180 (700) 261 567 755
Interest income (expense), net... 3 19 16 11 (3) 6
------ ------ ------ ------ ------ ------
Income (loss) before provision
for income taxes............... 373 199 (684) 272 564 761
Provision for (benefit from)
income taxes................... 194 103 (355) 141 75 49
------ ------ ------ ------ ------ ------
Net Income (loss)................ $ 179 $ 96 $ (329) $ 131 $ 489 $ 712
====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) In August 1995 the Company acquired Onyx and incurred a charge of $889,000
for acquired in-process research and development. See note 3 of Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................. 66.3 65.9 63.1 60.6 61.8 59.4
----- ----- ----- ----- ----- -----
Gross profit..................... 33.7 34.1 36.9 39.4 38.2 40.6
Operating expenses:
Research and development....... 11.2 13.2 13.9 13.2 10.9 13.7
Sales and marketing............ 11.0 12.5 14.2 17.1 15.8 14.4
General and administrative..... 5.0 5.4 6.0 5.6 4.9 4.6
Acquired in-process research
and development(1).......... -- -- 13.0 -- -- --
----- ----- ----- ----- ----- -----
Total operating expenses.... 27.2 31.1 47.1 35.9 31.6 32.7
----- ----- ----- ----- ----- -----
Operating income (loss).......... 6.5 3.0 (10.2) 3.5 6.6 7.9
Interest income (expense), net... -- 0.3 0.2 0.1 -- 0.1
----- ----- ----- ----- ----- -----
Income (loss) before provision
for income taxes............... 6.5 3.3 (10.0) 3.6 6.6 8.0
Provision for (benefit from)
income taxes................... 3.4 1.7 5.2 1.9 0.9 0.5
----- ----- ----- ----- ----- -----
Net Income (loss)................ 3.1% 1.6% (4.8)% 1.7% 5.7% 7.5%
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) In August 1995 the Company acquired Onyx and incurred a charge of $889,000
for acquired in-process research and development. See note 3 of Notes to
Consolidated Financial Statements.
22
<PAGE> 25
QUARTERLY TRENDS
Net Revenues. Net revenues increased and gross margins improved in the
third and fourth quarters of 1995 as compared with the first half of 1995
primarily due to the higher gross margin sales associated with Onyx, which was
acquired in August 1995.
Fluctuations in Quarterly Results. The Company's operating results have
historically been, and will continue to be, subject to significant quarterly and
annual fluctuations due to a number of factors, including fluctuations in
capital spending domestically or internationally in one or more industries to
which the Company sells its products, new product introductions by the Company
or its competitors, changes in product mix and pricing by the Company, its
suppliers or its competitors, availability of components and raw materials,
failure to manufacture a sufficient volume of products in a timely and
cost-effective manner, any failure to introduce new products on a timely basis
or to anticipate changing customer product requirements, lack of market
acceptance or shifts in the demand for the Company's products, changes in the
mix of sales by the distribution channel, changes in the spending patterns of
the Company's customers, and extraordinary events such as litigation or
acquisitions. The Company's gross margins may vary depending on the mix of
higher margin DCS printing systems and software products.
The Company's operating results will also be affected by general economic
and other conditions affecting the timing of customer orders and capital
spending. The Company generally recognizes product revenue upon shipment. The
Company's net revenues and results of operations for a fiscal period will
therefore be affected by the timing of orders received and orders shipped during
such period. Because the purchase of a DCS printer or printing system involves a
significant capital commitment, the Company's DCS printer and printing system
sales cycle is susceptible to delays and lengthy acceptance procedures
associated with large capital expenditures. Due to the Company's high average
sales price and low unit volume per month, a delay in the sale of a few units
could have a material adverse effect on the results of operations for a
financial quarter. A delay in shipments near the end of a fiscal period, due for
example to product development delays or to delays in obtaining materials, could
materially adversely affect the Company's business, financial condition and
results of operations for such period. Moreover, continued investments in
research and development, capital equipment and ongoing customer service and
support capabilities will result in significant fixed costs which the Company
will not be able to reduce rapidly. If the Company's sales for a particular
fiscal period are below expected levels, the Company's business, financial
condition and results of operations for such fiscal period could be materially
adversely affected. There can be no assurance that the Company will be able to
increase or sustain profitability on a quarterly or annual basis in the future.
Certain seasonal factors and patterns impact the level of business
activities at different times in different regions of the world. For example,
sales in Europe are adversely affected in the third quarter of each year as many
customers and end users reduce their business activities during the summer
months. These seasonal factors, along with currency fluctuation risks, could
have an adverse impact on the Company's quarterly results of operations.
Moreover, because orders constituting the Company's backlog are subject to
changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty, the Company's backlog may not be
indicative of demand for the Company's products or actual net revenues for any
future period.
In addition, a significant percentage of the Company's bookings frequently
occur in the last month of each fiscal quarter. This fact, coupled with the
relatively short lead-time associated with many of the Company's customer
orders, limits the Company's ability to determine quarterly results until
relatively late in the period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of preferred stock and common stock of $24.2 million, issuance of
convertible debt, bank loans,
23
<PAGE> 26
equipment lease financing and private loans and cash provided by operations for
the quarter ended June 30, 1996. Cash used in operations was $342,000, $2.2
million and $638,000 in 1993, 1994 and 1995, respectively, and for the quarter
ended June 30, 1996, $624,000 of cash was generated by operations. For 1995, net
cash used in operations was due primarily to increases in inventories and
accounts receivables associated with higher net revenues, which were partially
offset by an increase in accounts payable. Net cash provided by operations for
the six months ended June 30, 1996 was primarily from net income, adjusted for
depreciation and amortization and an increase in accounts payable and other
accrued liabilities, partially offset by an increase in accounts receivable and
inventories associated with higher net revenues.
Net cash used in investing activities was $813,000, $805,000, $1.0 million
and $497,000 for 1993, 1994, 1995 and the six months ended June 30, 1996,
respectively, due primarily to the purchase of capital equipment. The Company
currently has budgeted $2.4 million in 1996 for capital expenditures. The
Company has a purchase commitment of approximately $1.0 million to a supplier
over the next year in connection with research and development activities.
Financing activities provided net cash of $3.6 million, $487,000 and $1.6
million, respectively, for 1993, 1994 and 1995, due primarily to sales of equity
securities offset by payments on notes and capital lease obligations. Financing
activities provided net cash of $98,000 for the six months ended June 30, 1996,
due primarily to proceeds from the bank line of credit, partially offset by
payments on notes and capital lease obligations.
The Company has not invested in derivative securities or any other
financial instrument that involves a high level of complexity or risk.
Management expects that, in the future, cash in excess of current requirements
will be invested in investment grade, interest-bearing securities.
At June 30, 1996, the Company had $1.8 million of cash and cash
equivalents. The Company also has available a $2.0 million bank line of credit
agreement that expires on October 15, 1996, which is secured by the tangible
assets of the Company. At June 30, 1996, there was $250,000 of borrowings
outstanding under the bank line of credit.
The Company believes that existing cash and cash equivalents of $1.8
million, together with anticipated net proceeds of approximately $17.8 million
from this offering, will be sufficient to finance its capital requirements
through at least the next two years. Thereafter, the Company may require
additional funds to support its working capital requirements or for other
purposes and may seek to raise such additional funds through bank borrowings and
public or private sales of its securities, including equity and debt securities.
The Company's future capital requirements, however, depend on numerous factors,
including, without limitation, the success of marketing, sales and distribution
efforts; the progress of its research and development programs; the costs
involved in preparing, filing, prosecuting, defending and enforcing intellectual
property rights; competition; competing technological and market developments;
and the effectiveness of product commercialization activities and arrangements.
There can be no assurance that additional funds, if required, will be available
to the Company on favorable terms or at all.
24
<PAGE> 27
BUSINESS
Raster Graphics develops, manufactures and markets high-performance, large
format, digital color printing systems, and sells related consumables for the
on-demand LFDP market. The Company's products are designed to meet the
short-run, on-demand production market requirements of quality, speed,
flexibility, reliability and low per copy cost. The LFDP market consists of
color print jobs with run lengths typically ranging from one to 200 copies, and
output sizes of 20-inches by 30-inches or larger. Applications include POP
signs, trade show exhibit graphics, displays, transit advertising, fleet
graphics, banners, billboards, courtroom graphics, backlit signage, posters and
sports and corporate events. The primary users of Raster Graphics' DCS printing
systems are color photo labs, reprographic houses, graphic arts service bureaus,
exhibit builders, digital color printers, screen printers and in-house print
shops. DCS printing systems allow users to print short runs of high quality
color graphics on-demand at substantial time and cost savings relative to
traditional printing methods.
INDUSTRY BACKGROUND
Graphics Market Size and Trends
The overall graphics market, consisting of offset, screen, photographic and
digital printing, is a large and mature market. According to U.S. Commerce
Daily, in 1995, the graphics market in the United States had sales of $160
billion with an estimated growth rate of 8% per year. However, according to the
1996 Electronic Hard Copy Research report by IT Strategies, a printing industry
market research firm (IT Strategies), the LFDP segment of this market is
projected to grow more rapidly from an estimated annual sales of $2.7 billion in
1995 to $10 billion in 1998, for a compound annual growth rate of over 50%.
Another study, Wide Format Color Inkjet Graphics Printing -- January 1996, by
CAP Ventures, a market research company, projects that the LFDP segment of the
market will grow to $18 billion in 1999.
The anticipated growth of the LFDP market is being driven by the following
factors:
- Customization. The ability to vary content electronically on a
print-by-print basis enables companies to create highly-focused marketing
campaigns customized to market segment characteristics, such as nuances
in language, culture and geographic location.
- Demand for Color. The use of color in graphics design has become
pervasive as digital technology has made full color printing as
accessible as black and white printing. End users strongly prefer to use
full color in all forms of communications and advertising because of its
positive impact on awareness and retention.
- Available Technology. Advances in high speed, large format digital
printing technology enable cost effective, high quality, on-demand color
print jobs in run-lengths from one to 200 copies. The Company is a leader
in the development of these higher speed production digital technologies.
- Desktop Publishing. Recent innovations in desktop publishing have
provided graphics design capabilities to thousands of users through the
use of widely available software packages such as Adobe Illustrator,
Aldus PageMaker and QuarkXPress which have revolutionized desktop
graphics design. This digital desktop publishing technology enables users
to create new designs easily and quickly and print them directly using
LFDP systems.
- Market Expansion. The installed base of thousands of low-cost, color
inkjet printers is helping to fuel the growth of many new applications
such as corporate presentations, POP displays and exhibit graphics. As
end users become accustomed to color graphics and demand higher
performance capabilities including speed, graphics size and outdoor
applications, the demand for LFDP should expand.
- Efficiency of Large Format Print Advertising. The Traffic Audit Bureau
for Media Measurement, Inc., estimates in its Planning for Out of Home
Media Report that large format print advertising is six-to-nine times
more cost effective than newspaper and television advertising. As a
result, Outdoor Services, Inc., a marketing research company, estimates
that large format print advertising is one of the fastest growing
advertising media, rising from sales of $260 million in 1970 to $3.5
billion in 1995. LFDP technology enables adoption of this cost-effective
medium by a new class of regional users desiring a smaller number of
prints.
25
<PAGE> 28
Traditional Printing Methods
Prior to the availability of LFDP technology, graphic printing methods were
limited to the following three categories: photographic enlargement, screen
printing and offset printing.
- Photographic Enlargement. The photographic enlargement process involves
imaging a digital file on a film recorder and using an enlarger to expose
large photographic paper or backlit film. While this method provides a
cost-effective solution for a small number of prints, it requires
extensive chemical-based processing, which requires special handling.
Furthermore, the image quality for line art, such as text, can lose its
sharpness as the image is enlarged. Also, the photographic process is
primarily suited for indoor applications.
- Screen Printing. In the screen print process, the image is first created
on four sets of film -- one for each of the four process colors,
representing Cyan, Magenta, Yellow and Key (black) ("CMYK"). These films
are then exposed onto four screens to produce masks for each color. Ink
pigments are applied through these masks by a squeegee to produce the
final graphics. While screen print quality is acceptable for most
distance-viewed applications, this multi-step process is expensive and
time-consuming, making it uneconomical for runs shorter than 50 to 100
copies.
- Offset Printing. Offset printing requires the creation of four films
which are then used to make printing plates. The plates are physically
mounted on a press, ink is applied to the plates, and the image is then
transferred by an intermediary blanket onto the final paper. In addition
to film and plate-making, offset printing also requires extensive press
setup. Offset printing is an expensive, time-consuming process and is
uneconomical for runs shorter than 1,000 copies. However, offset printing
offers the highest quality graphics and lowest cost per copy for runs
over 1,000 copies.
Because of the multi-step process and high set-up costs, each of these
traditional printing technologies is only cost-effective within certain ranges
of run lengths. The Company believes the following graph shows the range over
which each traditional printing method and LFDP are cost-effective, while the
succeeding table provides a comparison of the four methods' capabilities.
LOGO
* Determination of image quality is subjective, involving individual taste and
perception. The above chart indicates the Company's estimates of
generally-accepted industry perceptions of image quality.
26
<PAGE> 29
PRINTING METHODS' CAPABILITIES
<TABLE>
<S> <C> <C> <C> <C>
HIGH IMAGE ON- SHORT OUTDOOR
METHOD QUALITY* DEMAND RUNS APPLICATIONS
--------------------------------------------------------------------------------
LFDP 'X' 'X' 'X' 'X'
Photograph 'X' 'X' 'X'
Screen 'X' 'X'
Offset 'X' 'X'
--------------------------------------------------------------------------------
</TABLE>
* Determination of image quality is subjective, involving individual taste and
perception. The above chart indicates the Company's estimates of
generally-accepted industry perceptions of image quality.
Digital Printing
Digital printing fulfills the unmet demand of short-run users, as it does
not require expensive chemicals, films, screens, masks or set-up processes.
Furthermore, this technology allows graphics to be printed directly from a
variety of desktop publishing programs onto paper.
Currently, there are two primary methods of digital printing, electrostatic
and inkjet. Electrostatic print heads form images by depositing small dots of
electrical charge across the full width of the paper. The image is developed by
the attraction of the ink to the charged dots. Inkjet printers form images by
spraying very small dots of water-based inks as the print head moves
horizontally in a scanning-type process. Electrostatic printers achieve the
speeds required for runs of up to 200 copies (referred to as the production
market), whereas inkjet printers are considerably slower and are generally used
for very short runs of fewer than five copies. Furthermore, electrostatic
technology utilizes weather-durable pigment-based inks that can be used for both
indoor and outdoor applications. Inkjet technology is primarily used for indoor
applications. The following chart compares the electrostatic and inkjet methods:
LFDP TECHNOLOGIES
<TABLE>
<CAPTION>
TECHNOLOGY LIST PRICE TYPICAL PRINT TIME DURABILITY
- -------------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
Inkjet $3,000 - $10,000 20 - 30 min. Currently indoor
applications only
Electrostatic $35,000 - $120,000 1 - 5 min. Indoor and outdoor
applications
</TABLE>
- ---------------
Source -- Raster Graphics, Inc.
RASTER GRAPHICS' SYSTEM SOLUTION
Raster Graphics offers a complete printing system solution to meet the
demands of the on-demand production LFDP market. Raster Graphics' solution
consists of its electrostatic DCS printers, integrated image processing software
and related consumables and services. Key benefits of the DCS printing systems
include:
High Performance. With a production printing speed of 600 to 1,000 square
feet per hour, the DCS printing systems can produce 50 to 60 full-color, 36- by
48-inch posters in one hour, which the Company believes is significantly faster
than comparable printers. Runs of up to 200 prints can be easily produced in a
single shift.
Low Cost for Short Runs. Primary job costs of DCS printing systems are
variable and are principally composed of consumables costing approximately 30c
to 50c per square foot for paper-based
27
<PAGE> 30
graphics. In contrast, conventional printing methods involve relatively high
fixed overhead, set-up and labor costs for each printing job. Furthermore, the
on-demand capability of digital printing reduces the waste of surplus or
outdated copies. As a result, the Company believes that the DCS printing systems
provide the most cost-effective solution for runs up to 200 copies as
illustrated for four color printing below.
PRINTING METHODS COMPARISONS
<TABLE>
<CAPTION>
FEATURE OFFSET PRINTING SCREEN PRINTING DCS SYSTEM
- ------------------------------------------- --------------- --------------- ----------
<S> <C> <C> <C>
Job Turnaround Time 3 - 5 days 5 - 9 days 1 day
Estimated Total Cost for 50 copies $4,500 $900 $300
Estimated Total Cost for 200 copies $5,000 $1,100 $1,100
Quality of Output* Excellent Good Very Good
</TABLE>
- ---------------
Source -- Raster Graphics, Inc.
* Determination of image quality is subjective, involving individual taste and
perception. The above chart indicates the Company's estimates of generally
accepted industry perceptions of image quality.
Targeting and Customizing or "Narrowcasting." The DCS printing systems
allow content to be varied on a print-by-print basis. Fixed and variable data
are printed in one process at the same quality level. This permits narrowcasting
marketing campaigns that are customized to a specific market segment.
High Print Quality and Flexibility. The DCS printing systems offer two
printing resolution modes, a 200 x 200 dots per inch ("dpi") mode and a 200 x
400 dpi mode, allowing utilization of the same system for two levels of image
quality to meet the needs of both close-up graphics and distance-viewed
graphics.
Raster Graphics has received five highly acclaimed industry awards for its
contribution to digital printing technology. The Company's DCS 5400 product
received the Digital Printing and Imaging Association's 1994 Product of the Year
award; was named among the Top 10 New Repro Products for 1994 by Modern
Reprographics; was designated a Hot Product for 1994 by Electronic Publishing;
received a 1994 Editor's Choice Award from Computer Graphics World; and was
honored with the 1994 Industry Excellence Award by IEEE Computer Graphics and
Applications. See "Risk Factors -- Limited History of Product Manufacturing and
Use; Product Defects" and "-- Dependence on Single Product Line."
STRATEGY
Raster Graphics' objective is to build on its position as a market leader
in providing digital printing systems and related consumables and services for
the on-demand production LFDP market. The Company's strategy for growth includes
the following:
Provide System Solutions. In August 1995, the Company acquired Onyx, a
leader in image processing software, enabling the Company to develop highly
integrated systems solutions for its customers. Raster Graphics plans to
continue developing additional products and services to provide complete
integrated solutions to its customers. The Company believes that customers
prefer an integrated solution since most customers lack the expertise or time to
source and integrate individual and potentially incompatible components from
multiple suppliers.
Focus on Large Format Digital Segment. Raster Graphics plans to continue
to focus its efforts on producing LFDP systems with capabilities that target and
address specific needs of the production customer, such as paper graphics,
backlit graphics, vinyl graphics and textile graphics. The Company believes that
the rapid growth in small format on-demand color printing will also stimulate
demand for comparable large format solutions by raising the level of awareness
of the benefits of short-run printing.
28
<PAGE> 31
Increase Recurring Revenues Base. Raster Graphics plans to continue
expanding its services and specialized consumables businesses which provide
recurring revenues to the Company. The Company currently sells various inks,
varnish, specially-coated papers, vinyls and maintenance and training services.
Leverage Core Technologies. Raster Graphics plans to leverage its
technological expertise to expand its product offerings. The Company has
expertise in a number of core technologies, including knowledge of complex print
head design and manufacturing; high speed paper transport; high speed data
transfer; and image processing software.
Pursue Acquisitions, Joint Ventures and Alliances. Raster Graphics will
seek to acquire strategic businesses and technologies and establish joint
ventures with companies offering complementary products or synergistic
distribution. For example, by utilizing Onyx's leadership position in image
processing software, Raster Graphics plans to build alliances with manufacturers
and distributors of entry level low-speed graphics printers. The Company
believes that this large base of low-speed graphics printing systems will become
upgrade prospects for the Company's high performance production systems.
Expand International Markets. Approximately half of the Company's revenues
are derived from sales in international markets. The Company believes that these
markets offer attractive growth opportunities fueled by a variety of languages
and cultural and business customs which result in the need for customization.
Raster Graphics plans to continue expanding its direct presence in international
markets by establishing additional foreign subsidiaries and forming joint
ventures.
PRODUCTS
DCS Printing System Architecture
The DCS printing system consists of two primary components: the DCS
printers and PosterShop, a client/server-based image processing system.
Raster Graphics DCS Printer. DCS printers are currently available in two
models: DCS 5400 and DCS 5442. Both models are capable of producing 54-inch wide
graphics, in lengths of up to 30 feet for the 5400 model and up to 100 feet for
the 5442 model. Raster Graphics began designing its first DCS printer, the DCS
5400, in early 1993 and began product shipments in June 1994. The Company
introduced and began shipping the DCS 5442 in January 1996. See "Risk
Factors -- Dependence on Single Product Line" and "-- Limited History of Product
Manufacturing and Use; Product Defects."
DCS PRINTER SPECIFICATIONS
<TABLE>
<CAPTION>
MODEL RESOLUTION(S) PRINTING THROUGHPUT MAX. PRINT LENGTH LIST PRICE
- -------- ------------------ ----------------------- ----------------- ----------
<C> <S> <C> <C> <C>
DCS 5400 200 x 200 dpi Up to 600 sq feet/hr. Up to 30 feet $ 99,950
DCS 5442 200 x 200 dpi and Up to 1,000 sq feet/hr. Up to 100 feet $ 109,950
200 x 400 dpi
</TABLE>
Raster Graphics, in its DCS printers, is the only manufacturer offering the
following four innovative features to satisfy the requirements of the LFDP
market:
- High Performance Using Non-Multiplexed Writing. Raster Graphics'
patented, non-multiplexed print head, the Silicon Imaging Bar,
simultaneously images across the full 54-inch width of paper allowing DCS
printers to operate at much higher speeds than traditional multiplexed
printers. In multiplexed electrostatic printing, a segmented print head
images across the width of the paper one segment at a time.
29
<PAGE> 32
LOGO
LOGO
- Five Color Capability. DCS printers utilize a unique five color process
that allows printing spot colors or applying varnish. Spot colors enable
the printing of precise corporate identity colors (e.g. Coca-Cola red or
Kodak yellow), accent metallic colors or neon colors. Varnish enables the
application of a protective finish coat. Traditional four-color printing
processes using only CMYK cannot offer these capabilities.
- Dual Resolution Printing Mode. The DCS Model 5442 printer is capable of
printing images in 200 x 200 dpi mode or 200 x 400 dpi mode without any
special printer setup. Images are processed faster in 200 x 200 dpi mode,
while 200 x 400 dpi mode provides better image definition. A user can
select the appropriate mode to match the application needs. Currently,
comparable electrostatic printers do not offer this dual resolution
printing mode.
- Seamless Integration of DCS Printers with System Software. DCS printers
permit real time interaction between the printers and the image
processing server to manage job attributes (e.g. type of media on which
to print, type of ink, rush vs. normal priority, number of inking passes
per color, etc.), and keep the operator informed of the job and print
engine status. Traditionally, printers and image processing software have
been developed independently with limited communication capabilities. As
a result, operators have been forced to manually track job attributes,
requiring additional time and causing workflow inefficiencies.
DCS System Software. The Company's PosterShop DCS system software, based
on client/server architecture, is designed to facilitate the workflow in a
graphics production shop. A typical environment consists of multiple PosterShop
clients connected to a single Digital Equipment Corporation's Alpha workstation
("Alpha workstation") or PC server. The PosterShop software allows clients to
prepare printing jobs and send them to the server. Job preparation tools include
previewing, sizing and tiling the images; color calibrating the printer;
selecting the screening dot pattern and specifying the media type and ink. The
server manages the job queues, performs the raster image processing ("RIP")
function and communicates with the printer(s) and clients. Clients can also
remotely access job and printer status from the server. In addition, the DCS
system software can concurrently process and print, thereby maximizing
throughput. See "Risk Factors -- Limited History of Product Manufacturing and
Use; Product Defects."
The list price for the PosterShop DCS system software, including an Alpha
workstation, is $39,995 and the list price for PosterShop DCS system software
without the workstation is $24,995.
30
<PAGE> 33
LOGO
Inkjet Image Processing Software. In addition to the PosterShop software
sold with the DCS printing systems, the Company offers specialized versions of
PosterShop to inkjet printer manufacturers and distributors under the Onyx brand
name. The Company also markets a hardware image processing solution for inkjet
customers called Qube, which is an integrated hardware/software product that
plugs directly into an existing Macintosh network. PosterShop software products
for inkjet printers have list prices ranging from $495 for the Lite package to
$6,995 for the Encad 50-inch server product. Qube sells for a list price of
$5,995. See "Risk Factors -- Limited History of Product Manufacturing and Use;
Product Defects."
Consumables
Color printing requires the consumption of significant quantities of inks
and papers. Raster Graphics' product offerings include a range of consumables,
such as specialized process color inks, spot color inks and varnish, vinyls and
various indoor and outdoor papers. The Company performs qualification testing on
these consumables before releasing them for customer shipment. See "Risk
Factors -- Dependence on Sole Source Subcontractors and Suppliers."
The specialized inks, concentrates and varnish are created specifically for
the DCS products to optimize image quality and printer performance. The Company
currently offers over 50 different ink, concentrate and varnish products. Ink
and concentrate consumption varies depending upon both the content and number of
rolls printed. A graphic with a primarily white background will require much
less ink than a graphic with high image content. A full four color set of inks
and concentrates lists for approximately $2,000 and can print eight to ten rolls
of paper. See "Risk Factors -- Dependence on Sole Source Subcontractors and
Suppliers."
Raster Graphics markets seven different types of specially coated papers
for use in the DCS products. The list prices for papers range from $190 to $645
per roll. The Company also offers various types of vinyl products to complete
its product offering of consumables. The list prices for vinyls range from $435
to $800 per roll.
31
<PAGE> 34
Services
The Company devotes significant resources in striving for excellence in
customer service. Service response and repair data is recorded and tracked via
an on-line customer dispatch system. Product performance and customer call
history is reviewed and updated and reports are provided to Raster Graphics
management. Complete customer history files are maintained at Raster Graphics
corporate offices in San Jose, California. Raster Graphics has also developed a
state-of-the-art maintenance manual for its DCS printers that resides on a
laptop computer and is interactive with the printer. Using the laptop computer,
the operator can diagnose and test the various components of the printer. See
"Risk Factors -- Limited History of Product Manufacturing and Use; Product
Defects."
In the United States, Raster Graphics provides installation and 90-day
on-site warranty support. After the initial warranty period, the Company offers
service maintenance contracts to its installed base of customers. The Company's
service organization consists of technical support personnel, technical
trainers, field service technicians, a customer call dispatch center and
inventory and logistics support. The field service technicians are located in 12
key locations across the United States. Internationally, Raster Graphics
provides 90-day (12 months for print head) return-to-factory parts warranty.
Maintenance service is provided by authorized dealers and distributors. See
"Risk Factors -- Reliance on Third-Party Distribution."
Raster Graphics provides classroom and on-site training for all products
sold domestically. All of the Company's training programs are listed in the
Company product/price book. The Company also trains its international dealers
and distributors at the Raster Graphics training center in San Jose, California.
MARKETS
The Company's current DCS printing systems are targeted for the high
performance electrostatic segment of the on-demand LFDP market. According to IT
Strategies, the installed base for the entire LFDP market in the United States,
consisting of both inkjet and electrostatic systems for all performance segments
of this market, is projected to be as follows in 1998:
<TABLE>
<CAPTION>
ESTIMATED NUMBER
MARKET SEGMENT OF SITES
- ---------------------------- ----------------
<S> <C>
Quick Printers 3,000 - 7,000
Sign Printers 840 - 1,680
Color Photo Labs 324 - 1,260
Exhibit Builders 2,000 - 2,000
Screen Printers 720 - 2,500
Reprographic Houses 1,105 - 1,445
In-House Print Shops 2,000 - 3,750
Graphic Arts Service Bureaus 583 - 1,590
Digital Color Printers 1,200 - 1,200
----------------
Total 11,772 - 22,425
</TABLE>
- ---------------
Source -- IT Strategies
IT Strategies also estimates that the annual sales of professional large
format color printers to these worldwide customers were 3,960 units or $126
million in 1995 and are projected to grow to 8,900 or $286 million in 1998. In
addition, sales of consumables (inks, varnish, papers, vinyls and other
substrates) to these customers were $193 million in 1995 and are projected to
grow to $1.6 billion in 1998. This growth trend is depicted by the following
chart. See "Risk Factors -- Uncertainty Regarding Development of LFDP Market;
Uncertainty Regarding Market Acceptance of New Products."
32
<PAGE> 35
LFDP MARKET
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PRINTERS CONSUMABLES
<S> <C> <C>
1995 126 196
1998 200 1704
</TABLE>
The major markets and applications for LFDP are as follows:
<TABLE>
<S> <C>
- - POP Displays - Museums/Galleries
- - Vinyl and Cloth Banners - Presentations/Seminars
- - Corporate Identity Graphics - Backlit and Reflective Posters
- - Mall Graphics - Courtroom Graphics
- - Exhibit/Trade Show Graphics - Seasonal/Travel Promotions
- - Billboards - Advertising/Merchandising Tie-ins
- - Sports/Concert/Event Graphics - Customer Commercial Wallpaper
</TABLE>
CUSTOMERS, SALES AND MARKETING
Raster Graphics sells complete DCS printing systems, DCS printers and
Poster Shop image processing software to customers both internationally and
domestically. To address these customers, the Company has adopted a dual
distribution strategy that encompasses both a direct sales organization and
third-party distributors, including OEMs and VARs. See "Risk Factors -- Reliance
on Third-Party Distribution."
In the United States, Raster Graphics employs a direct sales force and a
network of independent sales representatives as its primary sales method, each
accounting for approximately one-half of the Company's sales. These individuals
sell DCS printing systems to end user customers such as commercial photo labs,
reprographics service bureaus, exhibit builders, screen printers, digital
printing centers, pre-press trade shops and in-plant printers. Current customers
include a variety of leading companies, such as May Department Stores, Skyline
Displays, Irvine Photo and Eller Media. This sales force also assists OEMs and
VARs, such as 3M and Cactus, in reselling printers when the image processing
software system is supplied by such OEMs or VARs. 3M markets the Company's
printers under the 3M ScotchPrint system brand name and differentiates its
offerings by providing specialized, premium-priced long-durability consumables.
Internationally, the Company sells and supports its products through
non-exclusive agreements with a number of distributors. In 1995, the Company
formed a wholly-owned subsidiary in Germany to support the existing distributors
in Germany and Switzerland. As of July 1996, this subsidiary will also directly
sell systems and consumables to the Company's German customers. The Company
intends to form additional subsidiaries in major European markets to expand its
direct sales efforts. See "Risk Factors -- International Revenues" and
"-- Reliance on Third-Party Distribution."
Raster Graphics also sells stand-alone DCS printer products to
international OEMs and systems integrators/VARs. These customers integrate these
printers with an image processing system. Some key customers in this category
are Oce and Sign-Tronic. Oce private labels the DCS printers as Oce model 5500
and Oce model 5510. In 1995, Oce contributed 10.9% of the Company's revenues.
The OEM
33
<PAGE> 36
agreement with Oce was signed in October 1990 and expires in October 1997. See
"Risk Factors -- Reliance on Third-Party Distribution."
After the United States and Europe, Japan is the third largest market for
the Company's products. The Company sells its products in Japan through four key
distributors: Sumisho, Sumitomo-3M, Marubeni and Kimoto. Raster Graphics'
Japanese sales efforts are managed by a United States-based Japanese national
who is a consultant to the Company.
In addition, the Company also distributes specialized versions of the
PosterShop image processing software to inkjet printer manufacturers and
distributors under the Onyx brand name. Some of the key distributors of these
versions of PosterShop include CIS Graphik & Bildverarbeitung GmbH, The David
Group and Access Graphics, the primary distributor of Hewlett-Packard inkjet
printers. In March 1996, Onyx signed an agreement with Encad to supply the Qube
image processing system for printing graphics from Macintosh computers onto
Encad's new 50-inch printer. The Company employs a dedicated sales force located
in Salt Lake City, Utah to work with these inkjet customers.
The Company promotes its DCS printing systems, DCS printers and PosterShop
products through public relations, direct mail, advertising, trade shows and
on-going customer communication programs. The Company utilizes telemarketing
programs to market consumables to its installed customer base. Additionally, the
PosterShop product is also promoted through the inkjet printer dealer channel by
offering free, time-limited copies of PosterShop image processing software with
the printer sales.
PRODUCT TECHNOLOGY, RESEARCH AND DEVELOPMENT
DCS Printer Technology
Raster Graphics' DCS printers utilize electrostatic technology to print on
roll stock. A paper transport system advances the paper through the printer and
the Silicon Imaging Bar printhead deposits small dots of electrical charge on
the paper. The inking system then applies the inks to develop the image. This
process is repeated for each color. Throughout the entire process, the printer
control system is responsible for all operations of the printer. See "Risk
Factors -- Risks Associated with Intellectual Property," "-- Limited History of
Product Manufacturing and Use; Product Defects" and "-- Dependence on Sole
Source Subcontractors and Suppliers."
34
<PAGE> 37
LOGO
Paper Transport System. DCS digital printers use a roll-to-roll paper
transport system. A roll up to 400 feet in length is loaded on the supply hub. A
paper transport system moves the paper across the Silicon Imaging Bar print
head, and then across a specific color inking station. A take-up reel winds the
paper up as it moves through the printer. An advanced control system, which
utilizes registration marks, cameras and an encoder provides precise
registration from one color pass to the other. Print speed can range from 10
feet per minute to 40 feet per minute (20 feet per minute maximum for 200 x 400
dpi).
Silicon Imaging Bar Print Head. Raster Graphics' patented Silicon Imaging
Bar print head consists of a full 54-inch wide circuit board assembly with
10,656 copper trace styluses spaced every 1/200th inch. Each stylus is
controlled by an individual (non-multiplexed) high-voltage driver circuit, or
"switch." In the writing stage of electrostatic printing, the styluses maintain
contact with the paper as the paper moves across the Silicon Imaging Bar. The
styluses are switched on in every location where an image is desired, resulting
in the deposition of small dots of negative electrical charge, thus creating a
latent image on the paper.
Inking System. The inking system consists of the following components:
four inking stations, one for each process color (CMYK) and one optional spot
color mounted on a sliding drawer, a 2.5 gallon container for each color of
digital ink, four 32-ounce color concentrate bottles and a color control unit.
- Digital Inks. The ink consists of solid color pigment particles
suspended in a clear petroleum base. Because the ink is made of solid
pigments, as opposed to dyes, there is greater ultraviolet and moisture
resistance over water-based inks, making these inks suitable for outdoor
applications.
- Concentrates. Concentrate bottles are used to provide color pigment to
the inking system to replenish the depleted color particles and maintain
color intensity.
35
<PAGE> 38
- Color Control Unit. The color control unit is responsible for
automatically maintaining precise color density for each of the four
process colors. The ink supply from each of the color bottles is pumped
to the color control unit which optically senses the color value and, if
required, adds color concentrate to the ink, to maintain the required
color density. Spot color density is controlled manually.
LOGO
During the inking process, the paper moves across a specific inking station
and the image is developed as follows. At the start of each color printing pass,
the inking station for the desired color is positioned in place. The ink flows
through a slot called the fountain, contacts the negatively charged latent image
on the paper, and the positively charged pigment particles in the ink instantly
develop the image. As the paper continues to move across the inking station, a
spinning roller removes the excess ink from the paper and a fan assembly dries
the image. The roller is kept dry by a blade which scrapes off the excess ink
from the roller. A drain at the bottom of the inking station returns the excess
ink to the ink container. At the end of the process, the paper is rewound, the
next inking station is positioned in place, and the process is repeated three
more times, once for each of the remaining CMYK process colors with an
additional pass if a spot color or varnish is desired.
Printer Control System. Based on Intel's i960 processor with 16MB of
memory and 1GB disk (2GB optional), this system is responsible for all printer
control and diagnostic functions, as well as providing bi-directional
communications to the image processing system. The DCS printer's on-board disk
acts as temporary storage for print files. It buffers the next job while one job
is being printed. It is also used to store prints for subsequently making
additional copies. The bi-directional link to the image processing system is
used to send print files and control commands to the printer from the image
processing system. Control commands can include such attributes as number of
copies desired, resolution, print speed, number of color passes per color and
sequence of color passes. Over this link, the printer also provides status
information such as the name of the job being printed, type of media loaded,
amount of media used, amount of media left, type of ink and amount of ink. This
closed-loop operation allows the image processing system to intelligently manage
the workflow.
PosterShop Image Processing Software
PosterShop software, developed by the Company's wholly-owned subsidiary
Onyx, provides a complete set of tools for producing large-format color graphics
in a wide variety of printers. PosterShop, which is Onyx's second generation
image processing software, includes the following tools:
- Preview and Size. Preview and sizing module displays the image on the
screen, rendered with the same software that is used to create the final
print. This WYSIWYG display also provides an
36
<PAGE> 39
easy drag-and-drop cropping box to select the size and area to be
printed. The image can be enlarged to any size up to 50 feet by 50 feet.
- Tiling. Tiling enables PosterShop to automatically create panels or
tiles when an image will not fit on a single page. These tiles are
displayed on the screen with easy drag-and-drop lines so the user can
easily edit them. The user can also specify an overlap so that the image
is duplicated along the adjoining edges.
- Color Correction. Using several sliders, the color correction tool is
used to control the image appearance. These sliders are highlights,
midtones, shadows, contrast, brightness and saturation. These adjustments
are displayed both on screen and on the printout. This color tool also
has more advanced features for sophisticated users, such as set white,
set black, histograms, GCR, UCR, CMYK curves, sample point and others. Up
to four views of the image can be displayed at the same time.
- Color Calibration. Color calibration is used to provide
device-independent color when changing media, ink or dot pattern.
Calibration reads a color swatch using a densitometer to create color
tables associated with each media resolution and dot pattern.
- PostScript RIP and Font Manager. PosterShop features a full PostScript
level 2 RIP. This RIP converts the PostScript graphics files to binary
data formats specific to each printer. The RIP function utilizes a number
of specialized dot patterns including FDRP, a patented Onyx dot pattern.
A font manager is included to add special fonts to the RIP.
Research and Development
Raster Graphics plans to continue to devote substantial resources to
research and development for the continuous advancement of its proprietary
technologies to address LFDP market requirements. The Company believes the
continued enhancement of the DCS printing systems, including PosterShop image
processing software, to be vital to its future success. The Company intends to
expand its product lines, including printers, to achieve lower price points and
higher image quality. Raster Graphics will continue to design its products to be
compatible with computer systems and data standards commonly used in the
graphics industry. See "Risk Factors -- Uncertainty Regarding Development of
LFDP Market; Uncertainty Regarding Market Acceptance of New Products" and
"-- Risks Associated with Intellectual Property."
The Company's engineering team consists of over 20 engineering
professionals. The Company's research and development efforts include
significant activities in precision mechanics, paper conveyance techniques, real
time computer software development, circuit design, high speed data transfer and
software for color management, image processing and rasterization. Recent
software activities have focused on revamping the image processing software into
a family of products, including client-server versions, which run efficiently on
computers using Windows 95 and Windows NT operating systems.
Research and development expenses consist primarily of payroll and related
costs, occupancy, outside consultants, and material and consumable costs
associated with fabricating and testing of engineering prototypes. Raster
Graphics spent $2.2 million, $2.7 million and $3.4 million on research and
development for the fiscal years 1993, 1994 and 1995, respectively. Raster
Graphics expects future increases in research and development expenses as it
accelerates spending on future products.
INTELLECTUAL PROPERTY
As of May 31, 1996, the Company holds 10 issued United States patents
covering design features and fabrication methods used in Raster Graphics'
printers and color rendering techniques used by its image processing software.
The expiration dates of these patents range from 2006 to 2010. Topics
37
<PAGE> 40
covered in these patents include methods for fabricating electrostatic writing
heads, paper positioning and stabilizing systems, and devices for applying
digital ink on paper. The Company expects to continue to seek patents on
innovations related to its products under development. There can be no assurance
that the Company will be successful in obtaining necessary patents, that the
Company's patent applications will result in the issuance of patents, that the
Company will develop additional proprietary technology that is patentable, that
any issued patents will provide the Company with any competitive advantages or
will withstand challenges by third parties or that patents of others will not
have an adverse effect on the Company. In addition to patents, the Company
believes its competitive position is dependent on its unpatented industrial
know-how, its copyrighted software, and the timing of the introduction of
product innovations in advance of potential future competitors.
There can be no assurance that others will not independently develop
similar products, duplicate the Company's products or design products that
circumvent any patents used by the Company. No assurance can be given that the
Company's processes or products will not infringe patents or proprietary rights
of others or that any licenses required under any such patents or proprietary
rights would be made available on terms acceptable to the Company, if at all. If
the Company does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or it could find
that the development, manufacture or sale of products requiring such licenses
could be enjoined. In addition, the Company could incur substantial costs in
defending itself in suits brought against the Company on such patents or in
bringing suits to protect the Company's patents against infringement. If the
outcome of any such litigation is adverse to the Company, the Company's business
could be adversely affected. See "Risk Factors -- Risks Associated with
Intellectual Property."
MANUFACTURING
Raster Graphics' in-house manufacturing is performed in San Jose,
California. This operation consists primarily of writing head manufacturing,
electro-mechanical assembly and printer and system testing. The Company's
patented writing head manufacturing process is extremely complex and is subject
to stringent in-house controls. All other electronic components and assemblies
are subcontracted to qualified suppliers. All products are subjected to rigorous
testing prior to shipment to customers. The PosterShop image processing software
manufacturing is performed by Onyx in Salt Lake City, Utah. Raster Graphics also
contracts with a warehouse and distribution center in Rotterdam, Netherlands to
store and distribute consumables for the European markets. Consumables for the
United States and the rest of the world are supplied from the Company's San Jose
headquarters. See "Risk Factors -- Limited History of Product Manufacturing and
Use; Product Defects."
Raster Graphics' inventory delivery and control systems include MRP,
Just-In-Time and KANBAN systems. These and other systems enable the Company to
meet its manufacturing requirements while minimizing assets tied up in
inventories. The Company has embarked upon a corporate wide Total Quality
Management program which allows the Company to focus on continuous critical
process improvement. These programs include early supplier involvement on new
products, product qualification testing on new products, a qualified supplier
base, in-line statistical defect tracking systems and an outgoing and incoming
inspection capability.
Raster Graphics obtains safety certification for its products with the
assistance of Underwriters Laboratories ("UL") and TUV Product Services. This
allows Raster Graphics to affix UL and CE mark labels to its equipment. A self
certification process is employed to confirm that Raster Graphics printers
conform to the required standards for electromagnetic emissions. Testing is
typically carried out under the supervision of CKC Laboratories, who document
the results. Raster Graphics then affixes the appropriate FCC, CSA and CE mark
labels to the products. The Company also maintains a complete CE mark technical
file for each product as required by the European Economic Community.
38
<PAGE> 41
SUPPLIERS
The Company maintains strong business relationships with its key suppliers,
many of whom have been with the Company since its inception. With the exception
of three key components of the DCS printers (two rubber drive rollers and
electrostatic writing head circuit boards), as well as paper transport belts for
its discontinued CAD products, all components have multiple sources. To date,
the Company has experienced no material problems or delays in dealing with its
sole source suppliers. However, in case of loss of any of the suppliers of these
parts, the Company's ability to deliver its products on a timely basis would be
adversely affected and the Company's competitive position could be otherwise
impaired. See "Risk Factors -- Dependence on Sole Source Subcontractors and
Suppliers."
The inks, concentrates and varnish currently used in DCS products are
specially developed by two suppliers, neither of which has generally marketed
these products directly to the end user. However, each of these suppliers has
agreements with one OEM each to supply the DCS inks and concentrates. There is
no assurance that these two suppliers will continue to sell to the Company or
will not distribute these consumables through additional channels. Also, there
is no assurance that a new supplier will not enter the market and provide
consumables that compete with the Company's offerings. Papers used in DCS
products are developed by two additional suppliers. A number of other companies
also acquire papers from these two suppliers and compete with the Company in the
sale of paper to end users. See "Risk Factors -- Dependence on Sole Source
Subcontractors and Suppliers."
COMPETITION
The market for LFDP equipment in general is extremely competitive. The
Company believes that the key competitive factors in the LFDP market are speed,
print quality, price and the ability to provide complete system solutions,
including service. Many of the Company's competitors, including ColorgrafX and
Lasermaster, are well established and have substantially greater resources than
Raster Graphics. See "Risk Factors -- Competition" and "-- Susceptibility of
Certain Customers to Economic and Financing Conditions."
In the printer market, ColorgrafX offers a series of four color
electrostatic printers that are priced slightly below the Company's printers.
The Company's DCS printers offer greater production speed, have the ability to
print with an additional fifth color and can be set to produce either 200 x 200
dpi or 200 x 400 dpi images. Furthermore, Raster Graphics believes that it
compares favorably against ColorgrafX by offering complete solutions and
services. A second competitor, Lasermaster, markets a solid inkjet printing
system that is less expensive than the Company's DCS printing system and allows
the user to print graphics directly onto both paper and vinyl. However,
Lasermaster's products are significantly slower than the Company's DCS printers
and have a higher per square foot cost of solid ink. In addition, Encad recently
introduced a 50-inch version of the NovaJet Pro inkjet printer for the LFDP
market at a significantly lower price which offers high image quality but is
substantially slower than the Company's DCS printers.
In the image processing software market, there are a large number of
companies that compete with the Company's PosterShop product, such as Cactus,
InfoGrafix and VisualEdge. However, with the exception of Lasermaster, Raster
Graphics is the only other manufacturer of both the printer and the software.
This allows the Company to offer a highly integrated printer and software
solution resulting in increased productivity.
In the consumables market, Oce and Cactus supply consumables, including
inks and papers, to their customers using the Company's printers. In addition,
3M markets a set of special premium-priced, long-durability inks. A number of
other companies compete with the Company for the paper business. See "Risk
Factors -- Competition," "Dependence on Sole Source Subcontractors and
Suppliers" and "Business -- Suppliers."
39
<PAGE> 42
EMPLOYEES
As of May 31, 1996, Raster Graphics had 146 full-time employees in the
following areas: 49 in manufacturing; 28 in customer support; 26 in research and
development; 26 in sales and marketing; and 17 in general and administrative
functions. The Company's employees are not represented by any collective
bargaining organization, and the Company has never experienced a work stoppage.
The Company believes that its relations with employees are good. See "Risk
Factors -- Key Personnel" and "-- Difficulties in Managing Growth."
FACILITIES
Raster Graphics has facilities in three locations. Its main headquarters of
62,000 square feet is located in San Jose, California; 11,000 square feet in
Salt Lake City, Utah; 3,000 square feet in Union City, California; and 4,000
square feet in Germany. The lease on the Company's main facility expires in
December 31, 2001. The Company anticipates that it will need additional space as
business expands and believes that it will be able to obtain suitable space as
needed. See "Risk Factors -- Difficulties in Managing Growth."
LITIGATION
Raster Graphics is not currently involved in any material litigation.
40
<PAGE> 43
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of the Company and their ages as of May 31, 1996
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- -----------------------------------------------------
<S> <C> <C>
Rakesh Kumar.................. 51 President, Chief Executive Officer
and Chairman of the Board
Dennis R. Mahoney............. 42 Vice President and Chief Financial Officer
James Louis Harre............. 38 Vice President, Sales and Marketing
Robert Wallace Johnson 57 Vice President, Engineering
Ph.D. ......................
Sebastian Joseph Nardecchia... 54 Vice President, Operations
Michael Willingham............ 48 Vice President, Customer Service
Chuck Edwards................. 37 Director and President of Onyx
Frank J. Caufield............. 56 Director
Promod Haque(1)............... 48 Director
Lucio L. Lanza(2)............. 51 Director
W. Jeffers Pickard(1)(2)...... 53 Director
Delbert W. Yocam(2)........... 52 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mr. Kumar joined the Company in 1991 as President and Chief Executive
Officer. From 1988 to 1991, he was Group Marketing Manager, Engineering Systems,
for Digital Equipment Corporation, where he was responsible for worldwide
marketing to technical customers. From 1985 to 1987, he was Vice President of
Sales and Marketing for Precision Image Corporation, a manufacturer of
electrostatic printers. Prior to 1985, Mr. Kumar held a number of management
positions with Phoenix Data Systems, an electronic design automation software
company, Applicon, Inc., a CAD systems company, and Digital Equipment
Corporation.
Mr. Mahoney joined the Company in 1996 as Vice President and Chief
Financial Officer. From 1995 to 1996, he was Vice President and Chief Financial
Officer for Electronics For Imaging, Inc., a manufacturer of hardware and
software products for on-demand, small format color printing. From 1993 to 1995,
he was Vice President, Chief Financial Officer and Corporate Secretary for ADAC
Laboratories, a nuclear medical diagnostic imaging and healthcare information
systems company. From 1991 to 1993, he was Vice President, Finance and
Administration and Chief Financial Officer for Pharmetix Corporation, a drug
delivery technology company. Prior to 1991, Mr. Mahoney was Vice President,
Internal Operations and Control for Triton Container International Ltd. and held
several senior financial management positions at Syntex Corporation. Mr. Mahoney
is a certified public accountant.
Mr. Harre joined the Company in 1994 as Vice President of Sales and
Marketing. From 1990 to 1994, he was Executive Vice President of Onyx,
responsible for the sales and marketing of Onyx software products worldwide.
Prior to 1990, Mr. Harre held various sales and marketing positions in the
computer industry.
Dr. Johnson joined the Company in November 1994 as Vice President of
Engineering. From 1984 to 1994, he was Vice President of Engineering at
Versatec, Inc., a subsidiary of Xerox Corporation, where he was responsible for
printer and systems development. Prior to 1984, Dr. Johnson held various
research and management positions at Control Data Corporation. Dr. Johnson is
currently on medical leave for an undetermined period of time. His return date
is uncertain.
Mr. Willingham joined the Company in 1993 as Vice President of Customer
Service. From 1991 to 1993, he was a Vice President for Phoenix Service, a
provider of supplies and service for electrostatic printers. From 1986 to 1991,
he held positions as Vice President, Sales and Service and Director of
41
<PAGE> 44
Field Engineering for Precision Image, a manufacturer of electrostatic printers.
Prior to 1986, Mr. Willingham held various field service positions for
semiconductor and computer manufacturers.
Mr. Nardecchia joined the Company in 1993 as Vice President of Operations.
From 1990 to 1993, he was Vice President of Product Operations for Barneyscan
Corporation, a manufacturer of color scanners. Prior to 1990, he held various
management positions in manufacturing, operations and product development at
Xerox.
Mr. Caufield has served as a director of the Company since November 1988.
Since 1978, Mr. Caufield has been a general partner of Kleiner, Perkins,
Caufield & Byers. Prior to the formation of Kleiner, Perkins, Caufield & Byers,
he was a General Partner and Manager of Oak Grove Ventures, a venture capital
firm. Mr. Caufield also serves as director of Quickturn Design Systems and
America Online.
Mr. Edwards has served as a director of the Company since August 1995. In
1989, he founded Onyx where he continues to serve as President. From 1987 to
1989, he served as Product Marketing Manager for Logic Automation, an electronic
design automation software company. From 1985 to 1987, he was a partner of ALS,
Inc., where he developed software design tools for GE Semiconductor. Prior to
1985, Mr. Edwards was an engineer at Intel Corporation.
Mr. Haque has served as a director of the Company since May 1993. Since
1990, he has served as Vice President of Norwest Venture Capital Management
Inc., a venture capital firm. He also is a general partner of Itasca Partners,
which is a general partner of Norwest Equity Partners IV, a Minnesota limited
partnership. He also serves as director of Forte Software, Inc.; Optical
Sensors, Inc.; Prism Solutions, Inc.; and Transaction Systems Architect, Inc.
Mr. Lanza has served as a director of the Company since May 1993. Since
1990, Mr. Lanza has been a partner of U.S. Venture Partners, a venture capital
firm, and an independent consultant to semiconductor and software companies. In
1986, Mr. Lanza founded EDA Systems, and served as Chief Executive Officer until
1989 when EDA was acquired by Digital Equipment Corporation. Prior to 1986, he
served in a number of marketing, engineering and general management positions in
the electronics industry. Mr. Lanza also serves as director of Landmark Graphics
Corporation.
Mr. Pickard has served as a director of the Company since November 1988.
Since 1980, Mr. Pickard has been general partner of Merrill, Pickard, Anderson &
Eyre Management Co., a venture capital firm.
Mr. Yocam has served as a director of the Company since April 1995. Since
1994, he has been an independent consultant. From 1992 to 1994, he served as
President, Chief Operating Officer and director of Tektronix, Inc. Prior to
1992, he was an independent consultant and from 1979 to 1989 served in a variety
of executive management positions at Apple Computer, Inc. Mr. Yocam is also a
director of Adobe Systems, Inc.; Castelle, Inc.; Integrated Measurement Systems,
Inc.; Oracle Corporation; Sapiens International Corporation; and several
privately held technology companies.
DIRECTOR COMPENSATION AND OTHER INFORMATION
Directors are reimbursed for certain reasonable expenses incurred in
attending Board meetings. In addition, Mr. Yocam receives $1,000 for each Board
of Directors meeting attended and receives an annual consulting fee of $30,000.
In October 1993, Mr. Lanza received an option to purchase 2,500 shares of Common
Stock at an exercise price of $0.50 per share. In April 1995, Mr. Yocam was
granted an option to purchase 40,000 shares of Common Stock at an exercise price
$0.50 of per share. In May 1996, Mr. Edwards, President of Onyx, was granted an
option to purchase 20,000 shares of Common Stock at an exercise price of $7.00
per share. Nonemployee directors of the Company are eligible to participate in
the Company's 1996 Directors' Stock Option Plan. See "-- Stock Option and
Incentive Plans -- 1996 Directors' Stock Option Plan."
There are no family relationships among the directors or officers of the
Company.
42
<PAGE> 45
TERM OF OFFICE OF DIRECTORS AND OFFICERS
The Company's Bylaws currently provide for a Board of Directors consisting
of seven members. Upon qualification of the Company as a "listed corporation,"
as defined in Section 301.5(d) of the California Corporations Code (hereinafter
referred to as a "Listed Corporation"), the Board of Directors will be divided
into three classes with the directors of each class serving staggered terms. The
Class I directors are Messrs. Caufield and Pickard, whose current terms will end
in fiscal 1997, the Class II directors are Messrs. Haque and Lanza, whose
current terms will end in fiscal 1998 and the Class III directors are Messrs.
Kumar, Edwards and Yocam, whose current terms end in fiscal 1999. Directors hold
office until their terms expire and their successors have been elected and
qualified. The Board of Directors elects the Company's officers, and such
officers serve at the discretion of the Board of Directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
There are currently two standing committees of the Board of Directors, the
Audit Committee and the Compensation Committee. The Audit Committee reviews the
Company's annual audit and meets with the Company's independent auditors to
review the Company's internal controls and financial management practices. The
Board's Audit Committee currently consists of Promod Haque and W. Jeffers
Pickard. The Compensation Committee recommends compensation for certain of the
Company's personnel to the Board and, together with the Board of Directors,
administers the Company's stock and option plans. The Compensation Committee
currently consists of Lucio L. Lanza, W. Jeffers Pickard and Del Yocam.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to the Company's Chief Executive Officer and each of the other
four most highly compensated officers who were serving as officers on December
31, 1995 (the "Named Officers") whose aggregate annual compensation exceeded
$100,000 for the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
-------------------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS AND COMMISSION UNDERLYING OPTIONS
- -------------------------------------------- -------- --------------------- ------------------
<S> <C> <C> <C>
Rakesh Kumar................................ $161,539 -- 60,000
President and Chief Executive Officer
James Buckley............................... 107,923 -- 20,000
Vice President and Chief Financial
Officer(1)
James L. Harre.............................. 100,000 $45,293 20,000
Vice President, Sales and Marketing
Robert W. Johnson........................... 130,000 -- 20,000
Vice President, Engineering
Sebastian J. Nardecchia..................... 111,539 -- 30,000
Vice President, Operations
</TABLE>
- ---------------
(1) Mr. Buckley resigned from the Company in January 1996. Dennis R. Mahoney,
the Company's current Vice President and Chief Financial Officer, began
employment with the Company in May 1996.
43
<PAGE> 46
The following table provides certain summary information concerning options
granted during the fiscal year ended December 31, 1995 to the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL
-------------------------------------------------------- REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK
SECURITIES GRANTED IN PRICE APPRECIATION
UNDERLYING FISCAL YEAR EXERCISE OR FOR OPTION TERM(3)
OPTIONS ENDED DECEMBER BASE PRICE EXPIRATION ------------------
NAME GRANTED(2) 29, 1995 ($ PER SHARE) DATE 5% 10%
- -------------------------- ---------- -------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Rakesh Kumar.............. 60,000 11.9% $ 0.50 3/14/2005 $18,867 $47,811
James R. Buckley.......... 20,000 4.0% 0.50 3/14/2005 6,289 15,937
James Harre............... 20,000 4.0% 0.50 3/14/2005 6,289 15.937
Robert W. Johnson......... 20,000 4.0% 0.50 3/14/2005 6,289 15,937
Sebastian Nardecchia...... 30,000 6.0% 0.50 3/14/2005 9,434 23,906
</TABLE>
- ---------------
(1) Consists of stock options granted pursuant to the Company's 1988 Stock
Option Plan. The Company's options generally become exercisable at a rate of
12.5% after six months following the date of grant and approximately 2% per
month thereafter, as long as the optionee remains an employee with,
consultant to or director of the Company. The maximum term of each option
granted is ten years from the date of grant. The exercise price is equal to
the fair market value of the stock on the grant date as determined by the
Board of Directors. See "-- Stock Option and Incentive Plans."
(2) On May 16, 1996, Messrs. Harre, Johnson, Kumar and Nardecchia were granted
options to purchase 20,000, 10,000, 100,000 and 10,000 shares of Common
Stock at an exercise price of $7.00 per share under the Company's 1988 Stock
Option Plan.
(3) The 5% and 10% assumed compounded annual rates of stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock price appreciation over the ten-year
option term will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
persons named in the Summary Compensation Table.
The following table provides certain summary information concerning the
shares of Common Stock represented by outstanding stock options held by each of
the Named Officers as of December 31, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rakesh Kumar.................................. 172,750 77,250 $ 172,750 $77,250
James R. Buckley.............................. 9,450 66,550 9,450 66,550
James Harre................................... 28,750 51,250 28,750 51,250
Robert W. Johnson............................. 20,000 60,000 20,000 60,000
Sebastian Nardecchia.......................... 23,750 36,250 23,750 36,250
</TABLE>
STOCK OPTION AND INCENTIVE PLANS
1996 Stock Plan
The Company's 1996 Stock Plan (the "1996 Stock Plan") was adopted by the
Board of Directors in June 1996 and will be submitted for approval by the
Company's stockholders in July 1996. An aggregate of 800,000 shares of the
Company's Common Stock are reserved for issuance under the 1996 Stock
44
<PAGE> 47
Plan. Upon adoption of the 1996 Stock Plan, the Company's Board of Directors
determined to make no further grants under the 1988 Option Plan.
The 1996 Stock Plan provides for the granting to employees (including
officers and employee directors) of "incentive stock options" within the meaning
of Section 422 of the Code, for the granting to employees, consultants and
nonemployee directors of nonstatutory stock options and for the granting to
employees of stock purchase rights. The 1996 Stock Plan may be administered by
the Board of Directors or a committee of the Board (the "1996 Administrator").
The 1996 Administrator determines the terms of options and stock purchase rights
granted under the 1996 Stock Plan, including the number of shares subject to the
option or right, exercise price, term and exercisability. The maximum number of
shares which may be subject to options or stock purchase rights granted to any
one employee under the 1996 Stock Plan for any fiscal year of the Company shall
be 500,000. The exercise price of all options granted under the 1996 Stock Plan
must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant. The exercise price of any option granted to an
optionee who owns stock representing more than 10% of the voting power of the
Company's outstanding capital stock must equal at least 110% of the fair market
value of the Common Stock on the date of grant. The minimum purchase price of
shares acquired by exercising stock purchase rights is 85% of the fair market
value of the Common Stock on the date of grant. Payment of the exercise price
may be made in cash, promissory notes, shares or other consideration determined
by the 1996 Administrator. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of stock of the
Company, the maximum term of an incentive stock option must not exceed five
years. The term of all other options may not exceed ten years.
If the Company consolidates or merges with or into another corporation,
then each option will be either assumed or an equivalent option substituted by
the successor corporation or, if not assumed or substituted, the unvested
portion of each option will be accelerated. If not terminated earlier, the 1996
Stock Plan will terminate in 2006. The 1996 Administrator has the authority to
amend or terminate the 1996 Stock Plan as long as such action does not adversely
affect any outstanding option.
1996 Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in June 1996 and will be submitted for
approval by the Company's stockholders in July 1996. An aggregate of 400,000
shares of the Company's Common Stock are reserved for issuance under the
Purchase Plan.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 12
months' duration, with new offering periods other than the first offering period
commencing on or about January 1 and July 1 of each year. Each offering period
will consist of two consecutive purchase periods of six months duration with the
last day of such period being designated a purchase date. The initial offering
period is expected to commence on the date of this offering and continue through
June 30, 1997, with the first purchase date occurring on December 31, 1997 and
subsequent purchase dates to occur every six months thereafter. The Purchase
Plan will be administered by the Board of Directors or by a committee appointed
by the Board. Employees (including officers and employee directors) of the
Company, or of any majority-owned subsidiary designated by the Board, are
eligible to participate in the Purchase Plan if they are employed by the Company
or any such subsidiary. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 10% of an
employee's compensation, at a price equal to the lower of 85% of the fair market
value of the Company's Common Stock at the beginning of the offering period or
on the purchase date. If the fair market value of the Common Stock on a purchase
date is less than the fair market value at the beginning of the offering period.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with the Company.
45
<PAGE> 48
The Purchase Plan provides that in the event of a merger of the Company
with or into another corporation or a sale of substantially all of the Company's
assets, each right to purchase stock under the Purchase Plan will be assumed or
an equivalent right substituted by the successor corporation, unless the Board
of Directors shortens the offering period so that employees' rights to purchase
stock under the Purchase Plan will be exercised prior to the merger or sale of
assets. The Board of Directors has the power to amend or terminate the Purchase
Plan as long as such action does not adversely affect any outstanding rights to
purchase stock thereunder. If not terminated earlier, the Purchase Plan will
have a term of 20 years.
1996 Directors' Stock Option Plan
The 1996 Directors' Stock Option Plan (the "Directors' Plan") was adopted
by the Board of Directors on June 1996 and will be submitted for approval by the
Company's stockholders in July 1996. An aggregate of 150,000 shares of the
Company's Common Stock are reserved for issuance under the Directors' Plan. The
Directors' Plan provides for the grant of nonstatutory stock options to
nonemployee directors of the Company. The Directors' Plan is designed to work
automatically without administration; however, to the extent administration is
necessary, it will be performed by the Board of Directors. To the extent they
arise, it is expected that conflicts of interest will be addressed by abstention
of the interested director from both deliberations and voting regarding matters
in which he or she has a personal interest.
The Directors' Plan provides that each person who is or becomes a
nonemployee director of the Company shall be granted a nonstatutory stock option
to purchase 10,000 shares of Common Stock (the "First Option") on the date on
which the optionee first becomes a nonemployee director of the Company or for
current directors on the date of this offering. Commencing in 1997, on the first
calendar day of each fiscal year each nonemployee director shall be granted an
additional option to purchase 5,000 shares of Common Stock (a "Subsequent
Option") if, on such date, he or she shall have served on the Company's Board of
Directors for at least six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any grant and the method of
making a grant. No option granted under the Directors' Plan is transferable by
the optionee other than by will or the laws of descent or distribution, and each
option is exercisable, during the lifetime of the optionee, only by such
optionee. The Directors' Plan provides that the First Option shall become
exercisable in installments as to 33% of the total number of shares subject to
the First Option on each of the first, second and third anniversaries of the
date of grant of the First Option, and each Subsequent Option shall become
exercisable in full on the first anniversary of the date of grant of such
Subsequent Option. If a nonemployee director ceases to serve as a director for
any reason, he or she may, but only within 90 days after the date he or she
ceases to be a director of the Company, exercise options granted under the
Directors' Plan to the extent that he or she was entitled to exercise such
options at the date of such termination. To the extent he or she was not
entitled to exercise any such option at the date of such termination, or if he
or she does not exercise such option (which he or she was entitled to exercise)
within such 90-day period, such option shall terminate. The exercise price of
all stock options granted under the Directors' Plan shall be equal to the fair
market value of a share of the Common Stock on the date of grant of the option.
Options granted under the Directors' Plan have a term of ten years.
In the event of a merger of the Company with or into another corporation or
a sale of substantially all of the Company's assets, each option will be assumed
or an equivalent option substituted by the successor corporation. The Board of
Directors may amend or terminate the Directors' Plan; provided, however, that no
such action may adversely affect any outstanding option, and the provisions
regarding the grant of options under the Directors' Plan may be amended only
once in any six-month period, other than to comport with changes in the Code. If
not terminated earlier, the Directors' Plan will have a term of ten years.
46
<PAGE> 49
1988 Stock Option Plan
A total of 1,560,000 shares of Common Stock has been reserved for issuance
under the Company's 1988 Stock Option Plan (the "1988 Option Plan"). The 1988
Option Plan was adopted by the Board of Directors in November 1988 and approved
by the stockholders in April 1989. As of June 30, 1996, options to purchase
165,150 shares of Common Stock had been exercised and options to purchase a
total of 1,355,652 shares at a weighted average exercise price of $2.33 per
share were outstanding.
The Board of Directors has determined that no further options will be
granted under the 1988 Option Plan after the offerings. Outstanding options
granted under the 1988 Option Plan generally become exercisable at a rate of
12.5% of the shares subject to the option six months after the date of the grant
and approximately 2% per share thereafter, as long as an optionee remains an
employee with, consultant to or director of the Company. The term of each
outstanding stock option is ten years. The exercise price of all options granted
under the 1988 Option Plan is equal to the fair market value of the Common Stock
of the Company on the date of the grant as authorized by the Board of Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation and Bylaws provide that the
Company shall indemnify its directors and officers against any damages arising
from their actions as an agent of the Company to the fullest extent permitted by
Delaware law. The Bylaws further provide that the Company may similarly
indemnify its other employees and agents. In addition, each director has entered
into an indemnification agreement with the Company, pursuant to which the
Company has agreed to indemnify such director to the fullest extent permitted by
Delaware law.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification would
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which might result in a claim for such indemnification.
CERTAIN TRANSACTIONS
In February 1995, shares of the Company's Series C Preferred Stock,
convertible into an aggregate of 595,363 shares of Common Stock, were sold at an
as converted price of $2.50 per share to investors that included, among others,
Norwest Equity Partners IV, a Minnesota limited partnership, 117,584 shares;
U.S. Venture Partners III, 114,056 shares (which includes 1,175 shares sold to
U.S.V. Entrepreneur Partners); Kleiner Perkins Caufield & Byers IV, 76,271
shares; Associated Venture Investors II, 58,766 shares (which includes 970
shares sold to Associated Venture Investors - PGF); Merrill, Pickard, Anderson &
Eyre IV, 54,660 shares; and Bay Partners IV, 47,669 shares (which includes 3,813
shares sold to California BPIV, L.P.).
In August 1995, the Company acquired Onyx in exchange for shares of the
Company's Series C Preferred Stock, convertible into an aggregate of 443,360
shares of Common Stock. In December 1995, the Company amended the Agreement and
Plan of Reorganization with Onyx to provide for the release from escrow to the
former Onyx stockholders on January 1996 of the Company's Series C Preferred
Stock convertible into 133,008 shares of Common Stock.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
47
<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of June 30, 1996, and as adjusted to reflect
the sale by the Company of the shares of Common Stock offered by this
Prospectus, (i) by each person who is known by the Company to beneficially own
5% or more of the Common Stock, (ii) by each of the Company's directors and
Named Officers, (iii) by all current executive officers and directors as a group
and (iv) by the Selling Stockholders. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING SHARES TO AFTER THE OFFERING**
--------------------- BE SOLD ---------------------
NAME AND ADDRESS NUMBER PERCENT IN OFFERING NUMBER PERCENT
- ---------------------------------------------- --------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Norwest Equity Partners IV, 857,584 13.5 0 857,584 10.3
a Minnesota Limited Partnership
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301
U.S. Venture Partners III(1) 857,583 13.5 0 857,583 10.3
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Kleiner Perkins Caufield & Byers IV(2) 653,519 10.3 0 653,519 7.8
Four Embarcadero Center
San Francisco, CA 94111
Entities Managed by 581,583 9.1 337,427 244,156 2.9
Hancock Venture Partners, Inc.(3)
One Financial Center, 44th Floor
Boston, MA 02111
Associated Venture Investors II(4) 490,131 7.7 0 490,131 5.9
One First Street, No. 12
Los Altos, CA 94022
Merrill, Pickard, Anderson & Eyre IV(5) 463,724 7.3 0 463,724 5.5
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
Electronic Marketing Ltd.(6) 431,834 6.8 240,922 190,912 2.3
5/F., General Electronics Building
FSSTL 96, Sheung Shui
New Territories, Hong Kong
Walden Ventures(7) 387,669 6.1 32,000 355,669 4.3
750 Battery Street, 7th Floor
San Francisco, CA 94111
Bay Partners IV(8) 347,669 5.5 0 347,669 4.2
10600 North DeAnza Blvd., Suite 100
Cupertino, CA 95014
OFFICERS AND DIRECTORS
Lucio L. Lanza(9) 860,083 13.6 0 860,083 10.3
Promod Haque(10) 857,584 13.5 0 857,584 10.3
Frank Caufield(11) 653,519 10.3 0 653,519 7.8
W. Jeffers Pickard(12) 463,724 7.3 0 463,724 5.5
Rak Kumar(13) 211,250 3.2 0 211,250 2.5
Chuck Edwards(14) 162,560 2.5 0 162,560 1.9
James Harre(15) 42,083 * 0 42,083 *
Sebastian Nardecchia(16) 33,750 * 0 33,750 *
Robert Johnson(17) 33,333 * 0 33,333 *
Delbert Yocam(18) 13,333 * 0 13,333 *
1264 North Shore Road
Lake Oswego, OR 97034
All executive officers and directors 2,700,200 39.4 0 2,700,200 30.5
as a group (11 persons)(9), (10), (11),
(12), (13), (14), (15), (16), (17), (18),
(19)
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING SHARES TO AFTER THE OFFERING**
--------------------- BE SOLD ---------------------
NAME AND ADDRESS NUMBER PERCENT IN OFFERING NUMBER PERCENT
- ---------------------------------------------- --------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
OTHER SELLING STOCKHOLDERS
Hilltop Enterprises Ltd.(20) 191,834 3.0 100,000 91,834 1.1
Malcolm Burne 136,576 2.2 79,240 57,336 *
Mitsui Comtek Corp. 80,000 1.3 46,415 33,585 *
NKK U.S.A. Corporation 80,000 1.3 46,415 33,585 *
13 stockholders each beneficially owning 183,907 2.9 117,581 66,326 *
less than 1% of the Company's Common
Stock(21)
</TABLE>
- ---------------
* Less than 1%.
** Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of shares, the
Common Stock options or warrants held by that person that are currently
exercisable, or become exercisable within 60 days following May 31, 1996,
are deemed outstanding. However, such shares are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
(1) Includes 25,727 shares held by Second Ventures Limited Partnership and
8,575 shares held by U.S.V. Entrepreneur Partners.
(2) Includes 23,679 shares held by KPCB Zaibatsu Fund I. Also includes 23,668
shares issuable pursuant to presently exercisable warrants.
(3) Includes 52,577 shares held by Falcon Ventures, L.P., 242,314 shares held
by Hancock Venture Partners III L.P. and 242,314 shares held by Mayflower
Fund Limited Partnership. Also includes an aggregate of 44,378 shares
issuable pursuant to presently exercisable warrants (includes 4,142 shares
held by Falcon Ventures, L.P., 20,118 shares held by Hancock Venture
Partners III L.P. and 20,118 shares held by Mayflower Fund Limited
Partnership). Assumes exercise of such warrants after June 30, 1996.
(4) Includes 7,079 shares held by Associated Venture Investors-PGF and 37,270
shares held by AVI Partners II, N.V. Also includes an aggregate of 24,257
shares issuable pursuant to presently exercisable warrants (includes 367
shares held by Associated Venture Investors-PGF and 1,940 shares held by
AVI Partners II, N.V.).
(5) Includes 2,937 shares held by MPAE Technology Partners. Includes 14,201
shares issuable pursuant to presently exercisable warrants.
(6) Includes 120,000 shares held by Luzon Investments Ltd. Also includes 11,834
shares issuable pursuant to presently exercisable warrants. Assumes
exercise of such warrants after June 30, 1996.
(7) Includes 80,000 shares held by O, W & W Pacrim Investments Limited, 24,332
shares held by Walden Capital Partners, 97,334 shares held by Walden
International III, C.V. and 117,334 shares held by Walden Investors.
(8) Includes 27,813 shares held by California BPIV, L.P.
(9) Includes 823,281 shares held by U.S. Venture Partners III, 25,727 shares
held be Second Ventures Limited Partnership and 8,575 shares held by U.S.V.
Entrepreneur Partners. Because Mr. Lanza is a general partner of U.S.
Venture Partners, the general partner of these entities, he may be deemed
to be a beneficial owner of such shares. Mr. Lanza disclaims beneficial
ownership of such 857,583 shares except to the extent of his interest in
such shares arising from his interest in U.S. Venture Partners. Also
includes 2,500 shares issuable upon exercise of options exercisable within
60 days of June 30, 1996.
(10) Includes 857,584 shares held by Norwest Equity Partners IV. Because Mr.
Haque is a general partner of Norwest Equity Partners, the general partner
of Norwest Equity Partners IV, he may be deemed to be a beneficial owner of
such shares. Mr. Hague disclaims beneficial ownership of such shares except
to the extent of his interest in such shares arising from his interest in
Norwest Equity Partners.
49
<PAGE> 52
(11) Includes 606,172 shares held by Kleiner Perkins Caufield & Byers IV and
23,679 shares held by KPCB Zaibatsu Fund I. Also includes 23,668 shares
issuable to Kleiner Perkins Caufield & Byers IV pursuant to presently
exercisable warrants. Because Mr. Caufield is a general partner of Kleiner
Perkins Caufield & Byers, which is the general partner of Kleiner Perkins
Caufield & Byers IV and KPCB Zaibatsu Fund I, he may be deemed to be a
beneficial owner of such shares. Mr. Caufield disclaims beneficial
ownership of such shares except to the extent of his interest in such
shares arising from his interest in Kleiner Perkins Caufield & Byers.
(12) Includes 446,586 shares held by Merrill, Pickard, Anderson & Eyre IV and
2,937 shares held by MPAE Technology Partners. Also includes 14,201 shares
issuable pursuant to presently exercisable warrants. Because Mr. Pickard is
a general partner of Merrill, Pickard, Anderson & Eyre, the general partner
of these entities, he may be deemed to be a beneficial owner of such
shares. Mr. Pickard disclaims beneficial ownership in such shares arising
from his interest in Merrill, Pickard, Anderson & Eyre.
(13) Includes 201,250 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1996.
(14) Includes 148,560 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1996.
(15) Includes 42,083 shares issuable upon exercise of options exercisable within
60 days of June 30, 1996.
(16) Includes 33,750 shares issuable upon exercise of options exercisable within
60 days of June 30, 1996.
(17) Includes 38,333 shares issuable upon exercise of options exercisable within
60 days of June 30, 1996.
(18) Includes 13,333 shares issuable upon exercise of options exercisable within
60 days of June 30, 1996.
(19) Includes 22,500 shares issuable upon exercise of options exercisable within
60 days of June 30, 1996.
(20) Includes 11,834 shares issuable pursuant to presently exercisable warrants.
Assumes exercise of such warrants after June 30, 1996.
(21) Includes an aggregate of 20,117 shares issuable pursuant to presently
exercisable warrants. Assumes exercise of such warrants after June 30,
1996.
50
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, par value $0.001 per
share, and 2,000,000 shares of undesignated Preferred Stock, par value $0.001
per share, after giving effect to the amendment and restatement of the Company's
Certificate of Incorporation to delete references to the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock and increase the
authorized number of shares of Common Stock, which will occur upon conversion of
such Preferred Stock into Common Stock upon the closing of this offering.
COMMON STOCK
As of June 30, 1996, there were 6,341,350 shares of Common Stock
outstanding that were held of record by approximately 99 stockholders (as
adjusted to reflect the conversion of all outstanding shares of the Company's
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
into Common Stock at a one-to-one ratio upon the completion of this offering).
Stock options to purchase an aggregate of 1,355,652 shares of Common Stock were
outstanding as of June 30, 1996. Warrants to purchase an aggregate of 167,789
shares of Common Stock were also outstanding (as adjusted to reflect the
conversion of all outstanding shares of Preferred Stock). There will be
8,341,350 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' overallotment option or exercise of outstanding options under the
Company's stock and option plans after June 30, 1996) after giving effect to the
sale of the shares of Common Stock to the public offered hereby at an assumed
offering price of $10 per share.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and satisfaction of preferential rights
of any outstanding Preferred Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights and there are no redemption or
sinking fund provisions available to the Common Stock. The outstanding shares of
Common Stock are, and the shares of Common Stock to be issued upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon completion of this offering, the Board of Directors will be authorized
to issue 2,000,000 shares of undesignated Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deterring or preventing a change in control of the
Company without further action by the stockholders. The issuance of Preferred
Stock with voting and conversion rights may adversely affect the voting power of
the holders of Common Stock, including the loss of voting control to others. At
present, the Company has no plans to issue any shares of Preferred Stock. See
"Risk Factors -- Blank Check Preferred Stock; Anti-Takeover Provisions."
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The holders of 4,478,786 shares of Common Stock or warrants exercisable for
Common Stock (the "Registrable Securities") or their transferees are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an
51
<PAGE> 54
investors' rights agreement (the "Rights Agreement") between the Company and the
holders of Registrable Securities. The holders of at least 20% of the
Registrable Securities may require, on two occasions at any time after six
months following the effective date of this offering, that the Company use its
best efforts to register the Registrable Securities for public resale; provided,
among other limitations, that the proposed aggregate selling price, prior to
deductions for underwriting discounts and commissions, is at least $10 million.
The Company may delay such registration by up to 90 days for business reasons
(but not more than once in any 12-month period). If the Company registers any of
its Common Stock either for its own account or for the account of other security
holders, the holders of Registrable Securities are entitled to include their
shares of Common Stock in the registration. A holder's right to include shares
is subject to certain conditions and limitations, including lock-up agreements
restricting the sale of such shares for 180 days after the effective date of the
registration statement filed in connection with this offering and the right of
the underwriters to limit the number of shares included in such registration.
Holders of Registrable Securities may also require the Company, on no more than
two occasions over any 12-month period, to register all or a portion of their
Registrable Securities on Form S-3 when use of such form becomes available to
the Company, provided, among other limitations, that the proposed aggregate
selling price is at least $500,000. The right of holders of Registrable
Securities to have such shares registered on Form S-3 is subject to the right of
the underwriters participating therein to limit the number of shares included in
such registration. The Company may delay such registration on Form S-3 by up to
90 days for business reasons. Subject to certain limitations contained in the
Rights Agreement and subject to the following sentence, all fees, costs and
expenses of registrations effected pursuant to the Rights Agreement must be
borne by the Company and all selling expenses (including underwriting discounts
and selling commissions) relating to Registrable Securities must be borne by the
holders of the securities being registered.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company's Certificate of Incorporation provides that any action
required or permitted to be taken by the stockholders of the Company may be
taken only at a duly called annual or special meeting of the stockholders and
eliminates cumulative voting in the election of directors upon qualification of
the Company as a Listed Corporation. The Certificate of Incorporation and Bylaws
also restrict the right of stockholders to change the size of the Board of
Directors and to fill vacancies on the Board of Directors. The Bylaws also
establish procedures, including advance notice procedures, with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors or for stockholder proposals to be
submitted at stockholder meetings. In addition, the Company's Certificate of
Incorporation provides that the Board of Directors will be divided into three
classes of directors, with each class serving a staggered three-year term, upon
qualification of the Company as a Listed Corporation. A classified board may
maintain the incumbency of the Board of Directors, as it generally makes it more
difficult for stockholders to replace a majority of the directors. The amendment
of any of these provisions would require approval by holders of 66.67% or more
of the outstanding Common Stock. The Certificate of Incorporation also
authorizes the issuance of up to 2,000,000 shares of Preferred Stock. The rights
of the holders of the Common Stock will be subject to, and may be subordinated
to, the rights of the holders of any Preferred Stock that may be issued in the
future and, as a result, the issuance of such Preferred Stock could have a
material adverse effect on the market value of the Common Stock. The Company has
no present plan to issue shares of Preferred Stock.
These and other provisions could have the effect of making it more
difficult for a third party to effect a change in the control of the Board of
Directors and therefore may discourage another person or entity from making a
tender offer for the Company's Common Stock, including offers at a premium over
the market price of the Common Stock, and might result in a delay in changes in
control of management. In addition, these provisions could have the effect of
making it more difficult for proposals favored by the stockholders to be
presented for stockholder consideration.
52
<PAGE> 55
The Company has also included in its Certificate of Incorporation
provisions to eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware Law and to indemnify its directors and officers to the fullest
extent permitted by Section 145 of the Delaware Law.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporate Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders. In addition, upon completion of this offering, certain provisions
of the Company's charter documents, including a provision eliminating the
ability of stockholders to take actions by written consent, may have the effect
of delaying or preventing changes in control or management of the Company, which
could have an adverse effect on the market price of the Company's Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corporation. Its address is 1745 Gardena Avenue, Glendale, CA 91204,
and its telephone number is (818) 502-1404.
53
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
8,341,350 shares of Common Stock, assuming no exercise of options or warrants
after June 30, 1996. Of these shares, 3,007,500 shares (including the 3,000,000
shares sold in this offering and assuming no exercise of the underwriters'
overallotment option) will be freely tradable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 of the Securities Act. The remaining
5,333,850 shares will be "restricted securities" as that term is defined under
Rule 144 (the "Restricted Shares"). Sales of Restricted Shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the Common Stock.
In addition to the 3,000,000 shares sold in this offering, 7,500 shares of
Common Stock held by current stockholders will be immediately eligible for sale
in the public market without restriction pursuant to Rule 144(k) of the
Securities Act. An additional 120,000 shares of Common Stock will be eligible
for sale after expiration of a contractual lock-up beginning 91 days after the
effective date of the Registration Statement, unless earlier released, in whole
or in part, by Hambrecht & Quist LLC. An additional 4,844,744 shares of Common
Stock (including approximately 687,033 shares issuable upon exercise of vested
options) will be eligible for sale after expiration of a contractual lock-up
beginning 181 days after the date of this Prospectus, unless earlier released,
in whole or in part, by Hambrecht & Quist LLC. In addition, at various times
after 181 days from the date of this Prospectus, 1,056,139 shares will become
eligible for sale in the public market upon expiration of their respective
two-year holding periods, subject to certain volume and resale restrictions set
forth in Rule 144. In addition, holders of warrants exercisable for an aggregate
of 79,626 shares of Common Stock will be eligible to sell such shares beginning
181 days after the date of this Prospectus unless earlier released, in whole or
in part, by Hambrecht & Quist LLC.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of one percent of the number of
shares of Common Stock then outstanding or the average weekly trading volume of
the Common Stock as reported through the Nasdaq National Market during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the Company. In addition, a person who is not deemed to have been an "affiliate"
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned for at least three years the shares proposed to be sold,
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. The Securities and Exchange Commission has
recently proposed to reduce the Rule 144 holding periods. If enacted, such
modification will have a material effect on the timing of when shares of the
Common Stock become eligible for resale.
In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts commencing 90 days after the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, in reliance upon Rule 144 but without compliance with certain
restrictions, including the holding period requirements, contained in Rule 144.
The Company intends to register on a Form S-8 registration statement under the
Securities Act, during the 180-day lockup period, (i) assuming no exercise of
options after June 30, 1996, a total of 1,355,652 shares of Common Stock
issuable upon exercise of outstanding options under the 1988 Option Plan, (ii)
800,000 shares of Common Stock reserved for issuance under the 1996 Stock Plan,
(iii) 150,000 shares of Common Stock reserved for issuance under the Directors'
Plan and (iv) 400,000 shares of Common Stock reserved for issuance under the
Purchase Plan. Such registration will permit the resale of shares so registered
by non-affiliates in the public market without restriction under the Securities
Act.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and any sale of substantial amounts of Common Stock in the
open market may adversely affect the market
54
<PAGE> 57
price of the Common Stock offered hereby. In addition, after this offering, the
holders of 4,478,786 shares of Common Stock (assuming exercise of outstanding
warrants for 79,626 shares of Common Stock) are entitled to certain demand and
piggyback rights with respect to registration of such shares under the
Securities Act. Registration of such shares under the Securities Act would
result in such shares becoming freely tradable without restriction under the
Securities Act (except for shares purchased by affiliates of the Company)
immediately upon the effectiveness of such registration. See "Description of
Capital Stock -- Registration Rights of Certain Holders." If such holders, by
exercising their demand registration rights, cause a large number of securities
to be registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were
to include in a Company initiated registration any Registrable Securities
pursuant to the exercise of piggyback registration rights, such sales may have
an adverse effect on the Company's ability to raise needed capital.
55
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and Prudential Securities Incorporated, have severally agreed to purchase from
the Company and the Selling Stockholders the following respective numbers of
shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---------------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC...........................................
Prudential Securities Incorporated..............................
----
Total.................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price and
other selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Selling Stockholders and certain other stockholders of the Company,
including the officers and directors of the Company, who will own in the
aggregate 5,202,350 shares of Common Stock after the offering have agreed that
they will not, without the prior written consent of Hambrecht & Quist LLC,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them during the 180-day period
following the date of this Prospectus. Stockholders of the Company who will own
in the aggregate 120,000 shares of Common Stock after the offering have
56
<PAGE> 59
agreed they will not, without the prior written consent of Hambrecht & Quist
LLC, offer, sell or otherwise dispose of any shares of Common Stock owned by
them during the 90-day period following the date of this Registration Statement.
The Company has agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock during the 180-day
period following the date of this Prospectus, except that the Company (i) may
issue shares upon the exercise of stock options granted prior to the date hereof
under the Company's stock option plans and may grant additional options under
the Company's stock option plans, and (ii) may issue shares under the Company's
1996 Employee Stock Purchase Plan. The Underwriting Agreement prohibits the
Company from releasing shares from any lock-up agreements with stockholders of
the Company without the prior written consent of Hambrecht & Quist LLC.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they exercise
discretionary authority.
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in determining the initial
public offering price are prevailing market conditions, revenues and earnings of
the Company, market valuations of other companies engaged in activities similar
to the Company, estimates of the business potential and prospects of the
Company, the present state of the Company's business operations, the Company's
management and other factors deemed relevant. The estimated initial public
offering price range set forth on the cover page of the preliminary prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Venture Law Group, A Professional Corporation, Menlo Park,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian LLP, Palo Alto, California.
EXPERTS
The Consolidated Financial Statements and schedule of the Company as of
December 30, 1994 and December 31, 1995, and for each of the three years in the
period ended December 31, 1995 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The statements of operations and cash flows of Onyx for the year ended
September 30, 1994 included herein and elsewhere in the Registration Statement
have been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
57
<PAGE> 60
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the North Western Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, NY 10048, and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission.
58
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
RASTER GRAPHICS, INC.
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
RASTER GRAPHICS, INC. AND ONYX GRAPHICS CORPORATION
Unaudited Pro Forma Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Financial Information.......................... F-21
Unaudited Pro forma Condensed Combined Statement of Operations........................ F-22
Notes to Unaudited Pro Forma Condensed Combined Statement of Operations............... F-23
ONYX GRAPHICS CORPORATION
Report of KPMG Peat Marwick LLP Independent Auditors.................................. F-24
Statement of Operations............................................................... F-25
Statement of Cash Flows............................................................... F-26
Notes to Financial Statements......................................................... F-27
</TABLE>
F-1
<PAGE> 62
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Raster Graphics, Inc.
We have audited the accompanying consolidated balance sheets of Raster
Graphics, Inc. as of December 30, 1994 and December 31, 1995, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Raster Graphics, Inc. at December 30, 1994 and December 31, 1995, and the
consolidated results of its operations and its cash flows for the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Jose, California
February 23, 1996, except as
Note 13, as to which the
date is July , 1996,
------------------------------------
The foregoing report is in the form that will be signed upon the completion
of reincorporation of the Company from California to Delaware and the reverse
stock split.
/s/ ERNST & YOUNG LLP
San Jose, California
July 11, 1996
F-2
<PAGE> 63
RASTER GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1994 1995
------------ ------------ JUNE 30, PRO FORMA
1996 STOCKHOLDERS'
------------ EQUITY
JUNE 30,
(UNAUDITED) 1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 1,607 $ 1,550 $ 1,775
Accounts receivable, net of allowance for
doubtful accounts of $246 in 1994, $467 in
1995 and $562 in 1996......................... 2,201 5,567 6,884
Amounts receivable from related parties......... 666 -- --
Inventories..................................... 1,893 3,248 5,097
Prepaid expenses................................ 223 132 379
-------- -------- --------
Total current assets.............................. 6,590 10,497 14,135
Property and equipment, net....................... 1,049 1,452 1,491
Deposits and other assets......................... 273 136 300
Intangible assets related to the acquisition of
Onyx Graphics Corporation....................... -- 258 126
-------- -------- --------
Total assets...................................... $ 7,912 $ 12,343 $ 16,052
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit............................. $ -- $ -- $ 250
Accounts payable................................ 414 1,817 3,944
Accrued payroll and related expenses............ 416 583 267
Accrued warranty................................ 347 287 252
Other accrued liabilities....................... 453 970 1,516
Deferred revenues from related parties.......... 152 -- --
Other deferred revenues......................... 1,845 1,114 1,202
Current portion of long-term debt............... 146 355 361
-------- -------- --------
Total current liabilities......................... 3,773 5,126 7,792
Long-term debt.................................... 338 504 318
Commitments
Stockholders' equity:
Preferred stock:
Authorized shares -- 2,000,000 pro forma
Issued and outstanding shares -- none pro
forma....................................... -- -- -- $ --
Convertible preferred stock, $0.001 par value:
Series A, authorized, issued and outstanding
shares -- 320,000 in 1994, 1995 and 1996,
none pro forma.............................. -- -- -- --
Series B, authorized shares -- 1,050,000 in
1996, none pro forma issued and outstanding
shares -- 1,023,998 in 1994, 1995 and 1996,
none pro forma.............................. 1 1 1 --
Series C, authorized shares -- 4,660,000 in
1996, none pro forma issued and outstanding
shares -- 3,509,990 in 1994, 4,548,718 in
1995 and 1996, none pro forma............... 4 5 5 --
Common stock, $0.001 par value:
Authorized shares -- 8,000,000 in 1996,
50,000,000 pro forma
Issued and outstanding shares -- 200,426 in
1994, 344,657 in 1995, 448,634 in 1996 and
6,341,350 pro forma......................... -- -- -- 6
Additional paid-in capital.................... 22,296 25,130 25,596 25,596
Accumulated deficit........................... (18,500) (18,423) (17,222) (17,222)
Deferred compensation......................... -- -- (418) (418)
Notes receivable from stockholders............ -- -- (20) (20)
-------- -------- -------- --------
Total stockholders' equity........................ 3,801 6,713 7,942 $ 7,942
========
-------- -------- --------
Total liabilities and stockholders' equity........ $ 7,912 $ 12,343 $ 16,052
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 64
RASTER GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
YEAR ENDED
------------------------------------------ JUNE 30,
DECEMBER 31, DECEMBER 30, DECEMBER 31, -----------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues (includes related
party revenues of $6,206 in
1993 and $123 in 1994)......... $ 14,719 $ 13,235 $ 26,045 $ 11,652 $ 18,151
Cost of revenues................. 9,942 9,704 16,598 7,701 10,986
------- ------- ---------- ---------- ----------
Gross profit..................... 4,777 3,531 9,447 3,951 7,165
Operating expenses:
Research and development....... 2,179 2,748 3,373 1,426 2,244
Sales and marketing............ 1,591 2,054 3,640 1,375 2,735
General and administrative..... 901 958 1,434 600 864
Acquired in-process research
and development............. -- -- 889 -- --
------- ------- ---------- ---------- ----------
Total operating expenses......... 4,671 5,760 9,336 3,401 5,843
------- ------- ---------- ---------- ----------
Operating income (loss).......... 106 (2,229) 111 550 1,322
Interest income.................. 113 106 106 59 37
Interest expense................. (173) (5) (57) (37) (34)
------- ------- ---------- ---------- ----------
Income (loss) before provision
for income taxes............... 46 (2,128) 160 572 1,325
Provision for income taxes....... 5 -- 83 297 124
------- ------- ---------- ---------- ----------
Net income (loss)................ $ 41 $ (2,128) $ 77 $ 275 $ 1,201
======= ======= ========== ========== ==========
Pro forma net income per share... $ 0.01 $ 0.04 $ 0.16
========== ========== ==========
Shares used in computing pro
forma net income per share..... 7,187,423 7,095,141 7,411,659
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 65
RASTER GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-------------------------------------------------------------
SERIES A SERIES B SERIES C COMMON STOCK
------------------ ------------------ ------------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ ---------- ------ ----------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 25, 1992........ 320,000 $ -- 1,023,998 $1 -- $ -- 368,808 $ --
Issuance of Series C preferred
stock, net of issuance costs..... -- -- -- -- 3,509,990 4 -- --
Repurchase of common stock......... -- -- -- -- -- -- (28,000) --
Issuance of common stock under
stock option plan................ -- -- -- -- -- -- 10,533 --
Forgiveness of interest on notes
receivable from stockholders..... -- -- -- -- -- -- -- --
Accrued interest on notes
receivable....................... -- -- -- -- -- -- -- --
Net income......................... -- -- -- -- -- -- -- --
-- --
--------- --------- ---------- --- --------- ---
Balance at December 31, 1993........ 320,000 -- 1,023,998 1 3,509,990 4 351,341 --
Repurchase of common stock......... -- -- -- -- -- -- (154,000) --
Issuance of common stock under
stock option plan and upon
exercise of warrants............. -- -- -- -- -- -- 3,085 --
Forgiveness of interest on notes
receivable from stockholders..... -- -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- -- --
-- --
--------- --------- ---------- --- --------- ---
Balance at December 30, 1994........ 320,000 -- 1,023,998 1 3,509,990 4 200,426 --
Issuance of Series C preferred
stock, net of issuance costs..... -- -- -- -- 595,368 1 -- --
Issuance of Series C preferred
stock for Onyx Acquisition....... -- -- -- -- 443,360 -- -- --
Issuance of common stock under
stock option plan and upon
exercise
of warrants...................... -- -- -- -- -- -- 144,231 --
Net income......................... -- -- -- -- -- -- -- --
-- --
--------- --------- ---------- --- --------- ---
Balance at December 31, 1995........ 320,000 -- 1,023,998 1 4,548,718 5 344,657 --
Unearned compensation related to
stock options (unaudited)........ -- -- -- -- -- -- -- --
Issuance of common stock under
stock option plan and upon
exercise of warrants
(unaudited)...................... -- -- -- -- -- -- 103,977 --
Note receivable from stockholder
(unaudited)...................... -- -- -- -- -- -- -- --
Net income (unaudited)............. -- -- -- -- -- -- -- --
-- --
--------- --------- ---------- --- --------- ---
Balance at June 30, 1996
(unaudited)...................... 320,000 $ -- 1,023,998 $1 4,548,718 $ 5 448,634 $ --
========= == ========= == ========== === ========= ===
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE TOTAL
PAID-IN ACCUMULATED DEFERRED FROM STOCKHOLDERS'
CAPITAL DEFICIT COMPENSATION STOCKHOLDERS EQUITY
---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 25, 1992........ $ 13,689 $ (16,413) $ -- $ (138) $(2,861)
Issuance of Series C preferred
stock, net of issuance costs..... 8,706 -- -- -- 8,710
Repurchase of common stock......... (42) -- -- 42 --
Issuance of common stock under
stock option plan................ 6 -- -- -- 6
Forgiveness of interest on notes
receivable from stockholders..... -- -- -- 12 12
Accrued interest on notes
receivable....................... -- -- -- (8) (8)
Net income......................... -- 41 -- -- 41
------- -------- ----- -------
Balance at December 31, 1993........ 22,359 (16,372) -- (92) 5,900
Repurchase of common stock......... (66) -- -- 66 --
Issuance of common stock under
stock option plan and upon
exercise of warrants............. 3 -- -- -- 3
Forgiveness of interest on notes
receivable from stockholders..... -- -- -- 26 26
Net loss........................... -- (2,128) -- -- (2,128)
------- -------- ----- -------
Balance at December 30, 1994........ 22,296 (18,500) -- -- 3,801
Issuance of Series C preferred
stock, net of issuance costs..... 1,476 -- -- -- 1,477
Issuance of Series C preferred
stock for Onyx Acquisition....... 1,098 -- -- -- 1,098
Issuance of common stock under
stock option plan and upon
exercise
of warrants...................... 260 -- -- -- 260
Net income......................... -- 77 -- -- 77
------- -------- ----- -------
Balance at December 31, 1995........ 25,130 (18,423) -- -- 6,713
Unearned compensation related to
stock options (unaudited)........ 418 -- (418) -- --
Issuance of common stock under
stock option plan and upon
exercise of warrants
(unaudited)...................... 48 -- -- -- 48
Note receivable from stockholder
(unaudited)...................... -- -- -- (20) (20)
Net income (unaudited)............. -- 1,201 -- -- 1,201
------- -------- ----- -------
Balance at June 30, 1996
(unaudited)...................... $ 25,596 $ (17,222) (418) $ (20) $ 7,942
======= ======== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 66
RASTER GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
------------------------------------------ JUNE 30,
DECEMBER 31, DECEMBER 30, DECEMBER 31, ---------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................... $ 41 $ (2,128) $ 77 $ 275 $ 1,201
Adjustments to reconcile net income (loss)
to net cash used in operating
activities:
Deferred revenue from related
parties............................. (810) (267) (152) -- --
Other deferred revenue................ 436 951 (760) (1,010) 88
Depreciation and amortization......... 672 731 1,782 267 590
Forgiveness of interest on
shareholders' notes receivable...... 12 26 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable................. 575 (1,558) (2,169) (547) (1,317)
Inventories......................... (803) 318 (1,283) (697) (1,849)
Prepaid expenses and other assets... (289) (129) 280 77 (411)
Accounts payable.................... (95) (19) 1,035 418 2,127
Accrued payroll and related
expenses......................... 70 88 123 (213) (316)
Other accrued liabilities........... (151) (236) 429 506 511
------- ------- ------- ------ ------
Net cash provided by (used in) operating
activities.............................. (342) (2,223) (638) (924) 624
INVESTING ACTIVITIES
Capital expenditures...................... (813) (805) (1,082) (449) (497)
Cash acquired in acquisition.............. -- -- 55 -- --
------- ------- ------- ------ ------
Net cash used in investing activities..... (813) (805) (1,027) (449) (497)
FINANCING ACTIVITIES
Proceeds from notes payable............... -- 484 418 -- --
Proceeds from the bank line of credit..... -- -- -- -- 250
Repayment of note......................... -- -- (450) (67) (150)
Repayment of note to related party........ (5,000) -- -- -- --
Payments on capital leases................ (108) -- (23) -- (30)
Issuance of note receivable............... -- -- -- (255) --
Proceeds from issuance of common stock.... 6 3 196 -- 28
Proceeds from issuance of Series C
preferred stock......................... 8,710 -- 1,467 1,467 --
------- ------- ------- ------ ------
Net cash provided by financing
activities.............................. 3,608 487 1,608 1,145 98
------- ------- ------- ------ ------
Net increase (decrease) in cash and cash
equivalents............................. 2,453 (2,541) (57) (228) 225
Cash and cash equivalents at beginning of
year.................................... 1,695 4,148 1,607 1,607 1,550
------- ------- ------- ------ ------
Cash and cash equivalents at end of
year.................................... $ 4,148 $ 1,607 $ 1,550 $ 1,379 $ 1,775
======= ======= ======= ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest.................... $ 650 $ 5 $ 57 $ 37 $ 34
Cash paid for taxes....................... $ 19 $ 15 $ 28 $ 2 $ 83
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Forgiveness of note receivable on return
of common stock......................... $ 42 $ 66 $ -- $ -- $ --
</TABLE>
See accompanying notes.
F-6
<PAGE> 67
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Raster Graphics, Inc. (the Company) was incorporated on July 27, 1987 in
the State of California. The Company designs, manufactures, and markets large
format digital printing systems.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Onyx Graphics Corporation, Raster Graphics
GmbH, a German Corporation, and Raster Graphics Limited, a company incorporated
in England and Wales.
Fiscal Year
In 1993 and 1994, the Company reported on a fiscal year ending on the last
Friday in December. Effective in 1995, the Company changed its fiscal year-end
to the calendar year-end. In addition, the quarter ends were changed to the
calendar quarters.
Interim Financial Information
The interim financial information at June 30, 1996 and for the six months
ended June 30, 1995 and 1996 is unaudited but, in the opinion of management,
includes all adjustments, consisting only of normal recurring accruals, which
the Company considers necessary for a fair presentation of the financial
position and results of operations for the interim period. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of results for the full year.
Cash Equivalents
For financial statement purposes, the Company considers all highly liquid
debt instruments with original maturities of ninety days or less and with
insignificant interest rate risk to be cash equivalents.
At December 31, 1995 and June 30, 1996, cash equivalents consisted of
commercial paper and money market funds.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). The adoption of FAS 115 had no material effect on
the Company's results of operations or financial position. The Company considers
its applicable cash equivalents as held-to-maturity investments in accordance
with FAS 115. Any unrealized gains or losses were immaterial.
F-7
<PAGE> 68
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or fair
market value and consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Raw materials................................. $ 578 $ 784 $ 549
Work-in-process............................... 205 588 1,061
Finished goods................................ 1,110 1,876 3,487
------ ------ ------
$1,893 $3,248 $ 5,097
====== ====== ======
</TABLE>
Property and Equipment
Property and equipment is stated at cost and depreciated, using the
straight-line method, over the shorter of the estimated useful life (one to five
years) or, if applicable, the term of the related lease.
Long-Lived Assets
In 1995 the Financial Accounting Standards Board released the Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of " (FAS 121). FAS 121
requires recognition of impairment of long-lived assets in the event that the
net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. FAS 121 is effective for fiscal years beginning
after December 15, 1995. The adoption of FAS 121 is not expected to have a
material impact on the Company's financial position or results of operations.
Revenue Recognition
The Company generally recognizes revenue at the time of shipment and
provides for the estimated cost to repair or replace products under warranty
provisions in effect at the time of sale. Revenue under maintenance contracts is
recognized ratably over the term of the related contract, generally twelve
months. The Company does not warrant its software products.
Income Taxes
The Company accounts for income taxes using the liability method as
required by the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109).
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number
of shares of common stock and dilutive common equivalent shares from convertible
preferred stock (using the if-converted method) and from stock options and
warrants (using the modified treasury stock method). Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletins, common stock and common
equivalent shares issued by the Company at prices below the assumed public
offering price during the twelve-month period prior to the proposed offering
have been included in the calculation as if they were outstanding for all
periods presented regardless of whether they are dilutive (using the modified
treasury stock method at an assumed public offering price).
F-8
<PAGE> 69
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
Per share information calculated on the above noted basis is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
------------------------------------------ JUNE 30,
DECEMBER 31, DECEMBER 30, DECEMBER 31, -------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss) per share.... $ 0.01 $ (1.88) $ 0.01 $ 0.04 $ 0.16
=========== ========== =========== =========== ===========
Shares used in computing net
income (loss) per share...... 5,181,236 1,131,744 7,187,423 7,095,141 7,411,659
=========== ========== =========== =========== ===========
</TABLE>
Pro Forma Net Income Per Share
Pro forma net income per share has been computed as described above and
also gives effect, even if antidilutive, to common equivalent shares from
convertible preferred stock that will convert upon the closing of the Company's
initial public offering (using the if-converted method).
Pro Forma Shareholders' Equity (Unaudited)
If the offering contemplated by this Prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into an aggregate of approximately 5,893,000 shares
of common stock. The number of shares of common stock that the convertible
preferred stock converts into is based on an assumed public offering price of
$10.00 per share. Unaudited pro forma stockholders' equity at June 30, 1996, as
adjusted for the conversion of preferred stock, is disclosed on the consolidated
balance sheet.
Employee Stock Plans
The Company accounts for its stock option and employee stock purchase plan
in accordance with the provisions of the Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25). In 1995,
the Financial Accounting Standards Board released Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" (FAS
123). FAS 123 provides an alternative to APB Opinion No. 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
Opinion No. 25. Accordingly, FAS 123 is not expected to have any material impact
on the Company's financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. CONCENTRATIONS
Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments in cash
equivalents and receivables from customers. The Company invests in
F-9
<PAGE> 70
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
cash equivalents, primarily commercial paper of A1 or P1 grade, placed in
high-credit quality financial institutions. The Company is exposed to credit
risks in the event of default by the financial institutions to the extent of the
amount recorded on the balance sheet. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses, and such losses have
been within management's expectations.
Dependence on Major Subcontractors and Suppliers
The Company relies on subcontractors and suppliers to manufacture,
subassemble, and perform first-stage testing of DCS printer components. The
Company relies on single suppliers for certain critical components. The loss of
certain subcontractors or suppliers or the failure of subcontractors or
suppliers to meet the Company's price, quality, quantity, and delivery
requirements could have a material adverse effect on the Company's business,
financial condition, and results of operations.
Dependence on a Single Product
The majority of the Company's sales are derived from one principal product
line, the DCS printing systems, printers and related consumables, and the
Company anticipates that it will derive the bulk of its revenues in the next
several years from sales of these products. If the Company is unable to generate
sufficient sales of the DSC product line due to competitive factors,
manufacturing difficulties, or other reasons, it may be unable to continue its
business.
Major Customers
One customer, a related party in 1993, accounted for 33.4%, 20.6%, 10.9%
and 14.2% of net revenues for 1993, 1994, 1995 and the six months ended June 30,
1995, respectively. Another customer acounted for 18.4% of net revenues in 1993.
3. ACQUISITION
On August 10, 1995, the Company acquired Onyx Graphics Corporation (Onyx)
for the following amounts (dollars in thousands):
<TABLE>
<S> <C>
443,359 shares of Series C preferred stock of the Company for all the
issued common stock of Onyx............................................... $1,108
Assumption by the Company of options to purchase Onyx common stock.......... 63
Note due from Onyx.......................................................... 259
Acquisition costs........................................................... 70
------
$1,500
======
</TABLE>
F-10
<PAGE> 71
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
The purchase price was allocated, based on an independent appraisal
obtained by the Company, to the tangible and intangible assets acquired and
liabilities assumed based on their respective fair values on the date of
acquisition as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................................. $ 709
Equipment................................................................... 157
Intangibles................................................................. 454
Liabilities assumed......................................................... (570)
In-process research and development......................................... 750
------
$1,500
======
</TABLE>
To determine the value of completed software, the expected future cash
flows of each existing software product were discounted, taking into account
risks related to the characteristics and applications of each product, existing
and future markets, and assessments of the life cycle stage of each product.
This analysis resulted in a valuation of $280,000 for completed software, which
had reached technological feasibility and therefore was capitalizable. This
software was amortized on a straight-line basis over an eight-month period.
To determine the value of the software in the development stage, the
Company considered, among other factors, the stage of development of each
project, the time and resources needed to complete each project, expected
income, and associated risks. Associated risks include the inherent difficulties
and uncertainties in completing each project, thereby achieving technological
feasibility, and risks related to the viability of potential changes in future
target markets. This analysis resulted in a valuation of $750,000 for software
in the development stage that had not yet reached technological feasibility and
did not have alternative future uses. In accordance with generally accepted
accounting principles, the software in the development stage was expensed in
August 1995 as acquired in-process research and development. In addition, the
Company wrote off $139,000 in the September 1995 quarter for redundant
PostScript licenses that the Company had purchased for the Company's development
of a similar image processing software product.
Other intangible assets will be amortized on a straight-line basis over
estimated useful lives ranging from three to five years.
As part of the Agreement and Plan of Reorganization, 30% of the Series C
preferred stock included in the consideration was deposited into an escrow
account. The escrow shares were to be distributed to Onyx stockholders on August
1, 1996 and were for the full satisfaction of losses to the Company resulting
from misrepresentations or omissions in the Agreement that totaled greater than
$50,000. Management of the Company believed that on the date of acquisition that
it was certain that all escrow shares were going to be distributed to Onyx
shareholders, and in fact, the Company did distribute the escrow shares to Onyx
stockholders.
The following unaudited pro forma combined results of operations of the
Company and Onyx for the years ended December 30, 1994 and December 31, 1995
have been prepared assuming that the acquisition of Onyx had occurred at the
beginning of the period presented. The following pro forma information results
(in thousands, except per share data) are not necessarily indicative of the
results
F-11
<PAGE> 72
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
that would have occurred had the transaction been completed at the beginning of
the period indicated nor is it indicative of future operating results:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Net revenues.............................................. $ 15,829 $ 27,709
Income (loss) from operations............................. $ (2,057) $ 1,364
Net income (loss)......................................... $ (2,027) $ 1,170
Net income (loss) per share............................... $ (0.28) $ 0.16
</TABLE>
The results of the operations of the acquired business have been included
in the consolidated results of operations for the period subsequent to the
acquisition date.
4. BALANCE SHEET COMPONENTS
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Machinery and equipment......................... $4,501 $3,869 $4,274
Furniture and fixtures.......................... 187 303 355
Leasehold improvements.......................... 147 162 202
------ ------ ------
4,835 4,334 4,831
Accumulated depreciation........................ 3,786 2,882 3,340
------ ------ ------
$1,049 $1,452 $1,491
====== ====== ======
</TABLE>
Fully depreciated fixed assets with an original cost of approximately
$2,000,000 were written off in 1995.
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Assembled work force.......................................... $ 80 $ 80
Trademarks and tradenames..................................... 54 54
Developed technology.......................................... 280 280
Distributor relationships..................................... 40 40
---- ----
454 454
Accumulated amortization...................................... 196 328
---- ----
Net intangible assets......................................... $258 $126
==== ====
</TABLE>
5. BORROWINGS
In June 1996 the Company's bank line of credit credit agreement was
amended. The facility was extended to $2,000,000, and the term to October 15,
1996. Interest is charged at the lenders prime rate plus 0.5 percentage points.
At June 30, 1996, $250,000 was outstanding under the bank line of credit.
F-12
<PAGE> 73
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
The Company's long-term debt includes two notes payable. The first note
issued on August 29, 1994 had a principal balance of $336,056 at December 31,
1995 with interest being charged at 0.75% above the lenders prime rate. An
additional note issued on June 5, 1995 had a principal balance of $418,835 at
December 31, 1995 with interest being charged at a rate of 0.5% above the
lenders prime rate. Such prime rate was 8.5% at December 31, 1995.
The notes are secured by the tangible assets of the Company. The notes
include various financial covenants which make reference to the Company's
profitability and liquidity. If the Company fails to satisfy these covenants,
all outstanding amounts of the principal and unpaid interest immediately become
due and payable.
In addition, the Company's subsidiary, Onyx, has two notes payable (the
"Onyx Notes"). The first note issued in August 1992 had a principal balance of
$33,342 at December 31, 1995 with interest being paid at the lenders prime rate
plus six percentage points. A second note issued in August 1993 had a principal
balance of $58,023 at December 31, 1995 and incurs interest at a rate equal to
the lenders prime rate plus eight percentage points. Both notes expire in August
1997. The lenders prime rate at December 31, 1995 was 8.5%.
The Onyx Notes are secured by all equipment of the borrower and all
finished goods, materials, and other personal tangible property purchased with
the proceeds of the notes.
Future principal maturities on the notes payable for the years ended
December 31 are as follows (in thousands):
<TABLE>
<S> <C>
1996.......................................................................... $355
1997.......................................................................... 347
1998.......................................................................... 157
----
$859
====
</TABLE>
6. COMMITMENTS
The Company leases its principal facilities under an operating lease
arrangement. The future minimum annual rental payments are as follows for the
years ended December 31 (in thousands):
<TABLE>
<S> <C>
1996........................................................................ $ 585
1997........................................................................ 589
1998........................................................................ 589
1999........................................................................ 541
2000........................................................................ 548
Thereafter.................................................................. 548
------
$3,400
======
</TABLE>
Rent expense for the fiscal years ended 1993, 1994, and 1995 was
approximately $317,000, $358,000, and $507,000, respectively, and approximately
$243,000 and $286,000, respectively, for the six months ended June 30, 1995 and
1996, respectively.
The Company has a purchase commitment of approximately $1,000,000 to a
supplier over the next year in connection with research and development
activities.
F-13
<PAGE> 74
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
7. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Each share of Series A, B, and C preferred stock may be converted at the
option of the holder into shares of common stock on a one-for-one basis, subject
to adjustment for certain antidilution provisions. The preferred stock
automatically converts into common stock upon the consummation of an
underwritten public offering for the Company's common stock at not less than
$7.50 per share and the gross aggregate offering price is not less than
$10,000,000. The holders of preferred shares are entitled to one vote for each
share of common stock into which the preferred stock is convertible.
The holders of Series C preferred stock are entitled to receive dividends,
when and as declared by the Board of Directors, at a rate of $0.15 per share,
per annum. After the payment of dividends to the Series C preferred
stockholders, the holders of Series A and B preferred stock are entitled to
receive dividends, when and as declared by the Board of Directors, at a rate of
$0.20 per share, per annum. Dividends are noncumulative, and to date, no
dividends have been declared or paid by the Company.
The Series C preferred stock has a liquidation preference of $2.50 per
share, plus all declared and unpaid dividends, and is payable prior and in
preference to any distribution to the holders of Series A and B preferred stock
and common stock. After the Series C stockholders receive their liquidation
preference, the holders of Series A and B preferred stock will be entitled to
receive an amount per share equal to $560,000 and $2,800,000 divided by the
number of outstanding Series A and B shares, respectively, plus all declared and
unpaid dividends. After full preferential payments have been made to Series A,
B, and C stockholders, the holders of Series A, B, and C preferred stock are
entitled to receive up to an additional $6,750,000. After the Series A, B, and C
preferred stockholders receive their full liquidation preferences, the holders
of common and preferred stock will be entitled to share in the remaining
proceeds based on the number of shares held.
Stock Option Plan
The Company has a stock option plan (the Plan) under which consultants and
key employees may be granted incentive or nonstatutory stock options for the
purchase of common stock.
There are 1,460,000 shares authorized under the Plan. Under the Plan,
incentive and nonstatutory options may be granted at an exercise price of not
less than 100% and 85%, respectively, of the fair value as determined by the
Board of Directors. The options are exercisable at the discretion of the Board
of Directors and generally vest at the rate of 12.5% of the original grant,
commencing six months after the date of grant or employment, and in monthly
increments of approximately 2% of the total grant thereafter. Expiration dates
are determined by the Board of Directors, but in no event will they
F-14
<PAGE> 75
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
exceed ten years from the date of grant. Unexercised options are cancelable
thirty days after the date of termination of employment. A summary of activity
in this plan is as follows:
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Options outstanding at December 25, 1992......................... 207,720 $0.25 - $1.50
Granted........................................................ 688,170 $0.50
Exercised...................................................... (10,533) $0.50 - $1.50
Canceled....................................................... (204,587) $0.25 - $1.50
----------
Options outstanding at December 31, 1993......................... 680,770 $0.25 - $1.50
Granted........................................................ 160,100 $0.50
Exercised...................................................... (1,902) $0.50
Canceled....................................................... (215,198) $1.50
----------
Options outstanding at December 30, 1994......................... 623,770 $0.25 - $0.50
Granted........................................................ 513,280 $0.025 - $1.50
Exercised...................................................... (19,787) $0.50
Canceled....................................................... (4,913) $0.50
----------
Options outstanding at December 31, 1995......................... 1,112,350 $0.025 - $1.50
Granted........................................................ 394,239 $1.50 - $8.00
Exercised...................................................... (101,611) $0.25 - $0.80
Canceled....................................................... (49,326) $0.50 - $6.00
----------
Options outstanding at June 30, 1996............................. 1,355,652 $0.025 - $8.00
==========
</TABLE>
At December 31, 1995, there were 709,411 options exercisable under the Plan
at $0.025 -- $1.50 per share, and options for 284,113 shares of common stock
were available for grant.
In July 1993, 175,670 options were repriced. Options originally granted at
$1.50 per share were canceled and new options were issued at $0.50 per share.
Deferred Compensation
The Company recorded aggregate compensation of $418,000 during the six
months ended June 30, 1996. The amount recorded represents the difference
between the grant price and the deemed fair value of the Company's common stock
for shares subject to options granted during the first six months of 1996. The
amortization of deferred compensation will be charged to operations and will be
amortized over the vesting period of the options, which is typically four years.
Stock Purchase Plan
In 1988, the Company adopted a stock purchase plan for consultants and key
employees of the Company. There are 90,000 shares authorized for issuance under
the plan. Under the plan, consultants and key employees may be granted the right
to purchase shares of the Company's common stock at not less than 100% of the
fair value on the date of grant as determined by the Board of Directors. As of
December 30, 1994, December 31, 1995 and June 30, 1996, 24,000 shares have been
issued under the Plan and 66,000 shares are reserved for issuance.
F-15
<PAGE> 76
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
Warrants
The Company has issued the following warrants:
(a) Warrants were issued in November 1988 to certain Series B investors to
purchase 124,444 shares of common stock at $1.50 per share, subject to
adjustment for dilution. These warrants were exercised in 1995.
(b) During 1989, the Company entered into an equipment lease line with a
financing institution. In conjunction with the lease line, the Company
issued warrants to purchase 10,400 shares of Series B preferred stock at
$12.50 per share. The warrants expire in 1998 and are currently
exercisable.
(c) Warrants were issued in December 1989 in connection with the issuance
of Series B preferred stock. Investors received warrants to purchase
124,257 shares of common stock at $1.50 per share, subject to adjustment
for dilution. These warrants expire in December 1996, or upon the
occurrence of an initial public offering of common stock of not less
than $10,000,000 and at least $25.00 per share, or upon the sale of
substantially all of the Company's assets. The warrants are currently
exercisable.
(d) In conjunction with the issuance of Series B preferred stock and
additions to the Company's lease line, warrants were issued in March
1990 to various stockholders to purchase 38,227 shares of common stock
at $1.50 per share, subject to adjustment for dilution. During 1994,
warrants were exercised to purchase 1,183 shares of common stock leaving
warrants to purchase 37,044 shares of common stock outstanding at
December 30, 1994. In March 1995, 1,546 warrants expired leaving
warrants to purchase 35,498 shares of common stock outstanding at
December 31, 1995. In the six months ended June 30, 1996, 2,366 warrants
were exercised leaving warrants to purchase 33,132 shares of common
stock outstanding at June 30, 1996.
Common Stock Reserved
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Series A convertible preferred stock....................... 320,000 320,000
Series B convertible preferred stock (including
warrants)................................................ 1,034,398 1,034,398
Conversion of warrants..................................... 159,755 157,389
Series C convertible preferred stock....................... 4,548,718 4,548,718
Stock Option Plan.......................................... 1,396,433 1,394,851
Stock Purchase Plan........................................ 66,000 66,000
---------- ----------
6,412,984 7,521,356
========== ==========
</TABLE>
Notes Receivable From Stockholders
The Company had accepted long-term promissory notes for the issuance of
common stock to employees and certain consultants. These notes incurred interest
between 6% and 9.4% per annum
F-16
<PAGE> 77
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
with principal and interest payable on demand. In 1994, the notes and related
interest were forgiven in exchange for the return of the common stock.
On February 28, 1996, the Company issued a note receivable for $20,000 to a
consultant. The note incurs interest at a rate of 5.25% per annum and is payable
in full on January 31, 1998. The borrower pledged 200,000 shares of common stock
in the Company as security against nonpayment of the loan.
8. TAXES ON INCOME
The tax provision consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1995
------------ ------------
<S> <C> <C>
Current:
Federal..................................................... $ 5 $ 40
State....................................................... -- 28
Foreign..................................................... -- 15
--- ---
$ 5 $ 83
=== ===
</TABLE>
There was no provision for income taxes for 1994 due to the net loss.
The difference between the tax provision and the amount computed by
applying the federal statutory income tax rate to income before the provision
for income taxes is explained below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Expected provision (benefit) at statutory
rate......................................... $ 16 $ (745) $ 56
State taxes.................................... -- -- 28
Federal alternative minimum tax................ 5 -- 40
Net operating losses (utilized) not utilized... (16) 745 (103)
Foreign income taxes at a rate greater than
the federal statutory rate................... -- -- 2
Unbenefited foreign loss....................... -- -- 60
---- ----- -----
Provision for income taxes..................... $ 5 $ -- $ 83
==== ===== =====
</TABLE>
Pretax loss from foreign operations was $135,000 in 1995. There were no
foreign operations in 1993 or 1994.
For the six-month periods ended June 30, 1995 and 1996, income taxes have
been provided based upon estimated annualized effective tax rates of 51.9% and
9.4%, respectively, applied to the earnings for the period. The provision for
income taxes for the six months ended June 30, 1995 reflects unbenefited foreign
losses and the tax benefits of utilizing net operating loss carryforwards. The
provision for the six months ended June 30, 1996 reflects the tax benefits of
utilizing net operating loss carryforwards.
F-17
<PAGE> 78
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
deferred tax assets for federal and state income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Net operating loss carryforwards............................ $ 5,647 $ 4,757
Tax credits................................................. 731 1,015
Inventory reserve........................................... 466 552
Other accruals and reserves not deductible for tax
purposes.................................................. 415 688
Other, net.................................................. 335 282
------- -------
Total deferred tax assets................................... 7,594 7,294
Valuation allowance for deferred tax assets................. (7,594) (7,294)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>
Under FAS 109, deferred tax assets and liabilities are determined based on
the difference between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Based on the weight of
available evidence, which includes the Company's historical operating
performance, the reported loss in 1994, only marginal profitability in 1993 and
1995, and the uncertainties regarding future results of operations, the Company
has provided a full valuation allowance against its net deferred tax assets as
it is more likely than not that the deferred tax assets will not be realized.
The valuation allowance established upon adoption of FAS 109 in 1993 was
$6,406,000 and was increased by $1,188,000 in 1994 and decreased by $300,000
during 1995.
As of December 31, 1995, the Company had federal and state net operating
loss carryforwards of approximately $13,200,000 and $4,400,000, respectively.
The Company also has federal and California research and development tax credit
carryforwards of approximately $753,000 and $325,000, respectively. The net
operating loss and credit carryforwards will expire at various dates beginning
in 1996 through 2010, if not utilized.
Utilization of the net operating losses and credits will be subject to an
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986 (the Code) and similar state provisions. The
annual limitation may result in the expiration of net operating losses and
credits before utilization.
F-18
<PAGE> 79
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
9. EXPORT AND INTERNATIONAL SALES
Total export sales by geographic region are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
------------------------------------------ JUNE 30,
DECEMBER 31, DECEMBER 30, DECEMBER 31, ---------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Europe............................... $4,615 $5,221 $ 7,252 $ 3,583 $ 4,470
Far East............................. 1,884 1,041 3,184 1,448 2,101
Other................................ 586 1,141 2,358 1,451 1,893
------ ------ ------- ------ ------
$7,085 $7,403 $ 12,794 $ 6,482 $ 8,464
====== ====== ======= ====== ======
</TABLE>
International sales, including sales of the Company's UK and German
subsidiaries, were $13,372,000 and $9,863,000 for 1995 and the six months ended
June 30, 1996, respectively. These subsidiaries had no sales prior to 1995.
10. RELATED PARTY TRANSACTIONS
In December 1989, the Company entered into a distribution agreement with a
stockholder of the Company. As partial consideration for the distribution
rights, the distributor/stockholder paid a distribution fee of $1,050,000. The
distribution fee was nonrefundable except upon termination in accordance with
the distribution agreement. In September 1990, the Company began recognizing the
distribution fee on a monthly basis over a five-year period. The Company
recognized $139,000 and $210,000 of distribution revenue during fiscal 1995 and
1994, respectively, and $52,500 in the six months ended June 30, 1995.
At December 30, 1994, the Company has $140,000 in deferred revenue from the
related party (none at December 31, 1995 and June 30, 1996).
In 1993, sales of $6,206,000 were made to two companies that had made loans
to the Company. Gross margins on these sales were not materially different from
the gross margins realized on similar sales to unaffiliated customers. Both
loans were repaid in full in 1993.
11. EMPLOYEE BENEFIT PLAN
The Company has adopted a salary deferral plan (the Plan) covering
substantially all employees. The Company has made no contributions to the Plan
as of December 31, 1995 or June 30, 1996.
12. SUBSEQUENT EVENTS
In May 1996, the Board of Directors approved, subject to stockholder
approval, an increase in the number of shares reserved for issuance under the
Company's 1988 Stock Option Plan by 100,000 to 1,560,000 shares.
In June 1996, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public.
Upon completion of the offering, the Board of Directors will be authorized
to issue 2,000,000 shares of undesignated preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences, and number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders.
F-19
<PAGE> 80
RASTER GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
The Company's 1996 Employee Stock Purchase Plan (the Purchase Plan) was
adopted by the Board of Directors in June 1996, subject to stockholder approval.
A total of 400,000 shares of common stock has been reserved for issuance under
the Purchase Plan.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of twelve month offering periods other
than the first offering period commencing on or about January 1 and July 1 of
each year. The first such offering period is expected to commence on the date of
this offering. The Purchase Plan will be administered by the Board of Directors
or by a committee appointed by the Board of Directors. Employees (including
officers and employee directors) of the Company, or of any majority owned
subsidiary designated by the Board of Directors, are eligible to participate in
the Purchase Plan if they are employed by the Company or any such subsidiary for
at least 20 hours per week and more than five months per year. The Purchase Plan
permits eligible employees to purchase common stock through payroll deductions,
which may not exceed 10% of an employee's compensation at a price equal to the
lower of 85% of the fair market value of the Company's common stock at the
beginning or end of the offering period.
The Company's 1996 Stock Plan (the 1996 Stock Plan) was adopted by the
Board of Directors in June 1996, subject to stockholder approval. An aggregate
of 800,000 shares of the Company's common stock are reserved for issuance under
the 1996 Stock Plan. Upon adoption of the 1996 Stock Plan, the Company's Board
of Directors determined to make no further grants under the 1988 Option Plan.
The 1996 Stock Plan provides for the granting to employees (including officers
and employee directors) of "incentive stock options" within the meaning of
Section 422 of the Code, for the granting to employees and consultants of
nonstatutory stock options and for the granting to employees of stock purchase
rights. The 1996 Stock Plan may be administered by the Board of Directors or a
committee of the Board (the 1996 Administrator). The 1996 Administrator
determines the terms of options and stock purchase rights granted under the 1996
Stock Plan, including the number of shares subject to the option or right,
exercise price, term and exercisability.
The 1996 Directors' Stock Option Plan (the Directors' Plan) was adopted by
the Board of Directors on June 1996, subject to stockholder approval. A total of
150,000 shares of common stock has been reserved for issuance under the
Directors' Plan. The Directors' Plan provides for the grant of nonstatutory
stock options to nonemployee directors of the Company. The Directors' Plan is
designed to work automatically without administration; however, to the extent
administration is necessary, it will be performed by the Board of Directors. To
the extent they arise, it is expected that conflicts of interest will be
addressed by abstention of the interested director from both deliberations and
voting regarding matters in which he or she has a personal interest.
The Directors' Plan provides that each person who is or becomes a
nonemployee director of the Company shall be granted a nonstatutory stock option
to purchase 10,000 shares of common stock on the date on which the optionee
first becomes a nonemployee director of the Company. Thereafter, on the first
calendar day of the Company's fiscal year commencing in 1997, each nonemployee
director shall be granted an additional option to purchase 5,000 shares of
common stock if, on such date, he or she shall have served on the Company's
Board of Directors for at least six months.
In June 1996, the Board of Directors approved, subject to stockholder
approval, a one-for-five reverse split of the Company's common and preferred
stock and reincorporation of the Company into the State of Delaware. All share
and per share amounts in the accompanying consolidated financial statements have
been adjusted retroactively.
In June 1996, the Board of Directors approved, subject to stockholder
approval, an increase in the number of authorized Common Shares from 8,000,000
to 50,000,000.
F-20
<PAGE> 81
RASTER GRAPHICS
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On August 10, 1995, Raster Graphics, Inc. (the Company) acquired Onyx
Graphics Corporation (Onyx) in a transaction being accounted for as a purchase.
The total purchase price of approximately $1.5 million included the issuance of
443,360 shares of Series C preferred stock of the Company, options to purchase
220,120 shares of Company stock, cancelation of a $259,000 note receivable and
related acquisition costs of $70,000. The net assets acquired included tangible
assets valued at $866,000, developed technology and other intangible assets
totaling $454,000 and $750,000 for acquired in-process research and development
less assumed liabilities of $570,000.
The accompanying unaudited pro forma condensed combined statement of
operations gives effect to the transaction as if it occurred on January 1, 1995,
the beginning of the Company's most recently completed fiscal year. The
Company's year ended December 31, 1995 consolidated statement of operations
include Onyx's results of operations for the period from August 10, 1995 to
December 31, 1995. The pro forma condensed combined statement of operations for
the year ended December 31, 1995 combines the Company's consolidated statement
of operations for the year ended December 31, 1995 with Onyx's results of
operations for the period from January 1, 1995 to August 9, 1995.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results that would have occurred
had the transaction been completed at the beginning of the period indicated nor
is it necessarily indicative of future operating results.
F-21
<PAGE> 82
RASTER GRAPHICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
ONYX
RASTER GRAPHICS
GRAPHICS CORPORATION
INC. ---------------
------------ PERIOD FROM PRO FORMA
YEAR ENDED JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, TO AUGUST 9, PRO FORMA DECEMBER 31,
1995 1995 ADJUSTMENTS 1995
------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues........................ $ 26,045 $ 2,004 $(340)(A) $ 27,709
Cost of revenues.................... 16,598 401 (229)(A)(B) 16,770
--------- ----- ----------
Gross margin........................ 9,447 1,603 (111) 10,939
Operating expenses:
Research and development.......... 3,373 282 4(B)(C) 3,659
Sales and marketing............... 3,640 695 8(B) 4,343
General and administration........ 1,434 139 -- 1,573
Charge for acquired in-process
research and development....... 889 -- (889)(C)(D) --
--------- ----- ----------
Total operating
expenses................ 9,336 1,116 (877) 9,575
--------- ----- ----------
Income from operations.............. 111 487 766 1,364
Other income (expense).............. 49 (140) 20(E) (71)
--------- ----- ----------
Income from operations.............. 160 347 786 1,293
Provision for income taxes.......... 83 40 -- 123
--------- ----- ----------
Net income.......................... $ 77 $ 307 $ 786 $ 1,170
========= ===== ==========
Net income per share...... $ 0.01 $ 0.22 $ 0.16
========= ==========
Shares used in computing net income
per share......................... 7,187,423 1,364,983 7,187,423(F)
========= ==========
</TABLE>
F-22
<PAGE> 83
RASTER GRAPHICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
1. BASIS OF PRESENTATION
The pro forma information presented is theoretical in nature and not
necessarily indicative of the future consolidated results of operations of the
Company or the consolidated results of operations which would have resulted had
the Company purchased Onyx Graphics Corporation (Onyx) during the period
presented. The pro forma condensed combined statement of operations reflects the
effects of the acquisition, assuming the acquisition and related events occurred
as of January 1, 1995.
2. PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT ADJUSTMENTS
(A) To eliminate sales from Onyx to the Company prior to the acquisition.
(B) Amortization of acquired workforce, trademarks, developed technology,
and distribution networks being amortized over their estimated useful
lives ranging from eight months to five years.
(C) The pro forma statement of operations excludes charges of $151,000
related to software licenses and product support, including $139,000 of
redundant Post Script licenses that the Company had purchased for the
Company's development of a similar image processing software product.
(D) The pro forma statement of operations excludes the charge of $750,000
for purchased in-process research and development which arose from the
acquisition as it represents a nonrecurring item directly related to
the transaction.
The purchase price was allocated to the tangible and intangible assets
of Onyx based on the fair market value of those assets using a risk
adjusted discounted cash flows approach. The evaluation of the
underlying technology acquired considered the inherent difficulties
and the uncertainties in completing the development, thereby achieving
technological feasibility, and the risks related to the viability of
and potential changes in future target markets. The underlying
technology and patent rights had no alternative use (in other research
and development projects or otherwise).
(E) To reverse Onyx's interest expense to third parties satisfied in the
acquisition.
(F) The preferred stock and options issued as part of the Onyx acquisition
are included in the historical weighted average number of shares for
all periods as they relate to SAB Nos. 55, 64 and 83. As a result,
there is no pro forma effect upon the weighted average number of
shares.
F-23
<PAGE> 84
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Onyx Graphics Corporation:
We have audited the accompanying statements of operations and cash flows of
Onyx Graphics Corporation for the year ended September 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Onyx
Graphics Corporation for the year ended September 30, 1994, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
November 11, 1994
F-24
<PAGE> 85
ONYX GRAPHICS CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
Revenues:
Software sales................................................................. $1,621,170
Hardware sales................................................................. 677,713
Other revenues................................................................. 294,992
----------
Total revenues......................................................... 2,593,875
Cost of sales.................................................................... 856,301
----------
Gross profit........................................................... 1,737,574
Operating expenses:
Research and development....................................................... 347,368
General and administrative..................................................... 424,183
Sales and marketing............................................................ 793,937
----------
Total operating expenses............................................... 1,565,488
Income from operations................................................. 172,086
Other income (expense):
Interest expense............................................................... (95,528)
Other income................................................................... 26,141
----------
Total other expense.................................................... (69,387)
----------
Income before income taxes....................................................... 102,699
Income tax expense (note 7)...................................................... 1,939
----------
Net income............................................................. $ 100,760
==========
Earnings per share............................................................... $ .06
==========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 86
ONYX GRAPHICS CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $100,760
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation................................................................. 52,312
Amortization................................................................. 25,354
Provision for loss on accounts receivable.................................... 2,000
Decrease (increase) in operating assets:
Trade accounts receivable.................................................. (44,227)
Inventories................................................................ 19,614
Prepaid expenses........................................................... (13,080)
Other assets............................................................... 4,116
Increase (decrease) in operating liabilities:
Accounts payable........................................................... (30,426)
Accrued expenses........................................................... 9,663
Deferred revenue........................................................... (24,047)
------
Net cash provided by operating activities............................... 102,039
------
Cash flows from investing activities:
Purchase of equipment........................................................... (17,627)
Purchase of software............................................................ (87,295)
------
Net cash used in investing activities........................................ (104,922)
------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt.................................. 71,121
Repayment of notes payable and long-term debt................................... (83,545)
Principal repayments of capital lease obligations............................... (7,990)
------
Net cash used in financing activities........................................ (20,414)
------
Net decrease in cash.............................................................. (23,297)
Cash at beginning of year......................................................... 33,879
------
Cash at end of year............................................................... $ 10,582
======
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest........................................................................ $ 89,551
Income taxes.................................................................... 1,939
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 87
ONYX GRAPHICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
ONYX Graphics Corporation (the Company) is primarily involved in the
business of developing and marketing software products that produce
large format high-quality color images. The Company also sells hardware
products related to its software. The Company's headquarters are in
Salt Lake City, Utah.
(b) Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid financial instruments with original maturities to the
Company of three months or less to be cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(d) Equipment
Equipment is stated at cost. Equipment under capital leases is stated
at the present value of minimum lease payments at the inception of the
lease.
Depreciation on equipment is calculated on the straight-line method
over their estimated useful lives of three to five years. Equipment
held under capital leases and leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or
estimated useful life of the asset.
(e) Revenue Recognition
The Company recognizes revenue from software licenses at the time the
software is delivered. Revenue from software license agreements with
original equipment manufacturers (OEM) for redistribution to end-user
customers is recognized when the equipment incorporating the Company's
software is delivered to the end-user. Revenue received from software
maintenance contracts is deferred and recognized ratably over the term
of the maintenance contract, which is typically 90 days.
(f) Research and Development Costs
Research and development costs are expensed as incurred.
(g) Capitalization of Software
Under the criteria set forth in Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software
to be Sold, Leased, or Otherwise Marketed," the Company capitalizes
software development costs upon the establishment of technological
feasibility for the product and the cost of software purchased for
subsequent resale, leasing, or otherwise marketed. The gross amount of
software capitalized totaled $104,831 as of September 30, 1994. The
Company is amortizing these costs on the straight-line method over a
period of three years. Related amortization was $25,354 for the year
ended September 30, 1994.
(h) Income Taxes
Income taxes are recorded using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective
F-27
<PAGE> 88
ONYX GRAPHICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(i) Earnings Per Share
Earnings per share of common shares are computed on the basis of the
weighted average shares outstanding plus any common stock equivalents
which would arise from the exercise of stock options. The weighted
average number of shares used in computing earnings per share for 1994
was 1,829,000.
(j) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the preparation of these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) LIQUIDITY
As indicated in the accompanying financial statements, the Company
recognized net income of $100,760 in 1994, and generated cash from operating
activities. However, due to prior operating losses, the Company's net
stockholders' deficit is $296,465 and current liabilities exceed current assets
by $223,910. This has resulted in the Company having cash shortages and delayed
payment of certain obligations when they became due. The Company is in the
process of renegotiating the timing of certain debt payments. Management
believes that cash generated from product sales will provide adequate cash to
meet the Company's debt and operating requirements. The Company is subject to
uncertainties and competitive pressures, any of which could adversely affect the
Company's operating cash flow and create liquidity problems for the Company.
(3) LEASES
The Company is obligated under capital leases for equipment that expire
over the next three years. Amortization of assets held under capital leases is
included with depreciation expense.
The Company has a five year, noncancelable operating lease for its office
building. Rent expense for operating leases was $83,931 for the year ended
September 30, 1994.
F-28
<PAGE> 89
ONYX GRAPHICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1994
Future noncancelable, minimum lease payments as of September 30, 1994 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending September 30:
1995................................................................ $12,026 $ 69,024
1996................................................................ 12,026 72,160
1997................................................................ 8,638 73,416
1998................................................................ -- 24,612
----- ------
Total minimum lease payments..................................... 32,690 $239,212
======
Less amount representing interest (15.1%)............................. 7,363
-----
Present value of minimum lease payments.......................... 25,327
Less current installments of obligations under capital leases......... 8,041
-----
Obligations under capital leases, excluding current
installments.................................................... $17,286
=====
</TABLE>
(4) INCOME TAXES
Income tax expense for the year ended September 30, 1994 amounted to
$1,939, all of which is current and represents state minimum taxes. There is no
federal income tax expense or federal income tax payable in 1994 principally due
to utilization of net operating loss carryforwards.
The actual tax expense related to income from continuing operations differs
from the "expected" tax expense (computed by applying the U.S. corporate tax
rate of 34 percent) as follows:
<TABLE>
<S> <C>
Computed "expected" tax expense............................................ $34,918
Change in the beginning of the year balance of the valuation allowance for
deferred tax assets...................................................... (36,728)
Meals and entertainment.................................................... 1,810
State taxes, net of federal income tax benefit............................. 1,939
--------
$ 1,939
========
</TABLE>
At September 30, 1994, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $600,000, which are available to
offset future federal taxable income through 2009.
Under the rules of the Tax Reform Act of 1986, the Company has undergone a
greater than 50 percent change of ownership. Consequently, use of substantially
all of the Company's net operating loss carryforwards against future taxable
income in any one year will be limited. The maximum amount of net operating loss
carryforwards available in a given year is limited to the product of the
Company's value on the date of ownership change and the federal long-term
tax-exempt bond rate, plus any limited carryforwards not utilized in prior
years.
Subsequently, recognized tax benefits relating to the valuation allowance
for deferred tax assets as of September 30, 1994, will be allocated as an income
tax benefit to be reported in the statement of operations.
F-29
<PAGE> 90
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICATION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary.................................... 3
Risk Factors............................... 5
The Company................................ 13
Use of Proceeds............................ 13
Dividend Policy............................ 13
Capitalization............................. 14
Dilution................................... 15
Selected Consolidated Financial Data....... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 17
Business................................... 25
Management................................. 41
Certain Transactions....................... 47
Principal and Selling Stockholders......... 48
Description of Capital Stock............... 51
Shares Eligible for Future Sale............ 54
Underwriting............................... 56
Legal Matters.............................. 57
Experts.................................... 57
Additional Information..................... 58
Index to Financial Statements.............. F-1
- ------------------
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
3,000,000 SHARES
LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
HAMBRECHT & QUIST
PRUDENTIAL SECURITIES INCORPORATED
AUGUST , 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 91
APPENDIX -- DESCRIPTION OF GRAPHICS
OUTSIDE FLAP OF CENTERFOLD
Heading: Raster Graphics is dedicated to providing large-format, on-demand,
short-run printing systems.
Top left of page has the Rastergraphics logo.
Top right of page has a photo of a DCS printer.
Caption: DCS Digital Press
Center of page has photo of a computer.
Caption: PosterShop Image Processing Software
Middle left of page has a photo of ink bottles.
Bottom of page has five symbols depicting awards earned by the Company.
Captions: Editors' Choice Award, Modern Reprographics Top 10 of 1994, DPI
Product of the Year 1994, Hot Product 1994 in Electronic Publishing, and IEEE
Computer Society's 1994 CG&A Excellence Award
INSIDE FLAP OF GATEFOLD FRONT COVER
Heading: The Raster Graphics Solution
Subheadings: Fast Turnaround, Low Cost for Short Runs, Customized Graphics,
High Print Quality and Flexibility
Page contains two (2) photos: Center photo is of a stage display. Bottom
left photo is of a banner above a conference facility.
Captions: Innovative uses for large-format digital printing are emerging as
desk-top publishing users become aware of its cost-effectiveness and high
impact; Key Applications: Point-of-Purchase Displays, Vinyl and Cloth Banners,
Corporate Indentity Graphics, Mall Graphics, Exhibit/Trade Show Graphics,
Billboards, Sports/Concert/Event Graphics; and Key Customer Segments: Color
Photo Labs, Reprographic Houses, Graphic Arts Service Bureaus, Exhibit Builders,
Digital Color Printers, Screen Printers, In-House Print Shops
INSIDE FRONT COVER
Heading: Key Applications
Page contains three (3) photos. Upper right photo is of a point of purchase
display. Bottom left is of a bus stand poster. Bottom right is of a banner and
exhibit in the lobby of a building.
Caption: Point of purchase; posters; exhibits.
PROSPECTUS COVER
Page contains logo of Rastergraphics on center top of page.
PAGE 26
Bottom center of page contains graph with Print Quantity on the x-axis and
Image Quality on the y-axis. The graph includes four rectangular boxes which
depict the range of print quantities over which Photographic, LFDP, Screen and
offset printing is cost effective and the corresponding level of image quality.
<PAGE> 92
Caption: Printing Technologies' Cost Effective Range
PAGE 27
Center top of page contains chart with four columns.
Column Titles: Image Quality, On-Demand, Short Run, Outdoor Applications
Row Titles: LFDP, Photograph, Screen, Offset. Check marks depict each
printing technology's capabilities.
Caption: Printing Technologies' Capabilities
PAGE 30
Center top of page contains two drawings of print heads pointing to the
media, writing nibs, data source and print head segments.
Captions: Raster Graphics Non-Multiplexed Writing Print Head; Multiplexed
Writing Print Head.
PAGE 31
Center of page contains drawing of six computers, two inkjet printers and a
DCS5442 printer. Lines between the computers and printers depict the
architecture of the client/server system.
Caption: Postershop Client/Server Architecture; Client; Server; DCS5442
PAGE 33
Center top of page contains a graph which has two vertical bars which show
the total size of the LFDP market in 1995 and 1998 and the split between
consumables and printers.
Caption: LFDP Market; Consumables; Printers
PAGE 35
Center top of page contains a depiction of the Printer paper transport
system showing the ink bottle, inking station, silicon imaging bar print head,
paper roll, transport, supply motor, takeup motor and paper roll.
Caption: Raster Graphics' Paper Transport System
PAGE 36
Center top of page contains a depiction of the printer inking system
showing the ink containers, color concentrate, color control unit, inking
stations and ink tray.
Caption: Raster Graphics' Inking System
BACK INSIDE COVER
Heading: Raster Graphics Products
Page contains three graphics: Top right of page has a photo of a printer.
Middle left of page has a drawing of (copy from page 31 description). Bottom
left has a photo of ink bottles.
Captions: INNOVATIVE FEATURES OF DCS PRINTERS
- HIGH PERFORMANCE USING NON-MULTIPLEXED WRITING
Print at high speeds -- up to 1,000 square feet per hour -- using
the patented print head, the Silicon Imaging Bar.
- FIVE-COLOR CAPABILITY
<PAGE> 93
Print special spot colors or apply varnish finish using the
fifth color station.
- DUAL RESOLUTION PRINTING MODE
Select appropriate 200 x 200 dpi or 200 x 400 dpi mode to match
application and performance needs.
- INTEGRATED PRINTER AND SERVER
Improve work flow with real-time interaction between the printer
and server.
ADVANCED IMAGE-PROCESSING SOFTWARE
DCS SYSTEM SOFTWARE
PosterShop(TM) image-processing software, a true client/server
architecture, allows clients anywhere on the network to prepare
and preview jobs. High-performance server manages printer(s)
queues and RIPs files. PosterShop tools include:
- IMAGE SIZE AND PREVIEW
Size and preview the large-format digital image before printing.
- COLOR ADJUSTMENT
Review and adjust colors on the screen and printer.
- COLOR CALIBRATION
Provide device-independent color when changing media, ink or dot
pattern.
- FULL SUPPORT FOR POSTSCRIPT LEVEL-2 RIP
Screen multiple dot patterns with high speed RIP.
CONSUMABLES
Raster Graphics' product offering also includes a range of
consumables, including specialized process color inks, spot-color
inks, varnish, specialized indoor and outdoor papers and vinyls.
Most of these consumable products are manufactured specifically
for DCS systems, resulting in high-quality printed images.
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee.............................................. $ 14,276
NASD filing fee................................................... 4,640
Nasdaq National Market listing fee................................ 45,444
Printing and engraving expenses................................... 150,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 250,000
Blue Sky qualification fees and expenses.......................... 10,000
Transfer Agent and Registrar fees................................. 5,000
Miscellaneous fees and expenses................................... 70,640
-------
Total................................................... $850,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware Law authorizes a court to award, or a
corporation's Board of Directors to grant, indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the "Act"). The Company's
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by Delaware law, including circumstances in which
indemnification is otherwise discretionary under Delaware law. The Company has
entered into indemnification agreements with its directors containing provisions
which are in some respects broader than the specific indemnification provisions
contained in the Delaware Law. The indemnification agreements may require the
Company, among other things, to indemnify its directors against certain
liabilities that may arise by reason of their status or service as directors
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance, if available on reasonable terms. The Registrant's Amended and
Restated Certificate of Incorporation provides for indemnification of its
directors and officers to the maximum extent permitted by the Delaware Law, and
the Registrant's Bylaws provide for indemnification of its directors, officers,
employees and other agents to the maximum extent permitted by Delaware Law. In
addition, the Registrant has entered into Indemnification Agreements with its
directors and officers. Reference is also made to the Underwriting Agreement
indemnifying officers and directors of the Registrant against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 31, 1993, the Company has issued and sold the following
securities:
1. In February 1995, the Company issued and sold, pursuant to a Series C
Preferred Stock Purchase Agreement, an aggregate of 595,363 shares of Series C
Preferred Stock at a purchase price of $2.50 per share for an aggregate offering
price of $1,488,408.
II-1
<PAGE> 95
2. From May 31, 1993 through May 31, 1996, the Company granted options
under the 1988 Stock Option Plan to purchase an aggregate of 1,704,190 shares of
Common Stock at exercise prices ranging from $0.25 to $7.00 per share to 89
employees, directors and consultants.
3. From May 31, 1993 through May 31, 1996, the Company issued and sold,
pursuant to the exercise of options granted under the 1988 Stock Plan, 133,302
shares of Common Stock to 18 employees and consultants for an aggregate purchase
price of $60,251.00 in cash.
4. In August 1995, the Company issued and sold, pursuant to an Agreement
and Plan of Reorganization, an aggregate of 443,360 shares of Series C Preferred
Stock in exchange for an aggregate of 1,108,400 shares of capital stock of Onyx
Graphics, Inc., a Delaware Corporation.
5. In January 1996 the Company amended the Agreement and Plan of
Reorganization dated August 1995 to allow for early release from escrow of
133,008 shares.
The issuances of the securities in Item 1 above was deemed to be exempt
from registration under the Act in reliance on Section 4(2) of such Act as a
transaction by an issuer not involving any public offering. The issuances
described in Items 2 and 3 above were deemed exempt from Registration under the
Act in reliance upon Rule 701 promulgated under the Act. In addition, the
issuances described in Item 4 above were deemed exempt from registration under
the Act in reliance on Section 3(a)(10) of the Act. The recipients of securities
in each such transaction represented their intentions to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates, options and warrants issued in such transactions. All recipients
had adequate access, through their relationships with the Company, to
information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1* Agreement and Plan of Reorganization dated as of June 12, 1995 among
Registrant, Onyx Graphics Corporation and Bank of America N.T.S.A., and
Amendment dated as of December 31, 1995.
2.2 Form of Agreement and Plan of Merger between Registrant and Raster
Graphics, Inc. (a California Corporation)
3.1* Amended and Restated Articles of Incorporation of Registrant (California)
3.2 Amended and Restated Articles of Incorporation of Registrant (California)
3.3 Certificate of Incorporation of Registrant (Delaware)
3.4 Amended and Restated Certificate of Incorporation of Registrant (Delaware)
3.5* Bylaws of Registrant (California)
3.6 Bylaws of Registrant (Delaware)
4.1** Specimen Common Stock Certificate
4.2 Form of Warrant of Registrant for Common Stock
4.3 Form of Warrant for Series B Preferred Stock
5.1 Opinion of Venture Law Group, A Professional Corporation
10.1* 1988 Stock Option Plan
10.2 1996 Stock Plan
10.3* 1996 Directors' Stock Option Plan
10.4* 1996 Employee Stock Purchase Plan
10.5* Form of Indemnification Agreement (California)
10.6 Form of Indemnification Agreement (Delaware)
10.7* Amended and Restated Registration Rights Agreement dated as of August 4,
1995 between Registrant and holders of its Preferred Stock and warrant
holders
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------
<C> <S>
10.8* Amended and Restated Product Agreement by and between Registrant, Inc. and
Oce Graphics France S.A. dated October 1, 1990 and Amendments July 17,
1991, April 29, 1992, January 13, and September 1, 1994
10.9* Purchase Agreement by and between ENCAD, Inc. and Onyx Graphics Corporation
dated March 9, 1996
10.10* Lease Agreement by and between Raster Graphics, Inc. and Principal Mutual
Life Insurance Company for facility on 3025 Orchard Parkway, San Jose, CA
10.11*+ Development and Purchase Agreement dated March 16, 1996
11.1 Statement of Computation of Income (Loss) Per Share
21.1* Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of KPMG, Independent Auditors
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney
27* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
(b) Financial Statement Schedules
II Valuation and qualifying accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Act shall be deemed to be part of this Registration Statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to the Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Jose, State of California on this 12th day of July, 1996.
RASTER GRAPHICS, INC.
By: /s/ RAKESH KUMAR
Rakesh Kumar,
President and Chief Executive
Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------------------------- --------------
<C> <S> <C>
/s/ RAKESH KUMAR President, Chief Executive Officer and July 12, 1996
(Rakesh Kumar) Chairman of the Board of Directors
(Principal Executive Officer)
DENNIS R. Vice President and Chief Financial July 12, 1996
MAHONEY* Officer (Principal Financial and
(Dennis R. Mahoney) Accounting Officer)
FRANK J. Director July 12, 1996
CAUFIELD*
(Frank J. Caufield)
CHUCK President, Onyx Graphics and Director July 12, 1996
EDWARDS*
(Chuck Edwards)
PROMOD HAQUE* Director July 12, 1996
(Promod Haque)
LUCIO L. Director July 12, 1996
LANZA*
(Lucio L. Lanza)
W. JEFFERS Director July 12, 1996
PICKARD*
(W. Jeffers Pickard)
DELBERT W. YOCAM* Director July 12, 1996
(Delbert W. Yocam)
*By /s/ RAKESH KUMAR
(Rakesh Kumar, Attorney-in-Fact)
</TABLE>
II-4
<PAGE> 98
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------- --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1* Agreement and Plan of Reorganization dated as of June 12, 1995 among Registrant,
Onyx Graphics Corporation and Bank of America N.T.S.A., and Amendment dated as
of December 31, 1995.
2.2 Form of Agreement and Plan of Merger between Registrant and Raster Graphics,
Inc. (a California Corporation)
3.1* Amended and Restated Articles of Incorporation of Registrant (California)
3.2 Amended and Restated Articles of Incorporation of Registrant (California)
3.3 Certificate of Incorporation of Registrant (Delaware)
3.4 Amended and Restated Certificate of Incorporation of Registrant (Delaware)
3.5* Bylaws of Registrant (California)
3.6 Bylaws of Registrant (Delaware)
4.1** Specimen Common Stock Certificate
4.2 Form of Warrant of Registrant for Common Stock
4.3 Form of Warrant for Series B Preferred Stock
5.1 Opinion of Venture Law Group, A Professional Corporation
10.1* 1988 Stock Option Plan
10.2 1996 Stock Plan
10.3* 1996 Directors' Stock Option Plan
10.4* 1996 Employee Stock Purchase Plan
10.5* Form of Indemnification Agreement (California)
10.6 Form of Indemnification Agreement (Delaware)
10.7* Amended and Restated Registration Rights Agreement dated as of August 4, 1995
between Registrant and holders of its Preferred Stock and warrant holders
10.8* Amended and Restated Product Agreement by and between Registrant, Inc. and Oce
Graphics France S.A. dated October 1, 1990 and Amendments July 17, 1991, April
29, 1992, January 13, and September 1, 1994
10.9* Purchase Agreement by and between ENCAD, Inc. and Onyx Graphics Corporation
dated March 9, 1996
10.10* Lease Agreement by and between Raster Graphics, Inc. and Principal Mutual Life
Insurance Company for facility on 3025 Orchard Parkway, San Jose, CA
10.11*+ Development and Purchase Agreement dated March 16, 1996
11.1 Statement of Computation of Income (Loss) Per Share
21.1* Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of KPMG, Independent Auditors
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney
27* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
<PAGE> 1
RASTER GRAPHICS, INC.
3,000,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
_________, 1996
HAMBRECHT & QUIST LLC
Prudential Securities Incorporated
As Representatives of the Several Underwriters
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Raster Graphics, Inc., a Delaware corporation (herein called the
"Company"), proposes to issue and sell 2,000,000 shares of its authorized but
unissued Common Stock, $0.001 par value (herein called the "Common Stock"), and
the stockholders of the Company named in Schedule II hereto (herein collectively
called the "Selling Stockholders") propose to sell an aggregate of 1,000,000
shares of Common Stock of the Company, 0.001 par value (said 3,000,000 shares of
Common Stock being herein called the "Underwritten Stock"). The Company proposes
to grant to the "Underwriters" (as hereinafter defined) an option to purchase up
to 450,000 additional shares of Common Stock (herein called the "Option Stock"
and with the Underwritten Stock herein collectively called the "Stock"). The
Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.
The Company and the Selling Stockholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters named in Schedule I hereto (herein collectively called the
"Underwriters"), which term shall also include any underwriter purchasing Stock
pursuant to Section 3(b) hereof, for whom you are acting as representatives
(herein collectively "you" or the "Representatives"). You represent and
warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner
herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities
and Exchange Commission (herein called the "Commission") a registration
statement on Form S-1 (No. 333-06617), including the related preliminary
prospectus, for the registration under the Securities Act of 1933, as amended
(herein called the "Securities Act"), of the Stock. Copies of
- -------------------------
(1) Plus an option to purchase from the Company up to 450,000 additional
shares to cover over-allotments.
<PAGE> 2
such registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the requirements of Rule 430A of the
rules and regulations of the Commission) heretofore filed by the Company with
the Commission have been delivered to you.
The term Registration Statement as used in this Agreement shall
mean such registration statement, including all documents incorporated by
reference therein and all exhibits and financial statements and all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(B) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(B) registration statement), and in the event of any amendment thereto after
the effective date of such registration statement (herein called the "Effective
Date"), shall also mean (from and after the effectiveness of such amendment)
such registration statement as so amended (including any Rule 462(B)
registration statement). The term "Prospectus" as used in this Agreement shall
mean the prospectus, including the documents incorporated by reference therein,
relating to the Stock first filed with the Commission pursuant to Rule 424(B)
and Rule 430A (or, if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term "Preliminary Prospectus"
as used in this Agreement shall mean each preliminary prospectus, including the
documents incorporated by reference therein, included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has full corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement and the
Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, condition
(financial or otherwise) or results of operations or prospects of the Company
and its subsidiaries taken as whole (a "Material Adverse Effect")).
2
<PAGE> 3
(ii) The Company owns all of the shares of capital stock
of each subsidiary of the Company, and each of the Company's subsidiaries has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good standing
in all jurisdictions in which the character of the property owned or leased or
the nature of the business transacted by it makes qualification necessary except
where the failure to be so qualified would not have a Material Adverse Effect.
(iii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition or
results of operations or prospects of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement and the Prospectus.
(iv) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Stock nor instituted or, to the best knowledge of the Company,
after due inquiry, threatened instituting proceedings for that purpose. The
Registration Statement and the Prospectus comply, and on the Closing Date (as
hereinafter defined) and any later date on which Option Stock is to be
purchased, the Prospectus will comply, in all material respects, with the
provisions of the Securities Act and the Securities Exchange Act of 1934, as
amended (herein called the "Exchange Act"), and the rules and regulations of the
Commission thereunder. On the Effective Date, the Registration Statement did not
contain any untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date the Prospectus did
not and, on the Closing Date and any later date on which Option Stock is to be
purchased, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties in this
subparagraph (iv) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in conformity
with information herein or otherwise furnished in writing to the Company by or
on behalf of the Underwriters for use in the Registration Statement or the
Prospectus.
(v) The Stock is duly and validly authorized, is (or, in
the case of shares of the Stock to be sold by the Company, will be, when issued
and sold to the Underwriters as provided herein) duly and validly issued, fully
paid and nonassessable and conforms to the description thereof in the
Prospectus. No further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of the Stock
as contemplated herein. The authorized capital stock of the Company conforms as
to legal matters
3
<PAGE> 4
to the description thereof contained in the Prospectus. The shares of Common
Stock outstanding prior to the issuance of the Underwritten Stock and, if any,
the Option Stock have been duly authorized and are validly issued, fully paid
and non-assessable.
(vi) Prior to the Closing Date, the Stock to be issued
and sold by the Company will be authorized for listing on the Nasdaq National
Market (herein called "NNM") upon official notice of issuance.
(vii) Except as specifically disclosed in the
Registration Statement, the Company does not have outstanding any options to
purchase, or any preemptive rights, or other rights to subscribe or to purchase
or rights of co-sale, any securities or obligations convertible into, or any
contracts or commitments to issue or sell or register for sale, shares of its
capital stock or any such options, rights, convertible securities or
obligations.
(viii) The consolidated financial statements of the
Company, together with related notes and schedules as set forth in the
Registration Statement ("Financial Statements"), present fairly the financial
position and the results of operations of the Company and its subsidiaries,
taken as a whole, at the indicated dates and for the indicated periods. The
Financial Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied through the period involved, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The selected and summary financial data and the tables set forth
under "Results of Operations" and "Quarterly Results of Operations" in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section, included in the Registration Statement, present fairly the
information shown therein and have been compiled on a basis consistent with the
Financial Statements presented in the Registration Statement.
(ix) Neither the Company nor any of its subsidiaries is
in violation or default under any provision of its charter documents or bylaws,
as currently in effect, or any indenture, license, mortgage, lease, franchise,
permit, deed of trust or other agreement or instrument to which such corporation
is a party or by which such corporation or any of its properties is bound or may
be affected, except where such violation or default would not have a Material
Adverse Effect.
(x) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable laws and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, or by general equitable principles. The execution and performance of
this Agreement and the consummation of the transactions herein contemplated do
not and will not: (i) conflict with, or result in a breach of, or violation of,
any of the terms or provisions of, or constitute, either by itself or upon
notice or the passage of time or both, a default under, any indenture, license,
mortgage, lease, franchise, permit, deed of trust or
4
<PAGE> 5
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which any such corporation or any of its properties is bound or
may be affected, except where such breach, violation or default would not have a
Material Adverse Effect, (ii) violate any of the provisions of the charter
documents or bylaws of any such corporation, except where such violation would
not have a Material Adverse Effect, or (iii) violate any material order,
judgment, statute, rule or regulation applicable to any such corporation or of
any regulatory, administrative or governmental body or agency having
jurisdiction over any such corporation or any of its properties, except where
such violation would not have a Material Adverse Effect.
(xi) Except as disclosed in the Prospectus, there is not
any pending or, to the Company's knowledge, threatened action, suit, claim or
proceeding against the Company or any of its subsidiaries or any of their
respective officers or any of their properties, assets or rights before any
court or governmental agency or body or otherwise which (i) might have a
Material Adverse Effect, or (ii) might prevent consummation of the transactions
contemplated hereby or (iii) is required to be disclosed in the Registration
Statement; and there are no contracts or documents of the Company or any of its
subsidiaries that are required to be described in the Prospectus or to be filed
as exhibits to the Registration Statement which have not been fairly and
accurately described in all material respects in the Prospectus and filed as
exhibits to the Registration Statement. The contracts so described in the
Prospectus are in full force and effect on the date hereof; and neither the
Company nor any of its subsidiaries nor, to the Company's knowledge any other
party, is in breach of or default under any of such contracts.
(xii) Except as disclosed in the Prospectus, the Company
owns or possesses adequate rights to use all patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names and copyrights
described or referred to in the Prospectus as owned or used by it or which are
necessary for the conduct of its businesses as described in the Prospectus; the
Company has not received any notice of, and the Company has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, might
reasonably have a Material Adverse Effect.
(xiii) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Stock.
(b) Each of the Selling Stockholders hereby represents and
warrants as follows:
(i) Such Selling Stockholder has good and marketable
title to all the shares of Stock to be sold by such Selling Stockholder
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to deliver the
same hereunder, subject, in the case of each Selling Stockholder, to the rights
of U.S. Stock Transfer Corporation as Custodian (herein called the "Custodian"),
and that upon the delivery of and payment for such shares of the Stock
hereunder, the several Underwriters will
5
<PAGE> 6
receive good and marketable title thereto, free and
clear of all liens, encumbrances, equities, security interests and claims
whatsoever.
(ii) Certificates in negotiable form for the shares of
the Stock to be sold by such Selling Stockholder have been placed in custody
under a Custody Agreement for delivery under this Agreement with the Custodian;
such Selling Stockholder specifically agrees that the shares of the Stock
represented by the certificates so held in custody for such Selling Stockholder
are subject to the interests of the several Underwriters and the Company, that
the arrangements made by such Selling Stockholder for such custody, including
the Power of Attorney provided for in such Custody Agreement, are to that extent
irrevocable, and that the obligations of such Selling Stockholder shall not be
terminated by any act of such Selling Stockholder or by operation of law,
whether by the death or incapacity of such Selling Stockholder (or, in the case
of a Selling Stockholder that is not an individual, the dissolution or
liquidation of such Selling Stockholder) or the occurrence of any other event;
if any such death, incapacity, dissolution, liquidation or other such event
should occur before the delivery of such shares of the Stock hereunder,
certificates for such shares of the Stock shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such death,
incapacity, dissolution, liquidation or other event had not occurred, regardless
of whether the Custodian shall have received notice of such death, incapacity,
dissolution, liquidation or other event.
(iii) Each Selling Stockholder beneficially owning in
excess of 100,000 shares of Common Stock on the date hereof (as indicated in the
Prospectus under "Principal and Selling Stockholders"), has reviewed the
Registration Statement and Prospectus and, although such Selling Stockholder has
not independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of such Selling Stockholder
that would lead such Selling Stockholder to believe that (A) on the Effective
Date, the Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, and (B) on the
Effective Date the Prospectus contained and, on the Closing Date, contains any
untrue statement of a material fact or omitted or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(iv) Each Selling Stockholder except those making the
representations in paragraph (b)(iii) of this Section 2, represents and
warrants to and agrees with each of the several Underwriters that to the extent
that any statements or omissions are made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder specifically for use therein, such
Preliminary Prospectus did, and the Registration Statement and the Prospectus
and any amendments or supplements thereto, when they become effective or are
filed with the Commission, as the case may be, will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading. Such Selling
Stockholder has reviewed the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) and the Registration
Statement, and the information regarding such Selling Stockholder set forth
therein under the caption "Principal and Selling Stockholders" is complete and
accurate.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell 2,000,000 shares of the Underwritten Stock to the several
Underwriters, each Selling Stockholder agrees to sell to the several
Underwriters the number of shares of Underwritten Stock set forth in Schedule II
opposite the name of such Selling Stockholder, and each of the Underwriters
agrees to purchase from the Company the respective aggregate number of shares of
Stock set forth opposite its name in Schedule I. The price at which such shares
of Underwritten Stock shall be sold by the Company and purchased by the several
Underwriters shall be $_____ per share. The obligation of each Underwriter to
the Company and each of the Selling Stockholders shall be to purchase from the
Company and the Selling Stockholders that number of shares of the Underwritten
Stock which represents the same proportion of the total number of shares of the
Underwritten Stock to
6
<PAGE> 7
be sold by each of the Company and the Selling Stockholders pursuant to this
Agreement as the number of shares of the Underwritten Stock set forth opposite
the name of such Underwriter in Schedule I hereto represents of the total number
of shares of the Underwritten Stock to be purchased by all Underwriters pursuant
to this Agreement, as adjusted by you in such manner as you deem advisable to
avoid fractional shares. In making this Agreement, each Underwriter is
contracting severally and not jointly; except as provided in paragraphs (b) and
(c) of this Section 3, the agreement of each Underwriter is to purchase only the
respective number of shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Sections 8 or 9 hereof) to
purchase and pay for the number of shares of the Stock agreed to be purchased by
such Underwriter or Underwriters, the Company or the Selling Stockholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter or
Underwriters and upon the terms herein set forth, all or any part of the shares
of the Stock which such defaulting Underwriter or Underwriters agreed to
purchase. If the non-defaulting Underwriters fail to make such arrangements with
respect to all such shares, the number of shares of the Stock which each
non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining shares which the defaulting Underwriter or Underwriters agreed to
purchase; provided, however, that the non-defaulting Underwriters shall not be
obligated to purchase the shares which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Stockholders shall have the right, within 24 hours next
succeeding the 24-hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to you for purchase of such shares on
the terms herein set forth. In any such case, either you or the Company shall
have the right to postpone the Closing Date determined as provided in Section 5
hereof for not more than seven business days after the date originally fixed as
the Closing Date pursuant to said Section 5 in order that any necessary changes
in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company and the Selling Stockholders shall make arrangements within the 24 hour
periods stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Stockholders to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or the Selling Stockholders. Nothing
in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
7
<PAGE> 8
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to 450,000 shares of Option Stock from the Company
at the same price per share as the Underwriters shall pay for the Underwritten
Stock. Said option may be exercised only to cover over-allotments in the sale of
the Underwritten Stock by the Underwriters and may be exercised in whole or in
part at any time (but not more than once) on or before the thirtieth day after
the date of this Agreement upon written or telegraphic notice by you to the
Company setting forth the aggregate number of shares of the Option Stock as to
which the several Underwriters are exercising the option. Delivery of
certificates for the shares of Option Stock and payment therefor shall be made
as provided in Section 5 hereof. The number of shares of the Option Stock to be
purchased by each Underwriter shall be the same percentage of the total number
of shares of the Option Stock to be purchased by the several Underwriters as
such Underwriter is purchasing of the Underwritten Stock as adjusted by you in
such manner as you deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the
Underwriters of the Stock to be purchased by them shall be as set forth in the
Prospectus. The Underwriters may from time to time change the public offering
price after the closing of the public offering and increase or decrease the
concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the
front cover page of any Preliminary Prospectus and the Prospectus and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Stock filed by the Company (insofar as such
information relates to the Underwriters or the terms and conditions upon which
they will sell the Stock) constitutes the only information furnished by the
Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten
Stock and the Option Stock (if the option granted by Section 3(c) hereof shall
have been exercised not later than 7:00 A.M., California time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
(GDSVF&H), at 7:00 A.M., California time, on the fourth business day after the
date of this Agreement, or at such time on such other day, not later than seven
full business days after such fourth business day, as shall be agreed upon in
writing by the Company and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 3(b) hereof) are herein called
the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 A.M., California time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made at the office of
8
<PAGE> 9
GDSVF&H, at 7:00 A.M., California time, on the third business day after the
exercise of such option.
(c) Payment for the stock purchased from the Company shall be
made to the Company or its order and payment for the Stock purchased from the
Selling Stockholders shall be made to the custodian, for the account of the
Selling Stockholders, in each case by one or more certified or official bank
check or checks in next day funds (and the Company and the Selling Stockholders
agree not to deposit any such check in the bank on which drawn until the day
following the date of its delivery to the Company or the Custodian, as the case
may be). Such payment shall be made upon delivery of certificates for the Stock
to you for the respective accounts of the several Underwriters against receipt
therefor signed by you. Certificates for the Stock to be delivered to you shall
be registered in such name or names and shall be in such denominations as you
may request at least two business days before the Closing Date, in the case of
Underwritten Stock, and at least two business days prior to the purchase
thereof, in the case of the Option Stock. Such certificates will be made
available to the Underwriters for inspection, checking and packaging at the
offices of Lewco Securities Corporation, 2 Broadway, New York, New York, 10004
not less than one full business day prior to the Closing Date or, in the case of
the Option Stock, by 3:00 P.M., New York time, on the business day preceding the
date of purchase.
It is understood that you, individually and not on the behalf of
the Underwriters, may (but shall not be obligated to) make payment to the
Company or the Selling Stockholders for shares to be purchased by any
Underwriter whose check shall not have been received by you on the Closing Date
or on any later date on which Option Stock is purchased for the account of such
Underwriter. Any such payment by you shall not relieve such Underwriter from any
of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
Each of the Company and the Selling Stockholders respectively
covenants and agrees as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(B) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.
(b) The Company will promptly notify the Representatives in the
event of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
(ii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the institution or notice of
intended institution of any action or proceeding for that purpose, (iv) the
receipt by the Company of any notification with respect to the suspension of the
9
<PAGE> 10
qualification of the Stock for sale in any jurisdiction, or (v) the receipt by
it of notice of the initiation or threatening of any proceeding for such
purpose. The Company and the Selling Stockholders will make every reasonable
effort to prevent the issuance of such a stop order and, if such an order shall
at any time be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(c) The Company will (i) on or before the Closing Date, deliver
to you a signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended Prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
Stock, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended Prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the initial
public offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended Prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
10
<PAGE> 11
(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus or
any amended Prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you,
in the qualification of the Stock for offer and sale under the securities or
blue sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter or
dealer, in keeping such qualifications in good standing under said securities or
blue sky laws; provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for distribution of the
Stock.
(g) During a period of five years commencing with the date
hereof, the Company will furnish to you, and to each Underwriter who may so
request in writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports filed
with the Commission (including the report on Form SR required by Rule 463 of the
Commission under the Securities Act or the Exchange Act.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(A) of the Securities Act and Rule 158
thereunder.
(i) The Company agrees to pay all costs and expenses incident
to the performance of its obligations under this Agreement, including all costs
and expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. ("NASD") of
the Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters of copies of any Preliminary Prospectus and
of the several documents required by paragraph (c) of this Section 6 to be so
furnished, (iii) the printing of this Agreement and related documents delivered
to the Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees. The Selling Stockholders will pay any transfer taxes incident to the
transfer to the Underwriters of the shares of Stock being sold by the Selling
Stockholders.
(j) The Company agrees to reimburse you, for the account of the
several Underwriters, for blue sky fees and related disbursements (including
counsel fees and disbursements and cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their counsel in
qualifying the Stock under state securities or blue sky laws and in the review
of the offering by the NASD.
11
<PAGE> 12
(k) [Intentionally Left Blank]
(l) The Company hereby agrees that, without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, it will not,
during the period ending one hundred eighty (180) days after the date of the
final Prospectus for the public offering, (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
(2) enter into any swap or similar agreement that transfers, in whole or in
part, the economic risk of ownership of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise; provided, however,
that the foregoing provisions of this paragraph (l) shall not apply to (A) the
Stock to be sold to the Underwriters pursuant to this Agreement, (B) shares of
Common Stock issued under the stock option and stock purchase plans of the
Company (the "Stock Plans"), including Common Stock issued upon the exercise of
options granted under the Stock Plans, all as described in footnote (1) to the
table under the caption "Capitalization" and under the caption "Stock Option and
Incentive Plans" in the Preliminary Prospectus, provided that any such Common
Stock is not transferable until after the expiration of such 180-day period. For
purposes of this paragraph (l), a sale, offer, or other disposition shall be
deemed to include any sale to an institution which can, following such sale,
sell Common Stock to the public in reliance on Rule 144A. The Company agrees
that it shall not release any shares from any lock-up agreements with
stockholders of the Company without the prior written consent of Hambrecht &
Quist LLC.
(m) Each of the Selling Stockholders agrees that, without the
prior written consent of Hambrecht & Quist LLC on behalf of the Underwriters,
it will not, during the period ending one-hundred eighty (180) days after the
date of the final Prospectus for the Public Offering, (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or similar agreement that transfers,
in whole or in part, the economic risk of ownership of the Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise, and whether any such transaction relates to Common Stock now owned
or hereafter acquired by the undersigned.
(n) [Intentionally Left Blank]
(o) If at any time during the 25-day period after the
Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price for the Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you
12
<PAGE> 13
concerning the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section
7, the Company and the Selling Stockholders jointly and severally agree to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Exchange Act, or
the common law or otherwise, and subject to the provisions of paragraph (f) of
this Section 7, the Company and the Selling Stockholders jointly and severally
agree to reimburse each such Underwriter and controlling person for any legal or
other expenses (including, except as otherwise hereinafter provided, reasonable
fees and disbursements of counsel) as incurred by the respective indemnified
parties in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(B) registration
statement) or any post-effective amendment thereto (including any Rule 462(B)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (A) the indemnity agreements of the Company
and the Selling Stockholders contained in this paragraph (a) shall not apply to
any such losses, claims, damages, liabilities or expenses if such statement or
omission was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or on
behalf of any Underwriter expressly for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (B) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
(excluding the documents incorporated therein by reference) and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented) unless the failure is the result of noncompliance by the Company
with this Agreement and (C) each Selling Stockholder shall only be liable under
this paragraph with respect to (1) information pertaining to
13
<PAGE> 14
such Selling Stockholder furnished by or on behalf of such Selling Stockholder
expressly for use in any Preliminary Prospectus or the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto and (2) facts
that would constitute a breach of any representation or warranty of such Selling
Stockholder set forth in Section 2(b) hereof. The indemnity agreements of the
Company and the Selling Stockholders are contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Stockholders
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration Statement
on his own behalf or pursuant to a power of attorney, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, and the Selling Stockholders from
and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(B) registration statement) or any post-effective
amendment thereto (including any Rule 462(B) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of such indemnifying Underwriter expressly for use in
the Registration Statement or in any Preliminary Prospectus or the Prospectus or
any such amendment thereof or supplement thereto. The indemnity agreement of
each Underwriter contained in this paragraph (b) shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
Stock.
(c) Each party indemnified under the provisions of paragraphs
(a) and (b) of this Section 7 agrees that, upon the service of a summons or
other initial legal process upon it in any action or suit instituted against it
or upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs,
14
<PAGE> 15
it will promptly give written notice (herein called the Notice) of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then one counsel for the indemnified party or
parties shall be entitled to conduct the defense of the indemnified party or
parties to the extent reasonably determined by such counsel to be necessary to
protect the interests of the indemnified party or parties and (ii) in any event,
the indemnified party or parties shall be entitled to have counsel chosen by
such indemnified party or parties participate in, but not conduct, the defense.
If, within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a) through
(c) of this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraphs (a) or (b) of this Section 7, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraphs (a) or (b) of this Section 7 (i) in such
proportion as is
15
<PAGE> 16
appropriate to reflect the relative benefits received by each indemnifying party
from the offering of the Stock or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of each indemnifying party in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of the Stock received by the Company and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Stock. Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service
of a summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Stockholders will,
without the prior written consent of the Representatives, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not an Underwriter or any person who controls such
Underwriter within the meaning of Section 15 of the Securities Act or Section 20
16
<PAGE> 17
of the Exchange Act is a party to such claim, action, suit or proceeding) unless
such settlement, compromise or consent includes an unconditional release of each
Underwriter and each controlling person from all liability arising out of such
claim, action, suit or proceeding.
(f) The liability of each Selling Stockholder under the
indemnity and reimbursement agreements contained in the provisions of this
Section 7 and Section 11 hereof shall be limited to an amount equal to the net
proceeds received by such Selling Stockholder from the public offering price of
the Stock sold by such Selling Stockholder hereunder. In addition, no Selling
Stockholder shall be liable under the expense, indemnity and contribution
agreements of Section 6 and 7 hereof unless and until the Underwriters have made
written demand on the Company for payment under such Sections which shall not
have been paid by the Company within 45 days after receipt of such demand. The
Company and the Selling Stockholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to the
respective amounts of such liability for which they each shall be responsible,
including, without limitation, allocating between the Company and the Selling
Stockholders the liability resulting in a breach of the representations and
warranties of the Company and the Selling Stockholders hereunder.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Stockholders if after the date of this Agreement trading in the Common
Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or emergency or change in economic or political
conditions if the effect of such outbreak, calamity or emergency would, in the
Underwriter's reasonable judgment, make the offering or delivery of the Stock
impracticable, (iii) suspension of trading in securities generally or a material
adverse decline in value of securities generally on the New York Stock Exchange,
the American Stock Exchange, the NASD Automated Quotation System ("Nasdaq") or
the NNM, or limitations on prices (other than limitations on hours or numbers of
days of trading) for securities on either such exchange or system, (iv) the
occurrence of any change in the business or properties of the Company which in
the Underwriter's reasonable opinion materially and adversely impairs the
investment quality of the securities, (v) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (vi)
declaration of a banking moratorium by either federal or New York State
authorities or (vii) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company or the Selling
Stockholder to the Underwriters and no liability of the Underwriters to the
Company or the Selling Stockholders; provided, however, that in the event of any
such termination the Company and the Selling Stockholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the
17
<PAGE> 18
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and the Selling Stockholders of its obligations to be
performed hereunder at or prior to the Closing Date or any later date on which
Option Stock is to be purchased, as the case may be, and to the following
further conditions:
(a) The Registration Statement shall have become effective; and
no stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing the Stock,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by GDSVF&H.
(c) You shall have received from Venture Law Group, A
Professional Corporation, counsel for the Company, and from Wilson Sonsini
Goodrich & Rosati, patent counsel for the Company, opinions, addressed to the
Underwriters and dated the Closing Date, covering the matters set forth in Annex
A and Annex B hereto, respectively, and if Option Stock is purchased at any date
after the Closing Date, additional opinions from each such counsel addressed to
the Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinions remain valid as of such later
date.
(d) You shall be satisfied that (i) as of the Effective Date,
the statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which was required by law to have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment, (iii) since the respective dates as of
which information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition, results of operations or prospects of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in the
ordinary course of business, and, since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has entered
into any material transaction not referred to in the Registration Statement in
the form in which it originally became effective and the Prospectus contained
therein, (iv) the Company and its subsidiaries, taken as a whole, do not have
any material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus, (v) there are not any pending or
18
<PAGE> 19
known threatened legal proceedings to which the Company or any of its
subsidiaries is a party or of which property of the Company of any of its
subsidiaries is the subject which are material and which are not disclosed in
the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as required,
(vii) the representations and warranties of the Company and the Selling
Stockholders herein are true and correct in all material respects as of the
Closing Date or any later date on which Option Stock is to be purchased, as the
case may be, and (viii) there has not been any material change in the market for
securities in general or in political, financial or economic conditions from
those reasonably foreseeable as to render it impracticable, in your reasonable
judgment, to make a public offering of the Stock or a material adverse change in
market levels for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any
later date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, on behalf of the Company, stating that
the respective signers of said certificate have carefully examined the
Registration Statement in the form in which it originally became effective and
the Prospectus contained therein and any supplements or amendments thereto, and
that the statements included in clauses (i) through (vi) of paragraph (d) of
this Section 9 are true and correct, and the statements included in clause (vii)
of paragraph (d) of this Section 9 are true and correct with respect to the
representations and warranties of the Company.
(f) You shall have received from Ernst & Young LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Option Stock is purchased, confirming that they are independent
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations thereunder and
based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than five (5) business days prior to
the Closing Date or such later date on which Option Stock is purchased (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company or its subsidiaries which, in your
reasonable judgment, makes it impractical or inadvisable to proceed with the
public offering of the Stock or the purchase of the Option Stock as contemplated
by the Prospectus.
(g) You shall have received from Ernst & Young LLP a letter
stating that their review of the Company's and its subsidiaries' systems of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's
19
<PAGE> 20
financial statements as of _________________, did not disclose any weakness in
internal controls that they considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic Form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold
by the Company shall have been duly authorized for listing by the NNM upon
official notice of issuance.
(j) On or prior to the Closing Date, you shall have received
from all directors, officers and beneficial holders of more than 1% of the
outstanding Common Stock agreements in a form reasonably satisfactory to the
Representatives that such stockholders will not, without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, during the
period ending 180 days after the date of the final Prospectus for the public
offering, (1) offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or (2) enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the Common Stock, whether any such transaction described in clauses
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, and whether any such transaction relates to
Common Stock then owned or thereafter acquired by such holder.
All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if GDSVF&H, counsel for the Underwriters, shall be
reasonably satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall
not be fulfilled, this Agreement may be terminated by you by giving notice to
the Company and the Selling Stockholders. Any such termination shall be without
liability of the Company or the Selling Stockholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Stockholders; provided, however, that (i) in the event of such termination, the
Company and the Selling Stockholders agree to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof, and (ii) if
this Agreement is terminated by you because of any refusal, inability or failure
on the part of the Company or the Selling Stockholders to perform any agreement
herein, to fulfill any of the conditions herein, or to comply with any provision
hereof other than by reason of a default by any of the Underwriters, the Company
and the Selling Stockholders will reimburse the Underwriters severally upon
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with transactions contemplated hereby.
20
<PAGE> 21
10. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its other
obligations under Section 7 of this Agreement, the Company and the Selling
Stockholders hereby agree to reimburse on a quarterly basis the Underwriters for
all reasonable legal and other expenses incurred in connection with
investigating or defending any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in paragraph (a) of Section 7 of this
Agreement, notwith-standing the absence of a judicial determination as to the
propriety and enforceability of the obligations under this Section 10 and the
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Stockholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Stockholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
12. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing and, if to the Underwriters, shall be mailed,
copied or delivered to Hambrecht & Quist LLC, One Bush Street, San Francisco,
California 94104, Attention: Daniel H. Case, III (with a copy to the General
Counsel); and if to the Company, shall be mailed, telegraphed or delivered to it
at its office, Attention: Rakesh Kumar (with a copy to The Venture Law Group, A
Professional Corporation, Attention: Michael W. Hall, Esq.). All notices given
by telegraph shall be promptly confirmed by letter.
13. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Stockholders or their respective directors
or officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (e) and (m) of Section 6 hereof shall be of
no further force or effect.
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA.
21
<PAGE> 22
Please sign and return to the Company the enclosed duplicates of
this letter, whereupon this letter will become a binding agreement among the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
RASTER GRAPHICS, INC.
By:
--------------------------------------
President and Chief Executive Officer
SELLING STOCKHOLDERS:
By:
-------------------------------------,
Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
HAMBRECHT & QUIST LLC
Prudential Securities Incorporated
By Hambrecht & Quist LLC
By:
-------------------------------
Gregory J. Ingram
Managing Director
Acting on behalf of the several
Underwriters, including themselves,
named in Schedule I hereto.
<PAGE> 23
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ to be Purchased
---------------
<S> <C>
Hambrecht & Quist LLC
-----------
Prudential Securities Incorporated
-----------
Total...............................................
===========
</TABLE>
<PAGE> 24
SCHEDULE II
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Selling Stockholders Number of Shares
to be Sold
----------
<S> <C>
TOTAL
===========
</TABLE>
<PAGE> 25
ANNEX A
Matters to be Covered in the Opinion of
Venture Law Group, A Professional Corporation
Counsel for the Company
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, is duly qualified as a foreign corporation and in good standing in
___________, ____________, and _____________, and is so qualified and in good
standing in each jurisdiction in which, to its knowledge, the ownership or
leasing of property requires such qualification (except where the failure to be
so qualified would not have a material adverse effect on the business,
properties, condition (financial or otherwise) or results of operations or
prospects of the Company and its subsidiaries taken as whole and has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement;
(ii) The Company owns of record, and to our knowledge owns
beneficially all of the outstanding shares of capital stock of each subsidiary
of the Company, and each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(iii) The authorized capital stock of the Company consists of
__________ shares of Preferred Stock, $__ par value, none of which are issued
and outstanding, and ___________ shares of Common Stock, $__ par value, of which
there are issued and outstanding of record __________ shares (including the
Underwritten Stock plus the number of shares of Option Stock issued on the date
hereof); proper corporate proceedings have been taken validly to authorize such
authorized capital stock; all of the outstanding shares of such capital stock
(including the Underwritten Stock plus the number of shares of Option Stock
issued on the date hereof) have been duly and validly issued and are fully paid
and nonassessable; any Option Stock purchased on or after the Closing Date, when
issued and delivered to and paid for by the Underwriters as provided in the
Underwriting Agreement, will have been duly and validly issued and be fully paid
and nonassessable; no preemptive rights or rights of refusal exist with respect
to the Stock, or the issue and sale thereof, pursuant to the Restated
Certificate of Incorporation or Bylaws of the Company; and, to the best of such
counsel's knowledge, there are no contractual preemptive rights, rights of first
refusal or rights of co-sale which exist with respect to the issue and sale of
the Stock by the Company or the sale of Stock by the Selling Stockholders that
have not been waived. Except as disclosed in the Registration Statement, to the
best of such counsel's knowledge the Company does not have outstanding any
options to purchase, or any other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell shares of its capital stock or any such options, rights,
convertible securities or obligations;
(iv) The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge after due inquiry,
no stop order
<PAGE> 26
suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission. Any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) of the Rules and Regulations has been made in
the manner within the time period required by such Rule 424(b).
(v) The Registration Statement at the Effective Date and the
Prospectus and each amendment and supplement thereto (except as to the financial
statements and schedules and other financial data contained therein and matters
related to patents, as to which such counsel need express no opinion) complied
as to form in all material respects with the requirements of the Securities Act,
the Exchange Act and with the rules and regulations of the Commission
thereunder;
(vi) The information required to be set forth in the
Registration Statement in answer to Items 9 and 10 (insofar as Item 10 relates
to the beneficial ownership of shares of Common Stock of the Company by partners
of such counsel) and 11(c) of Form S-1 is, to the best of such counsel's
knowledge, accurately and adequately set forth therein in all material respects
or no response is required with respect to such Items; and to such counsel's
knowledge, the description of the Company's stock option plans and the options
granted and which may be granted thereunder set forth or incorporated by
reference in the Prospectus accurately and fairly presents the information
required to be shown with respect to said plans and options to the extent
required by the Securities Act and the rules and regulations of the Commission
thereunder;
(vii) To the best of such counsel's knowledge, there are no
franchises, contracts, leases, documents or legal proceedings, pending or
threatened, which in the opinion of such counsel are of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not described and filed as
required; such franchises, contracts, leases, documents and legal proceedings as
are summarized in the Registration Statement or the Prospectus fairly and
correctly present the information disclosed with respect thereto in all material
aspects;
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company;
(ix) The Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Stockholders; and the Custody Agreement
between the Selling Stockholders and ______________, as Custodian, and the Power
of Attorney referred to in such Custody Agreement have been duly executed and
delivered by or on behalf of each of the Selling Stockholders;
(x) The issue and sale by the Company of the shares of Stock
sold by the Company as contemplated by the Underwriting Agreement will not
conflict with, or result in a breach of, the Restated Certificate of
Incorporation or Bylaws of the Company or any material agreement or instrument
known to such counsel to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or any of their assets are
bound or any applicable law or regulation, or so far as is known to such
counsel, any order, writ, injunction or decree, of any jurisdiction, court or
governmental instrumentality to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or any of their
assets are bound;
<PAGE> 27
(xi) To such counsel's knowledge, all holders of securities of
the Company having rights to the registration of shares of Common Stock, or
other securities, because of the filing of the Registration Statement by the
Company are set forth in the Prospectus under the heading "Principal and Selling
Stockholders" or have waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement;
(xii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act and such as may be required under state
securities or blue sky laws or under the rules of the National Association of
Securities Dealers, Inc. in connection with the purchase and distribution of the
Stock by the Underwriters.
(xiii) The Stock to be sold under the Agreement to the
Underwriters is duly authorized for quotation on the Nasdaq National Market.
(xiv) Good and marketable title to the shares of Stock sold
by the Selling Stockholders under the Underwriting Agreement, free and clear
of all liens, encumbrances, equities, security interest and claims, has been
transferred to the Underwriters who have severally purchased such shares of
Stock under the Underwriting Agreement, assuming for the purpose of this
opinion that the Underwriters purchased the same in good faith without notice
of any adverse claims; and
(xv) Based insofar as factual matters with respect to the
Stock to be sold by the Selling Stockholders are concerned solely upon
representations of the Selling Stockholders, the accuracy of which such counsel
have no reason to question, no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act and such as may be required under state
securities or blue sky laws in connection with the purchase and distribution of
the Stock by the Underwriters.
Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or of the State of Delaware,
upon opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
In addition to the matters set forth above, counsel rendering the
foregoing opinion shall also include a statement to the effect that nothing has
come to the attention of such counsel that leads them to believe that the
Registration Statement (except as to the financial statements and schedules and
other financial and statistical data contained or incorporated by reference
therein, as to which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel need
not express any opinion or belief) as of its date or at the Closing Date (or any
later date on which Option Stock is purchased), contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
as under which they were made, not misleading.
<PAGE> 28
ANNEX B
Matters to be Covered in the Opinion of
Wilson Sonsini Goodrich & Rosati
Patent Counsel for the Company
Such counsel are familiar with the technology used by the Company in its
business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
or other proprietary information or materials and:
(i) The statements in the Registration Statement and the
Prospectus under the captions "Risk Factors-Risks Associated with Intellectual
Property" and "Business-Intellectual Property," to the best of such counsel's
knowledge and belief, are accurate and complete statements or summaries of the
matters therein set forth and nothing has come to such counsel's attention that
causes such counsel to believe that the above-described portions of the
Registration Statement and the Prospectus contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(ii) To the best of such counsel's knowledge and except as
referred to in the Prospectus under the captions and disclosures referred to in
paragraph (i) above, there are no legal or governmental proceedings pending
relating to patent rights that could materially affect the Company's business
and, to the best of such counsel's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or others;
(iii) To the best of such counsel's knowledge, the Company is
not infringing or otherwise violating any patents, trade secrets, trademarks,
service marks or other proprietary information or materials of others, which in
the judgment of such counsel could affect materially the Company's business, and
to the best of such counsel's knowledge there are no infringements by others of
any of the Company's patents, trade secrets or other proprietary information or
materials which in the judgment of such counsel could affect materially the use
thereof by the Company; and
(iv) To the best of such counsel's knowledge, the Company owns
or possesses sufficient licenses or other rights to use all patents, trade
secrets, or other proprietary information or materials necessary to conduct the
business now being or proposed to be conducted by the Company as described in
the Prospectus.
<PAGE> 1
EXHIBIT 2.2
[NOTE: THE SHARE NUMBERS REFLECT COMPLETION OF A PROPOSED 5-FOR-1
REVERSE STOCK SPLIT]
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of July , 1996 (the
"AGREEMENT") is between Raster Graphics, Inc., a California corporation ("RASTER
GRAPHICS CALIFORNIA"), and Raster Graphics, Inc., a Delaware corporation and a
wholly-owned subsidiary of Raster Graphics California ("RASTER GRAPHICS
DELAWARE"). Raster Graphics Delaware and Raster Graphics California are
sometimes referred to herein as the "CONSTITUENT CORPORATIONS."
RECITALS
A. Raster Graphics Delaware is a corporation duly organized and
existing under the laws of the State of Delaware and has an authorized capital
of 14,030,000, $0.001 par value, 8,000,000 of which are designated "Common
Stock" and 6,030,000 of which are designated "Preferred Stock." Of such
authorized shares of Preferred Stock, 320,000 shares are designated "Series A
Preferred Stock," 1,050,000 shares are designated "Series B Preferred Stock" and
4,660,000 shares are designated "Series C Preferred Stock." As of the date
hereof, 1,000 shares of Raster Graphics Delaware Common Stock were issued and
outstanding, all of which are held by Raster Graphics California, and no shares
of Raster Graphics Delaware Preferred Stock were issued and outstanding.
B. Raster Graphics California is a corporation duly organized and
existing under the laws of the State of California and has an authorized capital
of 14,030,000, none of which has any par value. Of such authorized capital,
8,000,000 shares are designated "'Common Stock" and 6,030,000 shares are
designated "Preferred Stock." Of such authorized shares of Preferred Stock,
320,000 shares are designated "Series A Preferred Stock," 1,050,000 shares are
designated "Series B Preferred Stock" and 4,660,000 shares are designated
"Series C Preferred Stock." As of the date hereof, 446,277 shares of Common
Stock, 320,000 shares of Series A Preferred Stock, 1,024,000 shares of Series B
Preferred Stock and 4,548,731 shares of Series C Preferred Stock were issued and
outstanding.
C. The Board of Directors of Raster Graphics California has determined
that, for the purpose of effecting the reincorporation of Raster Graphics
California in the State of Delaware, it is advisable and in the best interests
of Raster Graphics California and its shareholders that Raster Graphics
California merge with and into Raster Graphics Delaware upon the terms and
conditions herein provided.
D. The respective Boards of Directors of Raster Graphics Delaware and
Raster Graphics California, the shareholders of Raster Graphics California and
the sole
-1-
<PAGE> 2
shareholder of Raster Graphics Delaware have approved this Agreement
and have directed that this Agreement be executed by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Raster Graphics Delaware and Raster Graphics California hereby
agree, subject to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law,
Raster Graphics California shall be merged with and into Raster Graphics
Delaware (the "MERGER"), the separate existence of Raster Graphics California
shall cease and Raster Graphics Delaware shall be, and is herein sometimes
referred to as, the "SURVIVING CORPORATION," and the name of the Surviving
Corporation shall be "Raster Graphics, Inc."
1.2 Filing and Effectiveness. The Merger shall become effective when
the following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the shareholders of each Constituent Corporation in accordance with
the requirements of the Delaware General Corporation Law and the California
General Corporation Law;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly waived by
the party entitled to satisfaction thereof;
(c) An executed Agreement of Merger or an executed counterpart
of this Agreement and related required certificates meeting the requirements of
the Delaware General Corporation Law shall have been filed with the Secretary of
State of the State of Delaware; and
(d) An executed Agreement of Merger or an executed counterpart
of this Agreement and related required certificates meeting the requirements of
the California General Corporation Law shall have been filed with the Secretary
of State of the State of California.
The date and time when the Merger shall become effective, as aforesaid,
is herein called the "EFFECTIVE DATE OF THE MERGER."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of Raster Graphics California shall cease and Raster Graphics
Delaware, as the Surviving Corporation, (a) shall continue to possess all of its
assets, rights, powers and property as constituted immediately prior to the
Effective Date of the Merger, (b) shall be subject to all actions previously
taken by its and Raster Graphics California's Boards of Directors, (c) shall
succeed, without other transfer, to all of the assets, rights, powers and
-2-
<PAGE> 3
property of Raster Graphics California in the manner as more fully set forth in
Section 259 of the Delaware General Corporation Law, (d) shall continue to be
subject to all of its debts, liabilities and obligations as constituted
immediately prior to the Effective Date of the Merger, and (e) shall succeed,
without other transfer, to all of the debts, liabilities and obligations of
Raster Graphics California in the same manner as if Raster Graphics Delaware had
itself incurred them, all as more fully provided under the applicable provisions
of the Delaware General Corporation Law and the California General Corporation
Law.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Raster Graphics Delaware shall be the Certificate of Incorporation of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
2.2 Bylaws. The Bylaws of Raster Graphics Delaware as in effect
immediately prior to the Effective Date of the Merger shall continue in full
force and effect as the Bylaws of the Surviving Corporation until duly amended
in accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Raster
Graphics Delaware immediately prior to the Effective Date of the Merger shall be
the directors and officers of the Surviving Corporation until their successors
shall have been duly elected and qualified or until as otherwise provided by
law, the Certificate of Incorporation of the Surviving Corporation or the Bylaws
of the Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 Raster Graphics California Common Stock. Upon the Effective Date of
the Merger, each one share of Raster Graphics California Common Stock issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such share or any
other person, be converted into and exchanged for one fully paid and
nonassessable share of Common Stock, $0.001 par value, of Raster Graphics
Delaware.
3.2 Raster Graphics California Preferred Stock. Upon the Effective Date
of the Merger, each one share of Raster Graphics California Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such shares or any
other person, be converted into and exchanged for one fully paid and
nonassessable share of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock of Raster Graphics Delaware, $0.001 par value,
respectively, having such rights, preferences and privileges as set forth in the
Certificate of Incorporation of Raster Graphics Delaware, which shares of
Preferred Stock shall be convertible into shares of Raster Graphics Delaware's
Common Stock,
-3-
<PAGE> 4
$.001 par value, according to the terms of the Certificate of Incorporation of
Raster Graphics Delaware.
3.3 Raster Graphics California Options, Stock Purchase Rights,
Convertible Securities and Warrants. Upon the Effective Date of the Merger,
Raster Graphics Delaware shall assume the obligations of Raster Graphics
California under Raster Graphics California's 1988 Stock Option Plan, 1988 Stock
Purchase Plan and all other employee benefit plans of Raster Graphics
California, including outstanding stock options of Raster Graphics California.
Each outstanding and unexercised option, other right to purchase or security
convertible into Raster Graphics California Common Stock or Preferred Stock or
warrant to purchase Raster Graphics California Common Stock or Preferred Stock
shall become an option, right to purchase, security convertible into or warrant
to purchase Raster Graphics Delaware's Common Stock or Preferred Stock,
respectively, on the basis of one share of Raster Graphics Delaware's Common
Stock or Preferred Stock, for each one share of Raster Graphics California
Common Stock or Preferred Stock, respectively, issuable pursuant to any such
option, stock purchase right, convertible security or warrant, on the same terms
and conditions and at an aggregate exercise price equal to the exercise price
applicable to any such Raster Graphics California option, stock purchase right,
other convertible security or warrant at the Effective Date of the Merger.
A number of shares of Raster Graphics Delaware's Common Stock and
Preferred Stock shall be reserved for issuance upon the exercise of options,
stock purchase rights, convertible securities and warrants (including Preferred
Stock) on the basis of one share of Raster Graphics Delaware Common Stock and
Preferred Stock for one share of Raster Graphics California Common Stock and
Preferred Stock so reserved immediately prior to the Effective Date of the
Merger.
3.4 Raster Graphics Delaware Common Stock. Upon the Effective Date of
the Merger, each share of Common Stock, $0.001 par value, of Raster Graphics
Delaware issued and outstanding immediately prior thereto shall, by virtue of
the Merger and without any action by Raster Graphics Delaware, the holder of
such shares or any other person, be canceled and returned to the status of
authorized but unissued shares.
3.5 Exchange of Certificates. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of Raster Graphics
California Common Stock or Preferred Stock may, at such shareholder's option,
surrender the same for cancellation to the transfer agent and registrar for the
Common Stock of Raster Graphics Delaware, as exchange agent (the "EXCHANGE
AGENT"), and each such holder shall be entitled to receive in exchange therefor
a certificate or certificates representing the number of shares of the
appropriate class and series of Raster Graphics Delaware's capital stock into
which the surrendered shares were converted as herein provided. Until so
surrendered, each outstanding certificate theretofore representing shares of
Raster Graphics California capital stock shall be deemed for all purposes to
represent the number of whole shares of the appropriate class and series of
Raster Graphics Delaware's capital
-4-
<PAGE> 5
stock into which such shares of Raster Graphics California capital stock were
converted in the Merger.
The registered owner on the books and records of Raster Graphics
Delaware or the Exchange Agent of any such outstanding certificate shall, until
such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to Raster Graphics Delaware or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of capital stock of
Raster Graphics Delaware represented by such outstanding certificate as provided
above.
Each certificate representing capital stock of Raster Graphics Delaware
so issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Raster Graphics
California so converted and given in exchange therefor, unless otherwise
determined by the Board of Directors of Raster Graphics Delaware in compliance
with applicable laws.
If any certificate for shares of Raster Graphics Delaware stock is to
be issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and that the
person requesting such transfer pay to the Exchange Agent any transfer or other
taxes payable by reason of the issuance of such new certificate in a name other
than that of the registered holder of the certificate surrendered or establish
to the satisfaction of Raster Graphics Delaware that such tax has been paid or
is not payable.
IV. GENERAL
4.1 Covenants of Raster Graphics Delaware. Raster Graphics Delaware
covenants and agrees that it will, on or before the Effective Date of the
Merger:
(a) File any and all documents with the California Franchise
Tax Board necessary for the assumption by Raster Graphics Delaware of all of the
franchise tax liabilities of Raster Graphics California; and
(b) Take such other actions as may be required by the
California General Corporation Law.
4.2 Further Assurances. From time to time, as and when required by
Raster Graphics Delaware or by its successors or assigns, there shall be
executed and delivered on behalf of Raster Graphics California such deeds and
other instruments, and there shall be taken or caused to be taken by Raster
Graphics Delaware and Raster Graphics California such further and other actions
as shall be appropriate or necessary in order to vest or perfect in or conform
of record or otherwise by Raster Graphics Delaware the title to and possession
of all the property, interests, assets, rights, privileges, immunities,
-5-
<PAGE> 6
powers, franchises and authority of Raster Graphics California and otherwise to
carry out the purposes of this Agreement, and the officers and directors of
Raster Graphics Delaware are fully authorized in the name and on behalf of
Raster Graphics California or otherwise to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Raster Graphics California or
Raster Graphics Delaware, or both, notwithstanding the approval of this
Agreement by the shareholders of Raster Graphics California or by the sole
shareholder of Raster Graphics Delaware, or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations
may amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretaries of State of the States of
California and Delaware, provided that an amendment made subsequent to the
adoption of this Agreement by the shareholders of either Constituent Corporation
shall not: (a) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such Constituent
Corporation, (b) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the Merger, or (c) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of any class of shares or series of capital
stock of such Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is located at The Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New
Castle, and The Corporation Trust Company is the registered agent of the
Surviving Corporation at such address.
4.6 FIRPTA Notification.
(a) On or before the Effective Date of the Merger, Raster
Graphics California shall deliver to Raster Graphics Delaware, as agent for the
shareholders of Raster Graphics California, a properly executed statement in
such form as reasonably requested by counsel for Raster Graphics California and
conforming to the requirements of Treasury Regulation Section 1.897-2(h)(1)(i)
(the "STATEMENT"). Raster Graphics Delaware shall, upon request, provide a copy
thereof to any person that was a shareholder of Raster Graphics California
immediately prior to the Merger. In consequence of the approval of the Merger by
the shareholders of Raster Graphics California, as provided in Recital D hereof,
(i) such shareholders shall be considered to have requested that the Statement
be delivered to Raster Graphics Delaware as their agent and (ii) Raster Graphics
Delaware shall be considered to have received a copy of the Statement at the
request of the Raster Graphics California shareholders for purposes of
satisfying Raster Graphics Delaware's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
-6-
<PAGE> 7
(b) Raster Graphics California shall deliver to the Internal
Revenue Service a notice regarding the Statement in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2).
4.7 Expenses. Each party to the transactions contemplated by this
Agreement (including, without limitation, Raster Graphics California, Raster
Graphics Delaware and their respective shareholders) shall pay its own expenses,
if any, incurred in connection with such transactions.
4.8 Tax Opinion a Condition Precedent. The Merger shall not be
consummated unless, on or prior to the Effective Date of the Merger, Raster
Graphics California receives from Venture Law Group, A Professional Corporation
("VLG"), a written opinion that the Merger will qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended. Such opinion shall be contingent on receipt by VLG of (a) certain
representations from Raster Graphics California and Raster Graphics Delaware
requested by VLG and (b) delivery by Raster Graphics California's shareholders
as shall be designated by VLG of "Shareholder Continuity of Interest
Certificates" in such form as requested by VLG.
4.9 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 3025 Orchard
Parkway, San Jose, California 95134, and copies thereof will be furnished to any
shareholder of either Constituent Corporation, upon request and without cost.
4.10 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.11 Counterparts. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Agreement, having first been approved by
resolutions of the Boards of Directors of Raster Graphics Delaware and Raster
Graphics California, is hereby executed on behalf of each of such two
corporations and attested by their respective officers thereunto duly
authorized.
RASTER GRAPHICS, INC., a Delaware
corporation
By:_______________________________
Name:_____________________________
Title:____________________________
ATTEST:
___________________________
Michael W. Hall, Secretary
RASTER GRAPHICS, INC., a California
corporation
By:_______________________________
Name:_____________________________
Title:____________________________
ATTEST:
___________________________
Michael W. Hall, Secretary
-8-
<PAGE> 9
RASTER GRAPHICS, INC.
(Disappearing Corporation)
OFFICERS' CERTIFICATE
Rakesh Kumar and Michael W. Hall certify that:
1. They are the President and Chief Executive Officer and the
Secretary, respectively, of Raster Graphics, Inc., a corporation organized under
the laws of the State of California.
2. The corporation has authorized two classes of stock, designated
"Common Stock" and "Preferred Stock." Three series of Preferred Stock have been
authorized, designated "Series A Preferred," "Series B Preferred" and "Series C
Preferred Stock."
3. There were 446,277 shares of Common Stock, 320,000 shares of Series
A Preferred Stock, 1,024,000 shares of Series B Preferred Stock and 4,548,731
shares of Series C Preferred Stock, outstanding as of the record date (the
"Record Date") of the shareholders' meeting at which the Agreement and Plan of
Merger attached hereto (the "Merger Agreement") was approved.
4. The principal terms of the Merger Agreement were approved by the
Board of Directors and by the vote of a number of shares of each class and
series of stock which equaled or exceeded the vote required.
5. The number of shares voting in favor of the amendment equaled or
exceeded the vote required, such required vote being (i) a majority of the
outstanding shares of Common Stock and (ii) a majority of the outstanding shares
of Series A, Series B and Series C Preferred Stock, voting together as a
separate class.
Rakesh Kumar and Michael W. Hall further declare under penalty of
perjury under the laws of the State of California that each has read the
foregoing certificate and knows the contents thereof and that the same is true
of their own knowledge.
Executed in San Jose, California on ___________________________ , 1996.
_________________________________________
Rakesh Kumar, President and
Chief Executive Officer
_________________________________________
Michael W. Hall, Secretary
-9-
<PAGE> 10
RASTER GRAPHICS, INC.
(Surviving Corporation)
OFFICERS' CERTIFICATE
Rakesh Kumar and Michael W. Hall certify that:
1. They are the President and Chief Executive Officer and the
Secretary, respectively, of Raster Graphics, Inc., a corporation organized under
the laws of the State of Delaware.
2. The corporation has authorized two classes of stock, designated
"Common Stock" and "Preferred Stock."
3. There are 1,000 shares of Common Stock outstanding and entitled to
vote on the Agreement and Plan of Merger attached hereto (the "Merger
Agreement"). There are no shares of Preferred Stock outstanding.
4. The principal terms of the Merger Agreement were approved by the
Board of Directors and by the vote of a number of shares of each class and
series of stock which equaled or exceeded the vote required.
5. The percentage vote required was more than 50% of the votes entitled
to be cast by holders of outstanding shares of Common Stock.
Rakesh Kumar and Michael W. Hall further declare under penalty of
perjury under the laws of the State of Delaware that each has read the foregoing
certificate and knows the contents thereof and that the same is true of their
own knowledge.
Executed in San Jose, California on , 1996.
________________________________________
Rakesh Kumar, President and
Chief Executive Officer
________________________________________
Michael W. Hall, Secretary
-10-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
RASTER GRAPHICS, INC.
RAKESH KUMAR and MICHAEL W. HALL certify that:
1. They are the President and Secretary, respectively, of RASTER
GRAPHICS, INC., a California corporation.
2. The Articles of Incorporation of this corporation are amended
and restated to read in their entirety as follows:
"I.
The name of this corporation is Raster Graphics, Inc.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
Upon the effective date of the filing of the Amended and Restated
Articles of Incorporation, every five (5) shares of this corporation's
outstanding Common Stock and Preferred Stock shall be converted and
reconstituted into one (1) share of the like class and series of the
corporation's capital stock from which such shares were converted (the "STOCK
SPLIT"). In lieu of the issuance of fractional shares, the corporation shall pay
to the holder thereof in cash an amount equal to the fraction of a share to
which such holder is entitled multipled by the fair market value of such share,
as determined by the corporation's Board of Directors. All share amounts and
amounts per share set forth in the Amended and Restated Articles of
Incorporation have been appropriately adjusted to reflect the Stock Split.
(a) Classes of Stock. This corporation is authorized to issue two
classes of shares, designated "Preferred Stock" and "Common Stock,"
respectively. The total number of shares which this corporation shall have
authority to issue is Fourteen Million Thirty Thousand (14,030,000), none of
which has any par value. The number of shares of Preferred Stock authorized to
be issued is Six Million Thirty Thousand (6,030,000), and the number of shares
of Common Stock authorized to be issued is Eight Million (8,000,000). The
Preferred Stock shall
<PAGE> 2
be issued in three series. The first series of Preferred Stock shall be
designated Series A Preferred Stock (the "Series A Preferred") and shall consist
of Three Hundred Twenty Thousand (320,000) shares with the rights, preferences,
privileges and restrictions set forth in paragraph (b) below. The second series
of Preferred Stock shall be designated Series B Preferred Stock (the "Series B
Preferred") and shall consist of One Million Fifty Thousand (1,050,000) shares
with the rights, preferences, privileges and restrictions set forth in paragraph
(b) below. The third series of Preferred Stock shall be designated Series C
Preferred Stock (the "Series C Preferred") and shall consist of Four Million Six
Hundred-Sixty Thousand (4,660,000) shares with the rights, preferences,
privileges and restrictions set forth in paragraph (b) below.
(b) Rights, Preferences, Privileges and Restrictions of Preferred
Stock. A statement of the rights, preferences, privileges and restrictions
granted to or imposed on the Series A Preferred, Series B Preferred and Series C
Preferred and the holders thereof is as follows:
(1) Dividends.
(aa)(i) The holders of outstanding Series C Preferred
shall be entitled to receive in any fiscal year, when and as declared by the
Board of Directors, out of any assets at the time legally available therefor,
dividends in cash at the rate of $0.15 per share of Series C Preferred, per
annum, before any cash dividend is paid on Series A Preferred, Series B
Preferred or Common Stock. After payment to the holders of Series C Preferred of
the amounts as aforesaid, the holders of outstanding Series A and Series B
Preferred shall be entitled to receive in any fiscal year, when and as declared
by the Board of Directors, out of any assets at the time legally available
therefor, dividends in cash at the rate of $0.20 and $0.20 per share of Series A
and Series B Preferred, respectively, per annum, before any cash dividend is
paid on Common Stock. Such dividend or distribution may be payable annually or
otherwise as the Board of Directors may from time to time determine. Dividends
or distributions may be declared and paid upon shares of Series A Preferred or
Series B Preferred in any fiscal year of the corporation only if dividends shall
have been paid on or declared and set apart upon all shares of Series C
Preferred at the annual rate as aforesaid. Dividends or distributions may be
declared and paid upon shares of Series A Preferred or Series B Preferred in any
fiscal year of the corporation only if dividends shall have been paid on or
declared and set apart upon all shares of Preferred Stock at such annual rates.
The right to such dividends on shares of Preferred Stock shall not be cumulative
and no right shall accrue to holders of shares of Preferred Stock by reason of
the fact that dividends on such shares are not declared in any prior year, nor
shall any undeclared or unpaid dividend bear or accrue interest.
(ii) In the event this corporation shall determine,
after payment of dividends to holders of Preferred Stock at the annual rates set
forth above, to pay cash dividends to the holders of Common Stock, such
dividends may be paid to holders of Common Stock only if equal dividends are
also paid to holders of Preferred Stock (based upon the number of shares of
Common Stock into which such shares of Preferred Stock are then convertible) at
the same time. The right to such dividends on shares of Common Stock and
Preferred Stock shall not be cumulative and no rights shall accrue to holders of
shares of Common Stock and Preferred
2
<PAGE> 3
Stock by reason of the fact that dividends on such shares are not declared in
any prior year, nor shall any undeclared or unpaid dividends bear or accrue
interest.
(bb) In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights to purchase any such securities or evidences of
indebtedness, then, in each such case the holders of the Preferred Stock shall
be entitled to a proportionate share of any such distribution as though the
holders of the Preferred Stock were the holders of the number of shares of
Common Stock of the corporation into which their respective shares of Preferred
Stock are convertible as of the record date fixed for the determination of the
holders of Common Stock of the corporation entitled to receive such
distribution.
(2) Voting Rights.
(aa) Each holder of shares of Preferred Stock shall
be entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Preferred Stock could be converted on the record date
for the vote or consent of shareholders and shall have voting rights and powers
equal to the voting rights and powers of the Common Stock. The holder of each
share of Preferred Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the corporation and, except as provided
in paragraph (bb) below, shall vote with holders of the Common Stock upon any
matter submitted to a vote of shareholders, except those matters required by law
to be submitted to a class vote. Fractional votes by the holders of Preferred
Stock shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into which shares
of Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number.
(bb) The holders of shares of Series C Preferred
shall be entitled, voting as a separate class, to elect two members of the Board
of Directors of this corporation. The holders of shares of Series A Preferred
and Series B Preferred shall be entitled, voting as a single class, to elect two
members of the Board of Directors of this corporation. The holders of shares of
Common Stock shall be entitled, voting as a separate class, to elect two members
of the Board of Directors of this corporation. The holders of shares of
Preferred Stock and Common Stock shall be entitled, voting as a single class, to
elect the remaining directors of this corporation. In the case of any vacancy in
the office of a director elected by the holders of a particular class or series
of stock, the vacancy may be filled only by the vote of the holders of such
class or series of stock. Any director who shall have been elected by the
holders of a particular class or series of stock may be removed without cause
by, and only by, the applicable vote of the holders of shares of such class or
series of stock. The provisions of this paragraph (2)(bb) shall expire and be of
no further force or effect immediately upon conversion of the outstanding shares
of Preferred Stock pursuant to the provisions of paragraph (3)(aa)(ii) below.
(3) Conversion. The holders of the Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(aa) Right to Convert.
3
<PAGE> 4
(i) Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the corporation or any transfer agent
for the Preferred Stock, into that number of fully-paid and non-assessable
shares of Common Stock that is equal, in the case of Series A Preferred, to
$2.50 divided by the Conversion Price for such series (as hereinafter defined) ,
in the case of Series B Preferred, to $2.50 divided by the Conversion Price for
such series (as hereinafter defined) and, in the case of Series C Preferred, to
$2.50 divided by the Conversion Price for such series (as hereinafter defined).
The Conversion Prices for the Series A, Series B and Series C Preferred shall
initially be $2.50, $2.50 and $2.50, respectively, subject to adjustment as
provided herein. (The number of shares of Common Stock into which each share of
Series A, Series B or Series C Preferred may be converted is hereinafter
referred to as the "Conversion Rate" for each such series.) Upon any decrease or
increase in the Conversion Price or the Conversion Rate for a series, as
described in this Section (b)(3), the Conversion Rate or Conversion Price for
such series, as the case may be, shall be appropriately increased or decreased.
(ii) Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Rate for such share immediately upon the consummation of the
corporation's sale of Common Stock pursuant to a registration statement under
the Securities Act of 1933, as amended, pursuant to an underwritten firm
commitment public offering, provided that the price per share is not less than
$7.50 (net of underwriter commissions and expenses and subject to appropriate
adjustment for all stock splits, dividends, subdivisions, combinations,
recapitalizations and the like) and the gross aggregate offering price is not
less than $10,000,000.
(bb) Mechanics of Conversion. No fractional shares
of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then fair
market value of such fractional shares as determined by the Board of Directors
of the corporation. Before any holder of Preferred Stock shall be entitled to
convert the same into full shares of Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to the corporation at such office that he elects to convert the
same; provided, however, that in the event of an automatic conversion pursuant
to paragraph (b)(3)(aa)(ii) above, the outstanding shares of Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the corporation or its transfer agent; provided further, however,
that the corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such automatic conversion unless either the
certificates evidencing such shares of Preferred Stock are delivered to the
corporation or its transfer agent as provided above, or the holder notifies the
corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the corporation to
indemnify the corporation from any loss incurred by it in connection with such
certificates.
4
<PAGE> 5
The corporation shall, as soon as practicable after such delivery, or
after such agreement and indemnification, issue and deliver at such office to
such holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock, plus any declared and
unpaid dividends on the converted Preferred Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date; provided, however, that if
the conversion is in connection with an underwritten offer of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of the
sale of such securities.
(cc) Adjustments to Conversion Price for Diluting
Issues.
(i) Special Definitions. For purposes of
this paragraph (3)(cc), the following definitions shall apply:
(1) "Options" shall mean rights, options
or warrants to subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities.
(2) "Original Issue Date" shall mean,
with respect to a particular series of Preferred Stock, the first date on which
the first share of such series of Preferred Stock was first issued.
(3) "Convertible Securities" shall mean
any evidences of indebtedness, shares or other securities (other than the shares
of Preferred Stock) convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common" shall
mean all shares of Common Stock issued (or, pursuant to paragraph (3)(cc)(iii),
deemed to be issued) by the corporation after the Original Issue Date of a
particular series of Preferred Stock, other than shares of Common Stock issued
or issuable:
(A) upon conversion of shares of
Preferred Stock;
(B) to officers, directors and
employees of, or consultants to, the corporation pursuant to stock grants,
option plans, purchase plans or other employee stock incentive programs or
arrangements approved by the Board of Directors or upon exercise of options or
warrants granted to such parties pursuant to any such plan or arrangement;
5
<PAGE> 6
(C) as a dividend or distribution
on Preferred Stock or pursuant to any event for which adjustment is made
pursuant to paragraph (3)(cc)(vi), (vii) or (viii) hereof;
(D) to lenders in connection with
any loan or lease financing transaction pursuant to arrangements approved by the
Board of Directors or upon exercise of options or warrants granted to such
parties pursuant to any such arrangement;
(E) upon exercise of warrants for
the purchase of an aggregate of 124,444 shares of Common Stock at an exercise
price of $1.50 per share issued by the corporation on November 28, 1988 and
March 30, 1989 in connection with consulting services provided to the
corporation by the holders of such warrants;
(F) upon exercise of warrants for
the purchase of up to an aggregate of 161,309 shares of Common Stock at an
exercise price of $1.50 per share issued by the corporation on December 19, 1989
and March 6, 1990 in connection with the sale and issuance of the corporation's
Series B Preferred to certain investors; and
(G) to persons or entities in
connection with any corporate partnership or reorganizations approved by the
Board of Directors, or upon exercise of options or warrants granted to such
parties pursuant to any such transaction.
(ii) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular share of Preferred Stock
shall be made in respect of the issuance of Additional Shares of Common unless
the consideration per share for an Additional Share of Common issued or deemed
to be issued by the corporation is less than the Conversion Price in effect on
the date of, and immediately prior to such issue, for such share of Preferred
Stock.
(iii) Deemed Issue of Additional Shares of
Common.
(1) Options and Convertible Securities.
In the event the corporation at any time or from time to time after the Original
Issue Date of a particular series of Preferred Stock shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities or exercise
of such Options, shall be deemed to be Additional Shares of Common issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common shall not be deemed to have been issued unless the consideration per
share (determined pursuant to paragraph (3)(cc)(v) hereof) of such Additional
Shares of Common would be less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue, or
6
<PAGE> 7
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common are deemed to be issued:
(A) no further adjustment in the
Conversion Price of such series of Preferred Stock shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the corporation, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price of such series of Preferred Stock
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(C) no readjustment pursuant to clause
(B) above shall have the effect of increasing the Conversion Price of such
series of Preferred Stock to an amount which exceeds the lower of (i) the
Conversion Price of such series of Preferred Stock on the original adjustment
date, or (ii) the Conversion Price of such series of Preferred Stock that would
have resulted from any issuance of Additional Shares of Common between the
original adjustment date and such readjustment date;
(D) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Prices computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based thereon shall, upon such
expiration, be recomputed as if:
(a) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the corporation for the issue of such exercised Options
plus the consideration actually received by the corporation upon such exercise
or for the issue of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the corporation upon such conversion or exchange, and
(b) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options, and
the consideration received by the corporation for the Additional Shares of
Common deemed to have been then issued was the consideration actually received
by the corporation for the issue of such exercised Options, plus the
consideration deemed to have been received by the corporation (determined
pursuant to paragraph (3)(cc)(v))
7
<PAGE> 8
upon the issue of the Convertible Securities with respect to which such Options
were actually exercised;
(E) in the case of any Options
which expire by their terms not more than 30 days after the date of issue
thereof, no adjustment of the Conversion Prices shall be made until the
expiration or exercise of all such Options issued on the same date, whereupon
such adjustment shall be made in the same manner provided in clause (C) above;
and
(F) if such record date shall have
been fixed and such Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the Conversion Prices which
became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Prices shall be
adjusted pursuant to this paragraph (3)(cc)(iii) as of the actual date of their
issuance.
(iv) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common. In the event this corporation shall
issue Additional Shares of Common (including Additional Shares of Common deemed
to be issued pursuant to paragraph (3)(cc)(iii)) without consideration or for a
consideration per share less than the Conversion Price for a particular series
of Preferred Stock in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the corporation for the
total number of Additional Shares of Common so issued would purchase at such
Conversion Price; and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common so issued; and provided further that, for the
purposes of this paragraph (3)(cc)(iv), all shares of Common Stock issuable upon
exercise, conversion or exchange of outstanding Options or Convertible
Securities, as the case may be, shall be deemed to be outstanding, and
immediately after any Additional Shares of Common are deemed issued pursuant to
paragraph (3)(cc)(iii), such Additional Shares of Common shall be deemed to be
outstanding.
(v) Determination of Consideration. For
purposes of this subsection (b)(3)(cc), the consideration received by the
corporation for the issue of any Additional Shares of Common shall be computed
as follows:
(1) Cash and Property. Such
consideration shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board; and
8
<PAGE> 9
(C) in the event Additional Shares
of Common are issued together with other shares or securities or other assets of
the corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities.
The consideration per share received by the corporation for Additional Shares of
Common deemed to have been issued pursuant to paragraph (3)(cc)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any,
received or receivable by the corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustments for Stock Dividends and for
Subdivisions or Combinations of Common. In the event that this corporation at
any time or from time to time after the Original Issue Date of a particular
series of Preferred Stock shall declare or pay, without consideration, any
dividend on the Common Stock payable in Common Stock or in any right to acquire
Common Stock for no consideration, or if the outstanding shares of Common Stock
shall be subdivided (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock)
into a greater number of shares of Common Stock, the Conversion Prices in effect
immediately prior to such event shall, concurrently with the effectiveness of
such event, be proportionately decreased. In the event the outstanding shares of
Common Stock shall be combined or consolidated (by reclassification or
otherwise) into a lesser number of shares of Common Stock, the Conversion Prices
in effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately increased.
(vii) Adjustments for Other Distributions. In
the event the corporation at any time or from time to time makes or fixes a
record date for the determination of holders of Common Stock entitled to receive
any distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not otherwise referred to in subsection
(b)(3)(cc)(vi), then and in each such event provision shall be made so that the
holders of Preferred Stock shall be
9
<PAGE> 10
entitled to receive a proportionate share of any such distribution as though
they were holders of the number of shares of Common Stock of this corporation
into which their shares of Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of this corporation
entitled to receive such distribution.
(viii) Adjustments for Reclassification,
Exchange and Substitution. If the Common Stock issuable upon conversion of the
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Prices then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the
Preferred Stock immediately before that change.
(dd) No Impairment. The corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section (b)(3) and in the taking of all such action as may be necessary
or appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(ee) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment of any Conversion Price pursuant
to this Section (b)(3), the corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
to each holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Prices at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of Preferred Stock.
(ff) Notices of Record Date. In the event that this
corporation shall propose at any time:
(i) to declare any dividend or distribution
upon its Common Stock, whether in cash, property, stock or other securities,
whether or not a regular cash dividend and whether or not out of earnings or
earned surplus;
(ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of stock of
any class or series or other rights;
10
<PAGE> 11
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this corporation shall send to the
holders of the Preferred Stock:
(1) at least 20 days' prior written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote in respect of the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred
to in (iii) and (iv) above, at least 20 days' prior written notice of the date
when the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of this corporation.
(gg) Reservation of Stock Issuable Upon Conversion.
The corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, the corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(4) Liquidation Preference. In the event of any
liquidation, dissolution or winding up of the corporation, either voluntary or
involuntary, distributions to the shareholders of the corporation shall be made
in the following manner:
(aa) The holders of the Series C Preferred shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the corporation to the holders of the Series A
Preferred, Series B Preferred or Common Stock by reason of their ownership of
such stock, the amount of $2.50 per share for each share of Series C Preferred
then held by them (appropriately adjusted in each case for any combinations, or
stock distributions or dividends with respect to such shares) plus, in addition,
an amount equal to all declared but unpaid dividends, if any, on the shares of
Series C Preferred then held by them. If, upon the occurrence of such event, the
assets and property legally available to be distributed among the
11
<PAGE> 12
holders of the Series C Preferred shall be insufficient to permit the payment to
such holders of the full preferential amount aforesaid, then the entire assets
and property of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series C Preferred Stock pro rata
based on the number of shares of Series C Preferred then held.
(bb) After payment has been made to the holders of
the Series C Preferred of the full preferential amounts to which they shall be
entitled, if any, as aforesaid, the holders of the Series A Preferred and Series
B Preferred shall be entitled to receive, out of the remaining assets (up to a
maximum of $3,360,000), prior and in preference to any distribution of any of
the assets or surplus funds of the corporation to the holders of the Common
Stock by reason of their ownership of such stock:
(i) for each share of Series A Preferred then
held by them the amount per share equal to $560,000 divided by the number of
shares of Series A Preferred then outstanding; and
(ii) for each share of Series B Preferred then
held by them the amount per share equal to $2,800,000 divided by the number of
shares of Series B Preferred then outstanding,
plus, in addition, an amount equal to all declared but unpaid dividends, if any,
on the respective shares of Series A Preferred and Series B Preferred then held
by them. If, upon the occurrence of such event, the assets and property legally
available to be distributed among the holders of the Series A Preferred and
Series B Preferred shall be insufficient to permit the payment to such holders
of the full preferential amount aforesaid, then the entire remaining assets and
property of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred and Series B
Preferred as follows: (1) as among the series of Series A Preferred and Series B
Preferred, one-sixth (1/6) of the remaining assets and property of the
corporation legally available for distribution shall be distributed to holders
of Series A Preferred and five-sixths (5/6) of the remaining assets and property
of the corporation legally available for distribution shall be distributed to
holders of Series B Preferred, and (2) as among the holders of Series A
Preferred and Series B Preferred Stock of any one series, the aggregate amount
of assets and property available for distribution to such holders in accordance
with subparagraph (1) herein shall be distributed among such holders pro rata
based on the number of shares then held; and, no amount shall be paid or set
apart for payment on any series of Series A Preferred or Series B Preferred
unless, at the same time, amounts in proportion to the respective preferential
amounts to which the other series of Preferred Stock are entitled (in accordance
with subparagraph (1) herein) shall be paid or set apart for payment.
(cc) After payment has been made to the holders of
the Series A Preferred, Series B Preferred and Series C Preferred of the full
preferential amounts to which they shall be entitled, if any, as aforesaid, the
holders of the Series A Preferred, Series B Preferred and Series C Preferred
shall be entitled to receive, out of the remaining assets (up to a maximum of
$6,750,000), prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Common Stock by reason of
their ownership of such stock:
12
<PAGE> 13
(i) For each share of Series C Preferred then
held by them the amount per share equal to the Series C Incremental Amount (as
hereinafter defined) divided by the number of shares of Series C Preferred then
outstanding. For purposes of Section (b)(4), the "Series C Incremental Amount"
shall equal $6,750,000 (or, if lesser, the entire remaining assets and property
of the corporation legally available for distribution after giving effect to the
provisions of paragraphs (b)(4)(aa) and (b)(4)(bb)) multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock issuable
upon conversion of the then outstanding Series C Preferred and the denominator
of which shall be the sum of the number of shares of Common Stock then
outstanding plus the number of shares of Common Stock issuable upon conversion
of the then outstanding Preferred Stock;
(ii) For each share of Series A Preferred then
held by them the amount per share equal to $6,750,000 (or, if lesser, the entire
remaining assets and property of the corporation legally available for
distribution after giving effect to the provisions of paragraphs (b)(4)(aa) and
(b)(4)(bb)) less the Series C Incremental Amount, with such result multiplied by
a fraction of one-sixth (1/6) (such product hereinafter referred to as the
"Series A Residual Amount"), and then divided by the number of shares of Series
A Preferred then outstanding; provided, that the maximum Series A Residual
Amount distributable to the holders of Series A Preferred Stock pursuant to this
paragraph shall not exceed $2.50 multiplied by the number of shares of Series A
Preferred then held and any Series A Residual Amount in excess of such maximum
(the "Series A Excess Amount") shall be distributed to holders of Series B
Preferred as provided in, and subject to the conditions of, paragraph
(4)(cc)(iii); and
(iii) For each share of Series B Preferred then
held by them the amount per share equal to $6,750,000 (or, if lesser, the entire
remaining assets and property of the corporation legally available for
distribution after giving effect to the provisions of paragraphs (b)(4)(aa) and
(b)(4)(bb)) less the Series C Incremental Amount, with such result multiplied by
a fraction of five-sixths (5/6), with the resulting product added to the Series
A Excess Amount (if any) and such sum then divided by the number of shares of
Series B Preferred then outstanding; provided, that the maximum amount
distributable to the holders of Series B Preferred Stock pursuant to this
paragraph shall not exceed $12.50 multiplied by the number of shares of Series B
Preferred then held;
and no amount shall be paid or set apart for payment on any series of Series A
Preferred, Series B Preferred or Series C Preferred unless, at the same time,
amounts in proportion to the respective preferential amounts to which the other
series of Preferred Stock are entitled as aforesaid shall be paid or set apart
for payment.
(dd) After payment has been made to the holders of
the Preferred Stock of the full preferential amounts to which they shall be
entitled, if any, as aforesaid, any remaining proceeds shall be distributed
ratably to the holders of the Common Stock and Preferred Stock based upon the
number of shares of Common Stock then held (with each share of Preferred Stock
being treated as that number of shares of Common Stock into which such share of
Preferred Stock is at that time convertible).
13
<PAGE> 14
(ee) For purposes of this Section (b)(4), a merger
of the corporation with or into any other corporation or corporations
(except for a reincorporation of the Company into another jurisdiction by
means of a merger), or the merger of any other corporation or corporations into
the corporation, in which merger the shareholders of the corporation receive
distributions in cash or securities of another corporation or corporations as
a result of such merger (unless the shareholders of this corporation hold more
than a majority of the voting equity securities of the surviving corporation),
or a sale, conveyance or disposition of all or substantially all of the assets
of this corporation shall be treated as a liquidation, dissolution or winding
up of the corporation.
(ff) Notwithstanding Sections 4(aa), 4(bb), 4(cc),
and 4(dd), as authorized by Section 402.5(c) of the California Corporations
Code, the provisions of Sections 502 and 503 of the California Corporations Code
shall not apply with respect to repurchases by the corporation of shares of
Common issued to or held by employees, directors or consultants of the
corporation or its subsidiaries upon termination of their employment or services
pursuant to agreements providing for the right of such repurchase between the
corporation and such persons.
(5) Covenants.
(aa) In addition to any other rights provided by
law, so long as any Series A Preferred or Series B Preferred shall be
outstanding, this corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of not less than a majority (determined
on the basis of assumed conversion of all Preferred Stock into Common Stock) of
the outstanding shares of Series A Preferred and Series B Preferred, voting as a
class:
(i) amend or repeal any provision of, or add
any provision to, this corporation's Articles of Incorporation or Bylaws if
such action would materially and adversely alter or change the rights,
preferences, privileges or restrictions of any outstanding Series A Preferred or
Series B Preferred;
(ii) authorize or issue shares of any class of
stock having any preference or priority as to dividends, voting rights,
liquidation preferences or assets superior to or on a parity with any such
preference or priority of the Series A Preferred or Series B Preferred or
authorize or issue shares of stock of any class or any bonds, debentures, notes
or other obligations convertible into or exchangeable for, or having option
rights to purchase, any shares of stock of this corporation having any
preference or priority as to dividends, voting rights, liquidation preferences
or assets superior to or on a parity with any such preference or priority of the
Series A Preferred or Series B Preferred;
(iii) reclassify any shares of Common Stock
into shares having any preference or priority as to dividends, voting rights,
liquidation preferences or assets superior to or on a parity with any such
preference or priority of the Series A Preferred or Series B Preferred;
14
<PAGE> 15
(iv) pay or declare any dividend on any shares
of Common Stock (except dividends payable solely in shares of Common Stock)
while any Series A Preferred or Series B Preferred remains outstanding or apply
any of its assets to the redemption, retirement, purchase or acquisition,
directly or indirectly, through subsidiaries or otherwise, of any shares of
Common Stock, except from officers, directors, employees or consultants of the
corporation upon termination of the employment or consulting relationship
between the corporation and such persons pursuant to the terms of restrictive
stock agreements providing for such repurchase of such shares of Common Stock
between the corporation and such persons;
(v) merge with or into any other corporation
(other than a wholly-owned subsidiary of this corporation) resulting in the
exchange of 50% of the outstanding shares of this corporation for securities
issued, or caused to be issued, by the acquiring corporation or its subsidiary,
or sell or otherwise transfer in a single transaction or a series of related
transactions all or substantially all assets of this corporation; or
(vi) increase the authorized number of shares
of Series A Preferred or Series B Preferred.
(bb) In addition to any other rights provided by
law, so long as any Series C Preferred shall be outstanding, this corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of not less than a majority of the outstanding shares of Series C
Preferred, voting separately as a class:
(i) amend or repeal any provision of, or add
any provision to, this corporation's Articles of Incorporation or Bylaws if
such action would materially and adversely alter or change the rights,
preferences, privileges or restrictions of any outstanding Series C Preferred;
(ii) authorize or issue shares of any class of
stock having any preference or priority as to dividends, voting rights,
liquidation preferences or assets superior to or on a parity with any such
preference or priority of the Series C Preferred or authorize or issue shares of
stock of any class or any bonds, debentures, notes or other obligations
convertible into or exchangeable for, or having option rights to purchase, any
shares of stock of this corporation having any preference or priority as to
dividends, voting rights, liquidation preferences or assets superior to or on a
parity with any such preference or priority of the Series C Preferred;
(iii) reclassify any shares of Common Stock
into shares having any preference or priority as to dividends, voting rights,
liquidation preferences or assets superior to or on a parity with any such
preference or priority of the Series C Preferred;
(iv) pay or declare any dividend on any shares
of Common Stock (except dividends payable solely in shares of Common Stock)
while any Series C Preferred remains outstanding or apply any of its assets to
the redemption, retirement, purchase or acquisition, directly or indirectly,
through subsidiaries or otherwise, of any shares of Common Stock, except from
officers, directors, employees or consultants of the corporation upon
15
<PAGE> 16
termination of the employment or consulting relationship between the corporation
and such persons pursuant to the terms of restrictive stock agreements providing
for such repurchase of such shares of Common Stock between the corporation and
such persons;
(v) merge with or into any other corporation
(other than a wholly-owned subsidiary of this corporation) resulting in the
exchange of 50% of the outstanding shares of this corporation for securities
issued, or caused to be issued, by the acquiring corporation or its subsidiary,
or sell or otherwise transfer in a single transaction or a series of related
transactions all or substantially all assets of this corporation;
(vi) increase the authorized number of shares
of Series C Preferred;
(vii) do any act or thing which would result
in taxation of the holders of shares of Series C Preferred under Section 305 of
the Internal Revenue Code of 1986, as amended (or any successor provision); or
(viii) amend the Bylaws of the corporation
to increase the number of authorized number of directors to more than seven (7).
(6) Residual Rights. All rights accruing to the
outstanding shares of this corporation not expressly provided for to the
contrary herein shall be vested in the Common Stock.
IV.
(a) Limitation of Directors' Liability. The liability of the
directors of this corporation for monetary damages shall be limited to the
fullest extent permissible under California law.
(b) Indemnification of Directors and Officers. This corporation
is authorized to indemnify the directors and officers of the corporation to the
fullest extent permissible under California law.
(c) Repeal or Modification. Any repeal of modification of the
foregoing provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such repeal or modification."
3. The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Sections 902 and 903 of
16
<PAGE> 17
the Corporations Code. The total number of outstanding shares of each class of
stock entitled to vote with respect to the foregoing amendment was 2,231,385
shares of Common Stock, 1,600,000 shares of Series A Preferred Stock, 5,120,000
shares of Series B Preferred Stock, and 22,743,656 shares of Series C Preferred
Stock. The number of shares voting in favor of the amendment and restatement
equaled or exceeded the vote required. The percentage vote required was more
than 50% of the outstanding shares of Common and Preferred Stock voting
together.
IN WITNESS WHEREOF, the undersigned have executed this certificate this
___ day of July, 1996.
--------------------------
RAKESH KUMAR, President
--------------------------
MICHAEL W. HALL, Secretary
The undersigned declare under penalty or perjury that the matters set
forth in the foregoing certificate are true of their own knowledge. Executed at
San Jose, California on July __, 1996.
--------------------------
RAKESH KUMAR, President
--------------------------
MICHAEL W. HALL, Secretary
17
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RASTER GRAPHICS, INC.
ARTICLE I
The name of the corporation is Raster Graphics, Inc. (the "CORPORATION").
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is The Corporation Trust Center, 1209 Orange Street, County of New Castle,
Wilmington, Delaware 19801. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(a) Classes of Stock. This corporation is authorized to issue two
classes of shares, designated "Preferred Stock" and "Common Stock,"
respectively. The total number of shares which this corporation shall have
authority to issue is Seventy Million One Hundred-Fifty Thousand (70,150,000)
shares. The number of shares of Preferred Stock authorized to be issued is
Thirty Million One Hundred-Fifty Thousand (30,150,000), par value $.001 per
share, and the number of shares of Common Stock authorized to be issued is Forty
Million (40,000,000), par value $.001 per share. The Preferred Stock shall be
issued in three series. The first series of Preferred Stock shall be designated
Series A Preferred Stock (the "Series A Preferred") and shall consist of One
Million Six Hundred Thousand (1,600,000) shares with the rights, preferences,
privileges and restrictions set forth in paragraph (b) below. The second series
of Preferred Stock shall be designated Series B Preferred Stock (the "Series B
Preferred") and shall consist of Five Million Two Hundred-Fifty Thousand
(5,250,000) shares with the rights, preferences, privileges and restrictions set
forth in paragraph (b) below. The third series of Preferred Stock shall be
designated Series C Preferred Stock (the "Series C Preferred") and shall consist
of Twenty-Three Million Three Hundred Thousand (23,300,000) shares with the
rights, preferences, privileges and restrictions set forth in paragraph (b)
below.
<PAGE> 2
(b) Rights, Preferences and Restrictions of Preferred Stock. A statement of the
rights, preferences, privileges and restrictions granted to or imposed on the
Series A Preferred, Series B Preferred and Series C Preferred and the holders
thereof is as follows:
(1) Dividends.
(aa)(i) The holders of outstanding Series C
Preferred shall be entitled to receive in any fiscal year, when and as declared
by the Board of Directors, out of any assets at the time legally available
therefor, dividends in cash at the rate of $0.03 per share of Series C
Preferred, per annum, before any cash dividend is paid on Series A Preferred,
Series B Preferred or Common Stock. After payment to the holders of Series C
Preferred of the amounts as aforesaid, the holders of outstanding Series A and
Series B Preferred shall be entitled to receive in any fiscal year, when and as
declared by the Board of Directors, out of any assets at the time legally
available therefor, dividends in cash at the rate of $0.04 and $0.04 per share
of Series A and Series B Preferred, respectively, per annum, before any cash
dividend is paid on Common Stock. Such dividend or distribution may be payable
annually or otherwise as the Board of Directors may from time to time determine.
Dividends or distributions may be declared and paid upon shares of Series A
Preferred or Series B Preferred in any fiscal year of the corporation only if
dividends shall have been paid on or declared and set apart upon all shares of
Series C Preferred at the annual rate as aforesaid. Dividends or distributions
may be declared and paid upon shares of Series A Preferred or Series B Preferred
in any fiscal year of the corporation only if dividends shall have been paid on
or declared and set apart upon all shares of Preferred Stock at such annual
rates. The right to such dividends on shares of Preferred Stock shall not be
cumulative and no right shall accrue to holders of shares of Preferred Stock by
reason of the fact that dividends on such shares are not declared in any prior
year, nor shall any undeclared or unpaid dividend bear or accrue interest.
(ii) In the event this corporation shall determine,
after payment of dividends to holders of Preferred Stock at the annual rates set
forth above, to pay cash dividends to the holders of Common Stock, such
dividends may be paid to holders of Common Stock only if equal dividends are
also paid to holders of Preferred Stock (based upon the number of shares of
Common Stock into which such shares of Preferred Stock are then convertible) at
the same time. The right to such dividends on shares of Common Stock and
Preferred Stock shall not be cumulative and no rights shall accrue to holders of
shares of Common Stock and Preferred Stock by reason of the fact that dividends
on such shares are not declared in any prior year, nor shall any undeclared or
unpaid dividends bear or accrue interest.
(bb) In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights to purchase any such securities or evidences of
indebtedness, then, in each such case the holders of the Preferred Stock shall
be entitled to a proportionate share of any such distribution as though the
holders of the Preferred Stock were the holders of the number of shares of
-2-
<PAGE> 3
Common Stock of the corporation into which their respective shares of Preferred
Stock are convertible as of the record date fixed for the determination of the
holders of Common Stock of the corporation entitled to receive such
distribution.
(2) Voting Rights.
(aa) Each holder of shares of Preferred Stock shall
be entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Preferred Stock could be converted on the record date
for the vote or consent of shareholders and shall have voting rights and powers
equal to the voting rights and powers of the Common Stock. The holder of each
share of Preferred Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the corporation and, except as provided
in paragraph (bb) below, shall vote with holders of the Common Stock upon any
matter submitted to a vote of shareholders, except those matters required by law
to be submitted to a class vote. Fractional votes by the holders of Preferred
Stock shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into which shares
of Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number.
(bb) The holders of shares of Series C Preferred
shall be entitled, voting as a separate class, to elect two members of the Board
of Directors of this corporation. The holders of shares of Series A Preferred
and Series B Preferred shall be entitled, voting as a single class, to elect two
members of the Board of Directors of this corporation. The holders of shares of
Common Stock shall be entitled, voting as a separate class, to elect two members
of the Board of Directors of this corporation. The holders of shares of
Preferred Stock and Common Stock shall be entitled, voting as a single class, to
elect the remaining directors of this corporation. In the case of any vacancy in
the office of a director elected by the holders of a particular class or series
of stock, the vacancy may be filled only by the vote of the holders of such
class or series of stock. Any director who shall have been elected by the
holders of a particular class or series of stock may be removed without cause
by, and only by, the applicable vote of the holders of shares of such class or
series of stock. The provisions of this paragraph (2)(bb) shall expire and be of
no further force or effect immediately upon conversion of the outstanding shares
of Preferred Stock pursuant to the provisions of paragraph (3)(aa)(ii) below.
(3) Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(aa) Right to Convert.
(i) Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the corporation or any transfer agent
for the Preferred Stock, into that number of fully-paid and non-assessable
shares of Common Stock that is equal, in the case
-3-
<PAGE> 4
of Series A Preferred, to $0.50 divided by the Conversion Price for such series
(as hereinafter defined) , in the case of Series B Preferred, to $0.50 divided
by the Conversion Price for such series (as hereinafter defined) and, in the
case of Series C Preferred, to $0.50 divided by the Conversion Price for such
series (as hereinafter defined). The Conversion Prices for the Series A, Series
B and Series C Preferred shall initially be $0.50, $0.50 and $0.50,
respectively, subject to adjustment as provided herein. (The number of shares of
Common Stock into which each share of Series A, Series B or Series C Preferred
may be converted is hereinafter referred to as the "Conversion Rate" for each
such series.) Upon any decrease or increase in the Conversion Price or the
Conversion Rate for a series, as described in this Section (b)(3), the
Conversion Rate or Conversion Price for such series, as the case may be, shall
be appropriately increased or decreased.
(ii) Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Rate for such share immediately upon the consummation of the
corporation's sale of Common Stock pursuant to a registration statement under
the Securities Act of 1933, as amended, pursuant to an underwritten firm
commitment public offering, provided that the price per share is not less than
$1.50 (net of underwriter commissions and expenses and subject to appropriate
adjustment for all stock splits, dividends, subdivisions, combinations,
recapitalizations and the like) and the gross aggregate offering price is not
less than $10,000,000.
(bb) Mechanics of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
corporation shall pay cash equal to such fraction multiplied by the then fair
market value of such fractional shares as determined by the Board of Directors
of the corporation. Before any holder of Preferred Stock shall be entitled to
convert the same into full shares of Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to the corporation at such office that he elects to convert the
same; provided, however, that in the event of an automatic conversion pursuant
to paragraph (b)(3)(aa)(ii) above, the outstanding shares of Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the corporation or its transfer agent; provided further, however,
that the corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such automatic conversion unless either the
certificates evidencing such shares of Preferred Stock are delivered to the
corporation or its transfer agent as provided above, or the holder notifies the
corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the corporation to
indemnify the corporation from any loss incurred by it in connection with such
certificates.
The corporation shall, as soon as practicable after such delivery, or
after such agreement and indemnification, issue and deliver at such office to
such holder of Preferred
-4-
<PAGE> 5
Stock, a certificate or certificates for the number of shares of Common Stock to
which he shall be entitled as aforesaid and a check payable to the holder in the
amount of any cash amounts payable as the result of a conversion into fractional
shares of Common Stock, plus any declared and unpaid dividends on the converted
Preferred Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date; provided, however, that if the conversion is in connection with an
underwritten offer of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder tendering
Preferred Stock for conversion, be conditioned upon the closing of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of the sale of such securities.
(cc) Adjustments to Conversion Price for Diluting
Issues.
(i) Special Definitions. For purposes of this
paragraph (3)(cc), the following definitions shall apply:
(1) "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "Original Issue Date" shall mean, with
respect to a particular series of Preferred Stock, the first date on which the
first share of such series of Preferred Stock was first issued.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities (other than the shares of
Preferred Stock) convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common" shall mean
all shares of Common Stock issued (or, pursuant to paragraph (3)(cc)(iii),
deemed to be issued) by the corporation after the Original Issue Date of a
particular series of Preferred Stock, other than shares of Common Stock issued
or issuable:
(A) upon conversion of shares of
Preferred Stock;
(B) to officers, directors and employees
of, or consultants to, the corporation pursuant to stock grants, option plans,
purchase plans or other employee stock incentive programs or arrangements
approved by the Board
-5-
<PAGE> 6
of Directors or upon exercise of options or warrants granted to such parties
pursuant to any such plan or arrangement;
(C) as a dividend or distribution on
Preferred Stock or pursuant to any event for which adjustment is made pursuant
to paragraph (3)(cc)(vi), (vii) or (viii) hereof;
(D) to lenders in connection with any
loan or lease financing transaction pursuant to arrangements approved by the
Board of Directors or upon exercise of options or warrants granted to such
parties pursuant to any such arrangement;
(E) upon exercise of warrants for the
purchase of an aggregate of 622,220 shares of Common Stock at an exercise price
of $0.30 per share issued by the corporation on November 28, 1988 and March 30,
1989 in connection with consulting services provided to the corporation by the
holders of such warrants;
(F) upon exercise of warrants for the
purchase of up to an aggregate of 806,547 shares of Common Stock at an exercise
price of $0.30 per share issued by the corporation on December 19, 1989 and
March 6, 1990 in connection with the sale and issuance of the corporation's
Series B Preferred to certain investors; and
(G) to persons or entities in connection
with any corporate partnership or reorganizations approved by the Board of
Directors, or upon exercise of options or warrants granted to such parties
pursuant to any such transaction.
(ii) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular share of Preferred Stock
shall be made in respect of the issuance of Additional Shares of Common unless
the consideration per share for an Additional Share of Common issued or deemed
to be issued by the corporation is less than the Conversion Price in effect on
the date of, and immediately prior to such issue, for such share of Preferred
Stock.
(iii) Deemed Issue of Additional Shares of
Common.
(1) Options and Convertible
Securities. In the event the corporation at any time or from time to time after
the Original Issue Date of a particular series of Preferred Stock shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the
-6-
<PAGE> 7
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities or exercise
of such Options, shall be deemed to be Additional Shares of Common issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common shall not be deemed to have been issued unless the consideration per
share (determined pursuant to paragraph (3)(cc)(v) hereof) of such Additional
Shares of Common would be less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common are deemed to be issued:
(A) no further adjustment in the
Conversion Price of such series of Preferred Stock shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the corporation, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price of such series of Preferred Stock
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(C) no readjustment pursuant to clause
(B) above shall have the effect of increasing the Conversion Price of such
series of Preferred Stock to an amount which exceeds the lower of (i) the
Conversion Price of such series of Preferred Stock on the original adjustment
date, or (ii) the Conversion Price of such series of Preferred Stock that would
have resulted from any issuance of Additional Shares of Common between the
original adjustment date and such readjustment date;
(D) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Prices computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based thereon shall, upon such
expiration, be recomputed as if:
(a) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the corporation for the issue of such exercised Options
plus the consideration actually received by the
-7-
<PAGE> 8
corporation upon such exercise or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the corporation upon such conversion
or exchange, and
(b) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options, and
the consideration received by the corporation for the Additional Shares of
Common deemed to have been then issued was the consideration actually received
by the corporation for the issue of such exercised Options, plus the
consideration deemed to have been received by the corporation (determined
pursuant to paragraph (3)(cc)(v)) upon the issue of the Convertible Securities
with respect to which such Options were actually exercised;
(E) in the case of any Options which
expire by their terms not more than 30 days after the date of issue thereof, no
adjustment of the Conversion Prices shall be made until the expiration or
exercise of all such Options issued on the same date, whereupon such adjustment
shall be made in the same manner provided in clause (C) above; and
(F) if such record date shall have
been fixed and such Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the Conversion Prices which
became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Prices shall be
adjusted pursuant to this paragraph (3)(cc)(iii) as of the actual date of their
issuance.
(iv) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common. In the event this corporation shall
issue Additional Shares of Common (including Additional Shares of Common deemed
to be issued pursuant to paragraph (3)(cc)(iii)) without consideration or for a
consideration per share less than the Conversion Price for a particular series
of Preferred Stock in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the corporation for the
total number of Additional Shares of Common so issued would purchase at such
Conversion Price; and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common so issued; and provided further that, for the
purposes of this paragraph (3)(cc)(iv), all shares of Common Stock issuable upon
exercise, conversion or exchange of outstanding Options or Convertible
Securities, as the case may be, shall be deemed to be outstanding, and
immediately after any Additional Shares of Common are deemed issued pursuant to
paragraph (3)(cc)(iii), such Additional Shares of Common shall be deemed to be
outstanding.
-8-
<PAGE> 9
(v) Determination of Consideration. For
purposes of this subsection (b)(3)(cc), the consideration received by the
corporation for the issue of any Additional Shares of Common shall be computed
as follows:
(1) Cash and Property. Such
consideration shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board; and
(C) in the event Additional Shares
of Common are issued together with other shares or securities or other assets of
the corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible
Securities. The consideration per share received by the corporation for
Additional Shares of Common deemed to have been issued pursuant to paragraph
(3)(cc)(iii)(1), relating to Options and Convertible Securities, shall be
determined by dividing
(x) the total amount, if any,
received or receivable by the corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustments for Stock Dividends
and for Subdivisions or Combinations of Common. In the event that this
corporation at any time or from time to time after the Original Issue Date of a
particular series of Preferred Stock shall declare or pay, without
consideration, any dividend on the Common Stock payable in
-9-
<PAGE> 10
Common Stock or in any right to acquire Common Stock for no consideration, or if
the outstanding shares of Common Stock shall be subdivided (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock) into a greater number of shares of Common
Stock, the Conversion Prices in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased.
In the event the outstanding shares of Common Stock shall be combined or
consolidated (by reclassification or otherwise) into a lesser number of shares
of Common Stock, the Conversion Prices in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
increased.
(vii) Adjustments for Other Distributions.
In the event the corporation at any time or from time to time makes or fixes a
record date for the determination of holders of Common Stock entitled to receive
any distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not otherwise referred to in subsection
(b)(3)(cc)(vi), then and in each such event provision shall be made so that the
holders of Preferred Stock shall be entitled to receive a proportionate share of
any such distribution as though they were holders of the number of shares of
Common Stock of this corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of this corporation entitled to receive such distribution.
(viii) Adjustments for Reclassification,
Exchange and Substitution. If the Common Stock issuable upon conversion of the
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Prices then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the
Preferred Stock immediately before that change.
(dd) No Impairment. The corporation will
not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
corporation but will at all times in good faith assist in the carrying out of
all the provisions of this Section (b)(3) and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Preferred Stock against impairment.
-10-
<PAGE> 11
(ee) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to this Section
(b)(3), the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Prices at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of Preferred Stock.
(ff) Notices of Record Date. In the event that this
corporation shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders
of any class or series of its stock any additional shares of stock of any class
or series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, this corporation shall send to the
holders of the Preferred Stock:
(1) at least 20 days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii)
and (iv) above, at least 20 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
-11-
<PAGE> 12
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of this corporation.
(gg) Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all then outstanding shares of the Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Preferred Stock,
the corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(4) Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the corporation, either voluntary or involuntary,
distributions to the shareholders of the corporation shall be made in the
following manner:
(aa) The holders of the Series C Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Series A Preferred,
Series B Preferred or Common Stock by reason of their ownership of such stock,
the amount of Fifty Cents ($0.50) per share for each share of Series C Preferred
then held by them (appropriately adjusted in each case for any combinations, or
stock distributions or dividends with respect to such shares) plus, in addition,
an amount equal to all declared but unpaid dividends, if any, on the shares of
Series C Preferred then held by them. If, upon the occurrence of such event, the
assets and property legally available to be distributed among the holders of the
Series C Preferred shall be insufficient to permit the payment to such holders
of the full preferential amount aforesaid, then the entire assets and property
of the corporation legally available for distribution shall be distributed
ratably among the holders of the Series C Preferred Stock pro rata based on the
number of shares of Series C Preferred then held.
(bb) After payment has been made to the holders of the Series C
Preferred of the full preferential amounts to which they shall be entitled, if
any, as aforesaid, the holders of the Series A Preferred and Series B Preferred
shall be entitled to receive, out of the remaining assets (up to a maximum of
$3,360,000), prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Common Stock by reason of
their ownership of such stock:
(i) for each share of Series A Preferred then held by them
the amount per share equal to $560,000 divided by the number of shares of Series
A Preferred then outstanding; and
-12-
<PAGE> 13
(ii) for each share of Series B Preferred then held by
them the amount per share equal to $2,800,000 divided by the number of shares of
Series B Preferred then outstanding,
plus, in addition, an amount equal to all declared but unpaid dividends, if any,
on the respective shares of Series A Preferred and Series B Preferred then held
by them. If, upon the occurrence of such event, the assets and property legally
available to be distributed among the holders of the Series A Preferred and
Series B Preferred shall be insufficient to permit the payment to such holders
of the full preferential amount aforesaid, then the entire remaining assets and
property of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred and Series B
Preferred as follows: (1) as among the series of Series A Preferred and Series B
Preferred, one-sixth (1/6) of the remaining assets and property of the
corporation legally available for distribution shall be distributed to holders
of Series A Preferred and five-sixths (5/6) of the remaining assets and property
of the corporation legally available for distribution shall be distributed to
holders of Series B Preferred, and (2) as among the holders of Series A
Preferred and Series B Preferred Stock of any one series, the aggregate amount
of assets and property available for distribution to such holders in accordance
with subparagraph (1) herein shall be distributed among such holders pro rata
based on the number of shares then held; and, no amount shall be paid or set
apart for payment on any series of Series A Preferred or Series B Preferred
unless, at the same time, amounts in proportion to the respective preferential
amounts to which the other series of Preferred Stock are entitled (in accordance
with subparagraph (1) herein) shall be paid or set apart for payment.
(cc) After payment has been made to the holders of the Series A
Preferred, Series B Preferred and Series C Preferred of the full preferential
amounts to which they shall be entitled, if any, as aforesaid, the holders of
the Series A Preferred, Series B Preferred and Series C Preferred shall be
entitled to receive, out of the remaining assets (up to a maximum of
$6,750,000), prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Common Stock by reason of
their ownership of such stock:
(i) For each share of Series C Preferred then held by them
the amount per share equal to the Series C Incremental Amount (as hereinafter
defined) divided by the number of shares of Series C Preferred then outstanding.
For purposes of Section (b)(4), the "Series C Incremental Amount" shall equal
$6,750,000 (or, if lesser, the entire remaining assets and property of the
corporation legally available for distribution after giving effect to the
provisions of paragraphs (b)(4)(aa) and (b)(4)(bb)) multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock issuable
upon conversion of the then outstanding Series C Preferred and the denominator
of which shall be the sum of the number of shares of Common Stock then
outstanding plus the number of shares of Common Stock issuable upon conversion
of the then outstanding Preferred Stock;
-13-
<PAGE> 14
(ii) For each share of Series A Preferred then held by
them the amount per share equal to $6,750,000 (or, if lesser, the entire
remaining assets and property of the corporation legally available for
distribution after giving effect to the provisions of paragraphs (b)(4)(aa) and
(b)(4)(bb)) less the Series C Incremental Amount , with such result multiplied
by a fraction of one-sixth (1/6) (such product hereinafter referred to as the
"Series A Residual Amount"), and then divided by the number of shares of Series
A Preferred then outstanding; provided, that the maximum Series A Residual
Amount distributable to the holders of Series A Preferred Stock pursuant to this
paragraph shall not exceed $0.50 multiplied by the number of shares of Series A
Preferred then held and any Series A Residual Amount in excess of such maximum
(the "Series A Excess Amount") shall be distributed to holders of Series B
Preferred as provided in, and subject to the conditions of, paragraph
(4)(cc)(iii); and
(iii) For each share of Series B Preferred then held by
them the amount per share equal to $6,750,000 (or, if lesser, the entire
remaining assets and property of the corporation legally available for
distribution after giving effect to the provisions of paragraphs (b)(4)(aa) and
(b)(4)(bb)) less the Series C Incremental Amount, with such result multiplied by
a fraction of five-sixths (5/6), with the resulting product added to the Series
A Excess Amount (if any) and such sum then divided by the number of shares of
Series B Preferred then outstanding; provided, that the maximum amount
distributable to the holders of Series B Preferred Stock pursuant to this
paragraph shall not exceed $2.50 multiplied by the number of shares of Series B
Preferred then held;
and no amount shall be paid or set apart for payment on any series of Series A
Preferred, Series B Preferred or Series C Preferred unless, at the same time,
amounts in proportion to the respective preferential amounts to which the other
series of Preferred Stock are entitled as aforesaid shall be paid or set apart
for payment.
(dd) After payment has been made to the holders of the
Preferred Stock of the full preferential amounts to which they shall be
entitled, if any, as aforesaid, any remaining proceeds shall be distributed
ratably to the holders of the Common Stock and Preferred Stock based upon the
number of shares of Common Stock then held (with each share of Preferred Stock
being treated as that number of shares of Common Stock into which such share of
Preferred Stock is at that time convertible).
(ee) For purposes of this Section (b)(4), a merger of the
corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the corporation, in which merger the
shareholders of the corporation receive distributions in cash or securities of
another corporation or corporations as a result of such merger (unless the
shareholders of this corporation hold more than a majority of the voting equity
securities of the surviving corporation), or a sale, conveyance or disposition
of all or substantially all of the assets of this corporation shall be treated
as a liquidation, dissolution or winding up of the corporation.
-14-
<PAGE> 15
(5) Covenants.
(aa) In addition to any other rights provided by law, so long
as any Series A Preferred or Series B Preferred shall be outstanding, this
corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority (determined on the basis of
assumed conversion of all Preferred Stock into Common Stock) of the outstanding
shares of Series A Preferred and Series B Preferred, voting as a class:
(i) amend or repeal any provision of, or add any provision
to, this corporation's Articles of Incorporation or Bylaws if such action would
materially and adversely alter or change the rights, preferences, privileges or
restrictions of any outstanding Series A Preferred or Series B Preferred;
(ii) authorize or issue shares of any class of stock
having any preference or priority as to dividends, voting rights, liquidation
preferences or assets superior to or on a parity with any such preference or
priority of the Series A Preferred or Series B Preferred or authorize or issue
shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of this corporation having any preference or
priority as to dividends, voting rights, liquidation preferences or assets
superior to or on a parity with any such preference or priority of the Series A
Preferred or Series B Preferred;
(iii) reclassify any shares of Common Stock into shares
having any preference or priority as to dividends, voting rights, liquidation
preferences or assets superior to or on a parity with any such preference or
priority of the Series A Preferred or Series B Preferred;
(iv) pay or declare any dividend on any shares of Common
Stock (except dividends payable solely in shares of Common Stock) while any
Series A Preferred or Series B Preferred remains outstanding or apply any of its
assets to the redemption, retirement, purchase or acquisition, directly or
indirectly, through subsidiaries or otherwise, of any shares of Common Stock,
except from officers, directors, employees or consultants of the corporation
upon termination of the employment or consulting relationship between the
corporation and such persons pursuant to the terms of restrictive stock
agreements providing for such repurchase of such shares of Common Stock between
the corporation and such persons;
(v) merge with or into any other corporation (other than a
wholly-owned subsidiary of this corporation) resulting in the exchange of 50% of
the outstanding shares of this corporation for securities issued, or caused to
be issued, by the acquiring corporation or its subsidiary, or sell or otherwise
transfer in a single transaction or a series of related transactions all or
substantially all assets of this corporation; or
-15-
<PAGE> 16
(vi) increase the authorized number of shares of Series A
Preferred or Series B Preferred.
(bb) In addition to any other rights provided by law, so long
as any Series C Preferred shall be outstanding, this corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority of the outstanding shares of Series C Preferred,
voting separately as a class:
(i) amend or repeal any provision of, or add any provision
to, this corporation's Articles of Incorporation or Bylaws if such action would
materially and adversely alter or change the rights, preferences, privileges or
restrictions of any outstanding Series C Preferred;
(ii) authorize or issue shares of any class of stock
having any preference or priority as to dividends, voting rights, liquidation
preferences or assets superior to or on a parity with any such preference or
priority of the Series C Preferred or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of stock of
this corporation having any preference or priority as to dividends, voting
rights, liquidation preferences or assets superior to or on a parity with any
such preference or priority of the Series C Preferred;
(iii) reclassify any shares of Common Stock into shares
having any preference or priority as to dividends, voting rights, liquidation
preferences or assets superior to or on a parity with any such preference or
priority of the Series C Preferred;
(iv) pay or declare any dividend on any shares of Common
Stock (except dividends payable solely in shares of Common Stock) while any
Series C Preferred remains outstanding or apply any of its assets to the
redemption, retirement, purchase or acquisition, directly or indirectly, through
subsidiaries or otherwise, of any shares of Common Stock, except from officers,
directors, employees or consultants of the corporation upon termination of the
employment or consulting relationship between the corporation and such persons
pursuant to the terms of restrictive stock agreements providing for such
repurchase of such shares of Common Stock between the corporation and such
persons;
(v) merge with or into any other corporation (other than a
wholly-owned subsidiary of this corporation) resulting in the exchange of 50% of
the outstanding shares of this corporation for securities issued, or caused to
be issued, by the acquiring corporation or its subsidiary, or sell or otherwise
transfer in a single transaction or a series of related transactions all or
substantially all assets of this corporation;
(vi) increase the authorized number of shares of Series C
Preferred;
-16-
<PAGE> 17
(vii) do any act or thing which would result in taxation
of the holders of shares of Series C Preferred under Section 305 of the Internal
Revenue Code of 1986, as amended (or any successor provision); or
(viii) amend the Bylaws of the corporation to increase the
number of authorized number of directors to more than seven (7).
(6) Residual Rights. All rights accruing to the outstanding
shares of this corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
ARTICLE V
The Board of Directors of the corporation is expressly authorized to make,
alter or repeal Bylaws of the corporation, but the stockholders may make
additional Bylaws and may alter or repeal any Bylaw whether adopted by them or
otherwise.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the corporation or any predecessor of the corporation, or serves or served at
any other enterprise as a director, officer or employee at the request of the
corporation or any predecessor to the corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article VII, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE VIII
The corporation is to have perpetual existence.
-17-
<PAGE> 18
ARTICLE IX
The number of directors which will constitute the whole Board of Directors
of the corporation shall be designated in the Bylaws of the corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the corporation.
ARTICLE XI
"Listing Event" as used in this Amended and Restated Certificate of
Incorporation shall mean the Corporation becoming a "Listed Corporation" within
the meaning of Section 301.5 of the California Corporations Code. For the
management of the business and for the conduct of the affairs of the
Corporation, and in further definition, limitation and regulation of the powers
of the Corporation, its directors and its stockholders or any class thereof, as
the case may be, it is further provided that, effective upon the occurrence of
the Listing Event:
(i) The Board of Directors of the Corporation shall divide the
directors into three classes, as nearly equal in number as reasonably possible
with the term of office of the first class to expire at the 1997 annual meeting
of stockholders or any special meeting in lieu thereof, the term of office of
the second class to expire at the 1998 annual meeting of stockholders or any
special meeting in lieu thereof and the term of office of the third class to
expire at the 1999 annual meeting of stockholders or any special meeting in lieu
thereof. At each annual meeting of stockholders or special meeting in lieu
thereof following such initial classification, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders or special meeting
in lieu thereof after their election and until their successors are duly elected
and qualified.
(ii) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office even though less than a quorum, or by a sole remaining
director. In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless continue as
a director of the class of which he or she is a member until the expiration of
his or her current term or his or her prior death, retirement, removal or
resignation and (ii) the newly created or eliminated directorships resulting
from such increase or decrease shall
-18-
<PAGE> 19
if reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
Notwithstanding the foregoing provisions of this Article XI, each director shall
serve until his or her successor is duly elected and qualified or until his or
her death, resignation, or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(iii) There shall be no right with respect to shares of stock
of the corporation to cumulate votes in the election of directors.
[SIGNATURE PAGE FOLLOWS]
-19-
<PAGE> 20
IN WITNESS WHEREOF, the undersigned have executed this certificate on July
3, 1996.
_____________________________________
Edmund S. Ruffin, Jr., Incorporator
-20-
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RASTER GRAPHICS, INC.
The following Amended and Restated Certificate of Incorporation of
Raster Graphics, Inc. amends and restates the provisions of and supersedes the
Amended and Restated Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on July __, 1996 in its entirety.
FIRST: The name of this corporation is Raster Graphics, Inc. (the
"CORPORATION").
SECOND: The address of the corporation's registered office in the
State of Delaware is The Corporation Trust Center, 1209 Orange Street, County of
New Castle, Wilmington, Delaware 19801. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: (A) This corporation is authorized to issue 52,000,000
shares of its capital stock, which shall be divided into two classes known as
Common Stock and Preferred Stock, respectively.
(B) The total number of shares of Common Stock which this
corporation is authorized to issue is 50,000,000 with a par value of $0.001 per
share. The total number of shares of Preferred Stock which this corporation is
authorized to issue is 2,000,000 with a par value of $0.001 per share. The
Preferred Stock may be issued from time to time in one or more series. The Board
of Directors of this corporation is hereby authorized, within the limitations
and restrictions prescribed by law or stated in this Certificate of
Incorporation, and by filing a certificate pursuant to applicable law of the
State of Delaware, to provide for the issuance of Preferred Stock in series and
(i) to establish from time to time the number of shares to be included in each
such series; (ii) to fix the voting powers, designations, powers, preferences
and relative, participating, optional or other rights of the shares of each such
series and the qualifications, limitations or restrictions thereof, including
but not limited to, the fixing or alteration of the dividend rights, dividend
rate, conversion rights, conversion rates, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
and the liquidation preferences of any wholly unissued series of shares of
Preferred Stock; and (iii) to increase or decrease the number of shares of any
series subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
<PAGE> 2
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
FIFTH: In furtherance and not in limitation of powers conferred by
statute, the Board of Directors of the corporation is expressly authorized to
make, alter or repeal Bylaws of the corporation.
SIXTH: No action shall be taken by the stockholders of the
corporation other than at an annual or special meeting of the stockholders, upon
due notice and in accordance with the provisions of the corporation's Bylaws.
SEVENTH: Elections of directors need not be by written ballot unless
otherwise provided in the Bylaws of the corporation.
EIGHTH: (A) To the fullest extent permitted by the Delaware
General Corporation Law, as the same exists or as may hereafter be amended, a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director.
(B) The corporation shall indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate is or was a director,
officer or employee of the corporation or any predecessor of the corporation, or
serves or served at any other enterprise as a director, officer or employee at
the request of the corporation or any predecessor to the corporation.
(C) Neither any amendment nor repeal of this Article
EIGHTH, nor the adoption of any provision of this corporation's Certificate of
Incorporation inconsistent with this Article EIGHTH shall eliminate or reduce
the effect of this Article EIGHTH in respect of any matter occurring, or any
action or proceeding accruing or arising or that, but for this Article EIGHTH,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
NINTH: The corporation is to have perpetual existence.
TENTH: The number of directors which will constitute the whole
Board of Directors of the corporation shall be designated in the Bylaws of the
corporation.
ELEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the corporation may
be kept (subject to any statutory provision) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors in the Bylaws of the corporation.
TWELFTH: "LISTING EVENT" as used in this Amended and Restated
Certificate of Incorporation shall mean the corporation becoming a "LISTED
CORPORATION" within the meaning of Section 301.5 of the California Corporations
Code. For the management of the business and
-2-
<PAGE> 3
for the conduct of the affairs of the corporation, and in further definition,
limitation and regulation of the powers of the corporation, its directors and
its stockholders or any class thereof, as the case may be, it is further
provided that, effective upon the occurrence of the Listing Event:
(A) The Board of Directors of the corporation shall divide
the directors into three classes, as nearly equal in number as reasonably
possible with the term of office of the first class to expire at the 1997 annual
meeting of stockholders or any special meeting in lieu thereof, the term of
office of the second class to expire at the 1998 annual meeting of stockholders
or any special meeting in lieu thereof and the term of office of the third class
to expire at the 1999 annual meeting of stockholders or any special meeting in
lieu thereof. At each annual meeting of stockholders or special meeting in lieu
thereof following such initial classification, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders or special meeting
in lieu thereof after their election and until their successors are duly elected
and qualified.
(B) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office even though less than a quorum, or by a sole remaining
director. In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless continue as
a director of the class of which he or she is a member until the expiration of
his or her current term or his or her prior death, retirement, removal or
resignation and (ii) the newly created or eliminated directorships resulting
from such increase or decrease shall if reasonably possible be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class. To the extent
reasonably possible, consistent with the foregoing rule, any newly created
directorships shall be added to those classes whose terms of office are to
expire at the latest dates following such allocation and newly eliminated
directorships shall be subtracted from those classes whose terms of office are
to expire at the earliest dates following such allocation, unless otherwise
provided for from time to time by resolution adopted by a majority of the
directors then in office, although less than a quorum. In the event of a vacancy
in the Board of Directors, the remaining directors, except as otherwise provided
by law, may exercise the powers of the full Board of Directors until the vacancy
is filled. Notwithstanding the foregoing provisions of this Article TWELFTH,
each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation, or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
(C) There shall be no right with respect to shares of stock
of the corporation to cumulate votes in the election of directors.
The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by the stockholders of the corporation in accordance with the
provisions of Sections 242 and 245 of the General Corporate Law of the State of
Delaware, as amended.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this certificate on
July __, 1996.
_________________________________
Rakesh Kumar, President
_________________________________
Michael W. Hall, Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Certificate of Incorporation and know the
contents thereof, and that the statements therein are true.
Executed at San Jose, California on July __, 1996.
_________________________________
Rakesh Kumar, President
_________________________________
Michael W. Hall, Secretary
-4-
<PAGE> 1
EXHIBIT 3.6
BYLAWS
OF
RASTER GRAPHICS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The registered office of the corporation shall be in the City
of Wilmington, County of New Castle, State of Delaware. The name of the
registered agent of the corporation at such location is The Corporation Trust
Company.
1.2 OTHER OFFICES.
The Board of Directors may at any time establish other offices
at any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or
outside the State of Delaware, designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
registered office of the corporation.
2.2 ANNUAL MEETING.
The annual meeting of stockholders shall be held, on any date,
time and place, either within or without the State of Delaware, as may be
designated by the Board of Directors. At the meeting, directors shall be elected
and any other proper business may be transacted.
2.3 SPECIAL MEETING.
A special meeting of the stockholders may be called at any
time by the Board of Directors or by the chairman of the board.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.
All notices of meetings with stockholders shall be in writing
and shall be sent or otherwise given in accordance with Section 2.5 of these
Bylaws not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting.
-1-
<PAGE> 2
The notice shall specify the place, date, and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.
Only persons who are nominated in accordance with the
procedures set forth in this Section 2.5 shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 2.5. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than sixty (60) days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or re-election as a Director, (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder, (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) relating to the nomination. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a director shall furnish to the secretary of the corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if he
or
-2-
<PAGE> 3
she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS.
At any meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before a meeting, business must be: (a) as specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. Business to be brought before a meeting by
a stockholder shall not be considered properly brought if the stockholder has
not given timely notice thereof in writing to the secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than twenty (20)
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event less than thirty (30) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's notice to
the secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting: (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and address of the stockholder proposing such business,
(iii) the class and number of shares of the corporation, which are beneficially
owned by the stockholder, (iv) any material interest of the stockholder in such
business, and (v) any other information that is required by law to be provided
by the stockholder in his capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at any meeting except in accordance with the procedures set forth in
this Section 2.6. The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section, and, if he
should so determine, he shall so declare at the meeting that any such business
not properly brought before the meeting shall not be transacted.
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Written notice of any meeting of stockholders, if mailed, is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
-3-
<PAGE> 4
2.8 QUORUM.
The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting or (ii)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.9 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless
these Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.10 CONDUCT OF BUSINESS.
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including the manner of
voting and the conduct of business.
-4-
<PAGE> 5
2.11 VOTING.
The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.14 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.12 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action required to be taken at an annual or special
meeting of stockholders of the corporation, or any action that may be taken at
an annual or special meeting of such stockholders, must be taken at an annual or
special meeting of stockholders of the corporation, with prior notice and with a
vote, and may not be taken by a consent in writing.
2.13 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
Bylaws.
-5-
<PAGE> 6
2.14 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action.
If the Board of Directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
2.15 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such stockholder by a
written proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212 of the General Corporation Law of Delaware.
-6-
<PAGE> 7
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the certificate of incorporation or these Bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
3.2 NUMBER OF DIRECTORS.
The Board of Directors shall consist of seven persons until
changed by a proper amendment of this Section 3.2.
No reduction of the authorized number of directors shall have
the effect of removing any director before such director's term of office
expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
(a) The board of directors shall be divided into three classes, as
nearly equal in number as possible. The term of office of the first class shall
expire at the 1997 annual meeting of stockholders or any special meeting in lieu
thereof, the term of office of the second class shall expire at the 1998 annual
meeting of stockholders or any special meeting in lieu thereof and the term of
office of the third class shall expire at the 1999 annual meeting of
stockholders or any special meeting in lieu thereof. At each annual meeting of
stockholders or special meeting in lieu thereof following such initial
classification, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders or special meeting in lieu thereof after their election
and until their successors are duly elected and qualified.
(b) Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall if reasonably possible be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent
-7-
<PAGE> 8
reasonably possible, consistent with the foregoing rule, any newly created
directorships shall be added to those classes whose terms of office are to
expire at the latest dates following such allocation and newly eliminated
directorships shall be subtracted from those classes whose terms of office are
to expire at the earliest dates following such allocation, unless otherwise
provided for from time to time by resolution adopted by a majority of the
directors then in office, although less than a quorum. In the event of a vacancy
in the Board of Directors, the remaining directors, except as otherwise provided
by law, may exercise the powers of the full Board of Directors until the vacancy
is filled.
(c) The foregoing provisions shall become effective only when the
corporation becomes a listed corporation within the meaning of Section 301.5 of
the California Corporations Code.
(d) Elections of directors need not be by written ballot.
3.4 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
The Board of Directors of the corporation may hold meetings,
both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of
incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.5 REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
3.6 SPECIAL MEETINGS; NOTICE.
Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the chairman of the board, the president,
any vice president, the secretary or any two (2) directors.
-8-
<PAGE> 9
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.7 QUORUM.
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.8 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these Bylaws.
-9-
<PAGE> 10
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the board or committee. Written consents representing
actions taken by the board or committee may be executed by telex, telecopy or
other facsimile transmission, and such facsimile shall be valid and binding to
the same extent as if it were an original.
3.10 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the certificate of
incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. No such compensation shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
3.11 APPROVAL OF LOANS TO OFFICERS.
The corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the corporation or of
its subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.12 REMOVAL OF DIRECTORS.
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
-10-
<PAGE> 11
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of such director's
term of office.
3.13 CHAIRMAN OF THE BOARD OF DIRECTORS.
The corporation may also have, at the discretion of the Board
of Directors, a chairman of the Board of Directors who shall not be considered
an officer of the corporation.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority
of the whole board, designate one or more committees, with each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors or in the Bylaws of the
corporation, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (i) amend the certificate of incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix the designations
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), (ii) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease
or exchange of all or substantially all of the corporation's property and
assets, (iv) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or (v) amend the Bylaws of the corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
-11-
<PAGE> 12
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and
held and taken in accordance with, the provisions of Section 3.4 (place of
meetings and meetings by telephone), Section 3.5 (regular meetings), Section 3.6
(special meetings and notice), Section 3.7 (quorum), Section 3.8 (waiver of
notice), and Section 3.9 (action without a meeting) of these Bylaws, with such
changes in the context of such provisions as are necessary to substitute the
committee and its members for the Board of Directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the Board of Directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the Board of Directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the corporation shall be a chief executive
officer, a president, a secretary, and a chief financial officer. The
corporation may also have, at the discretion of the Board of Directors, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and any such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be held
by the same person.
-12-
<PAGE> 13
5.2 APPOINTMENT OF OFFICERS.
The officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The Board of Directors may appoint, or empower the chief
executive officer or the president to appoint, such other officers and agents as
the business of the corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with or without
cause, by an affirmative vote of the majority of the Board of Directors at any
regular or special meeting of the board or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to
the attention of the secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the corporation shall
be filled by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these bylaws.
-13-
<PAGE> 14
5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board (if any) or the chief
executive officer, the president shall have general supervision, direction, and
control of the business and other officers of the corporation. He or she shall
have the general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
In the absence or disability of the chief executive officer
and president, the vice presidents, if any, in order of their rank as fixed by
the Board of Directors or, if not ranked, a vice president designated by the
Board of Directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the Board of Directors, these Bylaws, the president or the
chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the
principal executive office of the corporation or at the office of the
corporation's transfer agent or registrar, as determined by resolution of the
Board of Directors, a share register, or a duplicate share register, showing the
names of all stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these Bylaws. He or she shall keep the seal of the corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.
-14-
<PAGE> 15
5.10 CHIEF FINANCIAL OFFICER.
The chief financial officer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary or
assistant secretary of this corporation, or any other person authorized by the
Board of Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by the person
having such authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
In addition to the foregoing authority and duties, all
officers of the corporation shall respectively have such authority and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the Board of Directors or the stockholders.
-15-
<PAGE> 16
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS.
The corporation shall have the power, to the maximum extent
and in the manner permitted by the General Corporation Law of Delaware, to
indemnify each of its employees and agents (other than directors and officers)
against expenses (including attorneys' fees), judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) includes any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
Expenses incurred in defending any action or proceeding for
which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
-16-
<PAGE> 17
6.5 INSURANCE.
The corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
6.6 CONFLICTS.
No indemnification or advance shall be made under this Article
VI, except where such indemnification or advance is mandated by law or the
order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
certificate of incorporation, these Bylaws, a resolution of the stockholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
The corporation shall, either at its principal executive
offices or at such place or places as designated by the Board of Directors, keep
a record of its stockholders listing their names and addresses and the number
and class of shares held by each stockholder, a copy of these Bylaws as amended
to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other
-17-
<PAGE> 18
books and records and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent is the person
who seeks the right to inspection, the demand under oath shall be accompanied by
a power of attorney or such other writing that authorizes the attorney or other
agent to so act on behalf of the stockholder. The demand under oath shall be
directed to the corporation at its registered office in Delaware or at its
principal place of business.
7.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the corporation's
stock ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
-18-
<PAGE> 19
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS.
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
The Board of Directors, except as otherwise provided in these
Bylaws, may authorize any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of a corporation shall be represented by
certificates, provided that the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairman or vice-chairman of the Board of Directors, or the chief executive
officer or the president or vice-president, and by the chief financial officer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
-19-
<PAGE> 20
The corporation may issue the whole or any part of its shares
as partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
If the corporation is authorized to issue more than one class
of stock or more than one series of any class, then the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
that the corporation shall issue to represent such class or series of stock;
provided, however, that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements there
may be set forth on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates
for shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the corporation and cancelled at the same time. The
corporation may issue a new certificate of stock or uncertificated shares in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or the owner's legal representative, to give
the corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions,
rules of construction, and definitions in the Delaware General Corporation Law
shall govern the construction of these Bylaws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
-20-
<PAGE> 21
8.7 DIVIDENDS.
The directors of the corporation, subject to any restrictions
contained in (i) the General Corporation Law of Delaware or (ii) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of
the funds of the corporation available for dividends a reserve or reserves for
any proper purpose and may abolish any such reserve. Such purposes shall include
but not be limited to equalizing dividends, repairing or maintaining any
property of the corporation, and meeting contingencies.
8.8 FISCAL YEAR.
The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors and may be changed by the Board of
Directors.
8.9 SEAL.
The corporation may adopt a corporate seal, which may be
altered at pleasure, and may use the same by causing it or a facsimile thereof,
to be impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
-21-
<PAGE> 22
8.12 REGISTERED STOCKHOLDERS.
The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, shall be entitled to hold liable for calls
and assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.
-22-
<PAGE> 23
CERTIFICATE OF ADOPTION OF BYLAWS
OF
RASTER GRAPHICS, INC.
ADOPTION BY INCORPORATOR
The undersigned person appointed in the certificate of incorporation to
act as the Incorporator of Raster Graphics, Inc. hereby adopts the foregoing
bylaws as the Bylaws of the corporation.
Executed this 3rd day of July 1996.
Edmund S. Ruffin, Jr., Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
The undersigned hereby certifies that the undersigned is the duly
elected, qualified, and acting secretary OF Raster Graphics, Inc., and that the
foregoing Bylaws were adopted as the Bylaws of the corporation on July 3, 1996,
by the person appointed in the certificate of incorporation to act as the
Incorporator of the corporation.
Executed this 3rd day of July 1996.
Edmund S. Ruffin, Jr., Secretary
<PAGE> 24
BYLAWS
OF
RASTER GRAPHICS, INC.
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - CORPORATE OFFICES.................................................. 1
1.1 Registered Office............................................ 1
1.2 Other Offices................................................ 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.......................................... 1
2.1 Place Of Meetings............................................ 1
2.2 Annual Meeting............................................... 1
2.3 Special Meeting.............................................. 1
2.4 Notice Of Stockholders' Meetings............................. 1
2.5 Advance Notice Of Stockholder Nominees....................... 2
2.6 Advance Notice Of Stockholder Business....................... 3
2.7 Manner Of Giving Notice; Affidavit Of Notice................. 3
2.8 Quorum....................................................... 4
2.9 Adjourned Meeting; Notice.................................... 4
2.10 Conduct Of Business.......................................... 4
2.11 Voting....................................................... 5
2.12 No Stockholder Action By Written Consent Without A Meeting... 5
2.13 Waiver Of Notice............................................. 5
2.14 Record Date For Stockholder Notice; Voting................... 6
2.15 Proxies...................................................... 6
ARTICLE III - DIRECTOR......................................................... 7
3.1 Powers....................................................... 7
3.2 Number Of Directors.......................................... 7
3.3 Election, Qualification And Term Of Office Of Directors...... 7
3.4 Place Of Meetings; Meetings By Telephone..................... 8
3.5 Regular Meetings............................................. 8
3.6 Special Meetings; Notice..................................... 8
3.7 Quorum....................................................... 9
3.8 Waiver Of Notice............................................. 10
</TABLE>
-i-
<PAGE> 26
Table OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.10 Fees And Compensation Of Directors........................... 10
3.11 Approval Of Loans To Officers................................ 10
3.12 Removal Of Directors......................................... 10
3.13 Chairman Of The Board Of Directors........................... 11
ARTICLE IV - COMMITTEES........................................................ 11
4.1 Committees Of Directors...................................... 11
4.2 Committee Minutes............................................ 12
4.3 Meetings And Action Of Committees............................ 12
ARTICLE V - OFFICERS........................................................... 12
5.1 Officers..................................................... 12
5.2 Appointment Of Officers...................................... 13
5.3 Subordinate Officers......................................... 13
5.4 Removal And Resignation Of Officers.......................... 13
5.5 Vacancies In Offices......................................... 13
5.6 Chief Executive Officer...................................... 13
5.7 President.................................................... 14
5.8 Vice Presidents.............................................. 14
5.9 Secretary.................................................... 14
5.10 Chief Financial Officer...................................... 15
5.11 Representation Of Shares Of Other Corporations............... 15
5.12 Authority And Duties Of Officers............................. 15
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND
OTHER AGENTS...................................................... 16
6.1 Indemnification Of Directors And Officers.................... 16
6.2 Indemnification Of Others.................................... 16
6.3 Payment Of Expenses In Advance............................... 16
6.4 Indemnity Not Exclusive...................................... 16
6.5 Insurance.................................................... 17
</TABLE>
-ii-
<PAGE> 27
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.6 Conflicts.................................................... 17
ARTICLE VII - RECORDS AND REPORTS.............................................. 17
7.1 Maintenance And Inspection Of Records........................ 17
7.2 Inspection By Directors...................................... 18
7.3 Annual Statement To Stockholders............................. 18
ARTICLE VIII - GENERAL MATTERS................................................. 19
8.1 Checks....................................................... 19
8.2 Execution Of Corporate Contracts And Instruments............. 19
8.3 Stock Certificates; Partly Paid Shares....................... 19
8.4 Special Designation On Certificates.......................... 20
8.5 Lost Certificates............................................ 20
8.6 Construction; Definitions.................................... 20
8.7 Dividends.................................................... 21
8.8 Fiscal Year.................................................. 21
8.9 Seal......................................................... 21
8.10 Transfer Of Stock............................................ 21
8.11 Stock Transfer Agreements.................................... 21
8.12 Registered Stockholders...................................... 22
ARTICLE IX - AMENDMENTS........................................................ 22
</TABLE>
-iii-
<PAGE> 1
EXHIBIT 4.2
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL EXECUTIVE OFFICE.
WA - Warrant Number
RASTER GRAPHICS, INC.
COMMON STOCK PURCHASE WARRANT
1. Number and Price of Shares Subject to Warrant. Subject to the terms
and conditions herein set forth, Shareholder Name (the "PURCHASER"), is entitled
to purchase from Raster Graphics, Inc., a California corporation (the
"COMPANY"), at any time on or before the earliest to occur of the following: (i)
Date, (ii) the closing of the Company's initial firm commitment underwritten
public offering covering the offer and sale of Common Stock for the account of
the Company to the public at an aggregate offering price of not less than
$10,000,000 and at least at $5.00 per share (the "INITIAL PUBLIC OFFERING") or
(iii) the closing of the Company's sale of all or substantially all of its
assets or the acquisition of the Company by another entity by means of merger or
other transaction as a result of which shareholders of the Company immediately
prior to such acquisition possess a minority of the voting power of the
acquiring entity immediately following such acquisition (the "ACQUISITION"),
Number of Shares (which number of shares is subject to adjustment as described
below) of fully paid and nonassessable Common Stock of the Company (the
"SHARES") upon surrender hereof at the principal office of the Company, and upon
payment of the purchase price at said office in cash, by check, by wire transfer
or by cancellation of indebtedness. The Company shall give notice to the
Purchaser of an Initial Public Offering or an Acquisition at least thirty (30)
days prior to the closing of such Initial Public Offering or an Acquisition.
Subject to adjustment as hereinafter provided, the exercise price for one share
of Common Stock (or such securities as may be substituted for one share of
Common Stock pursuant to the provisions hereinafter set forth) shall be $0.30.
The exercise price for one share of Common Stock (or such securities as may be
substituted for one share of Common Stock pursuant to the provisions hereinafter
set forth) payable from time to time upon the exercise of this Warrant (whether
such price be the price specified above or an adjusted price determined as
hereinafter provided) is referred to herein as the "WARRANT PRICE".
-1-
<PAGE> 2
2. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Warrant shall be subject
to adjustment from time to time and the Company agrees to provide notice upon
the happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or
from time to time on or after the date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional
securities or other property of the Company by way of dividend or distribution,
then and in each case, the holder of this Warrant shall, upon the exercise
hereof, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional securities or other property of
the Company which such holder would hold on the date of such exercise had it
been the holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional securities or
other property receivable by it as aforesaid during such period, giving effect
to all adjustments called for during such period by this paragraph (a) and
paragraphs (b) and (c) of this paragraph 2.
(b) Adjustment for Reclassification or Reorganization. In case
of any reclassification or change of the outstanding securities of the Company
or of any reorganization of the Company (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) on or after the date hereof, then and in each such case the Company
shall give the holder of this Warrant at least thirty (30) days notice of the
proposed effective date of such transaction, and the holder of this Warrant,
upon the exercise hereof at any time after the consummation of such
reclassification, change or reorganization, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c).
(c) Stock Splits and Reverse Stock Splits. If at any time on
or after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of the Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Common Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall
-2-
<PAGE> 3
thereby be proportionately increased and the number of shares receivable upon
exercise of this Warrant shall thereby be proportionately decreased.
3. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
4. No Stockholder Rights. This Warrant as such shall not entitle its
holder to any of the rights of a stockholder of the Company until the holder has
exercised this Warrant in accordance with Section 6 hereof.
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
6. Exercise of Warrant.
(a) This Warrant may be exercised by Purchaser by the
surrender of this Warrant at the principal office of the Company, accompanied by
payment in full of the purchase price of the Shares purchased thereby, as
described above. This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the Shares or other
securities issuable upon such exercise shall be treated for all purposes as the
holder of such shares of record as of the close of business on such date. As
promptly as practicable, the Company shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of full shares of Common Stock issuable upon such exercise, together with
cash in lieu of any fraction of a share as provided above.
7. Right to Convert Warrant for Common Stock.
(a) Right to Convert. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion hereof (the "CONVERSION RIGHT")
into shares of Common Stock as provided in this Section 7 immediately prior to
its expiration after the Company has given the Purchaser notice pursuant to
Section 1 of an Initial Public Offering or an Acquisition, subject to the
restrictions set forth in subsection (c) hereof. Upon exercise of the Conversion
Right with respect to a particular
-3-
<PAGE> 4
number of shares subject to this Warrant (the "CONVERTED WARRANT SHARES"), the
Company shall deliver to the Holder (without payment by the Holder of any cash
or other consideration) that number of shares of Common Stock equal to the
quotient obtained by dividing (x) the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in subsection (b) hereof),
which value shall be determined by subtracting (A) the aggregate Warrant Price
of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right from (B) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified portion
hereof) on the Conversion Date (as herein defined) by (y) the fair market value
of one share of Common Stock on the Conversion Date (as herein defined). No
fractional shares shall be issuable upon exercise of the Conversion Right, and
if the number of shares to be issued determined in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the Holder an
amount in cash equal to the fair market value of the resulting fractional share
on the Conversion Date (as herein defined).
(b) Method of Exercise. The Conversion Right may be exercised
by the Holder by the surrender of this Warrant prior to its expiration and after
the Company shall have given the Purchaser notice pursuant to Section 1 of an
Initial Public Offering or an Acquisition, at the principal office of the
Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right immediately prior to the expiration of
this Warrant and indicating the number of shares subject to this Warrant which
are being surrendered (referred to in subsection (a) hereof as the Converted
Warrant Shares) in exercise of the Conversion Right. Such conversion shall be
effective immediately prior to the expiration of this Warrant (the "CONVERSION
DATE"). Certificates for the shares of Common Stock issuable upon exercise of
the Conversion Right (or any other securities deliverable in lieu thereof under
Section 2 (b)) shall be issued as of the Conversion Date and shall be delivered
to the Holder immediately following the Conversion Date.
(c) Restrictions on Conversion Right. In the event that the
Conversion Right contained herein would, at any time this Warrant remains
outstanding, be deemed by the Company's independent certified public accountants
to trigger a charge to the Company's earnings for financial reporting purposes,
then the Conversion Right shall automatically terminate upon the Company's
written notice to the Holder of such adverse accounting treatment.
(d) Determination of Fair Market Value. For purposes of this
Section 7, fair market value of a share of Common Stock as of a particular date
(the "DETERMINATION DATE") shall mean:
(i) In the case of an Initial Public Offering, the
initial "Price to Public" specified in the final prospectus with respect to such
offering.
(ii) In the case of an Acquisition, the effective per
share consideration to be received in an Acquisition by holders of the Common
Stock, which price shall be as
-4-
<PAGE> 5
specified in the agreement entered into with respect to such Acquisition and
determined assuming receipt of the aggregate exercise price of all outstanding
warrants to purchase Common Stock (the "OUTSTANDING WARRANTS"), or if no such
price is set forth in the agreement concerning the Acquisition, then as
determined in good faith by the Company's Board of Directors upon a review of
relevant factors, including the aggregate exercise price of all Outstanding
Warrants.
8. Certificate of Adjustment. Whenever the Warrant Price or number or
type of securities issuable upon exercise of this Warrant is adjusted, as herein
provided, the Company shall promptly deliver to the record holder of this
Warrant a certificate of an officer of the Company setting forth the nature of
such adjustment and a brief statement of the facts requiring such adjustment.
9. Notice of Proposed Transfers. Prior to any proposed transfer of this
Warrant or the shares of Common Stock received on the exercise of this Warrant
(the "SECURITIES"), unless there is in effect a registration statement under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), covering the proposed
transfer, the Holder thereof shall give written notice to the Company of such
Holder's intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall, if the Company so requests, be accompanied (except in transactions in
compliance with Rule 144) by either (i) an unqualified written opinion of legal
counsel who shall be reasonably satisfactory to the Company addressed to the
Company and reasonable satisfactory in form and substance to the Company's
counsel, to the effect that the proposed transfer of the Securities may be
effected without registration under the Securities Act, or (ii) a "no action"
letter from the Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the Holder of
the Securities shall be entitled to transfer the Securities in accordance with
the terms of the notice delivered by the Holder to the Company; provided,
however, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Holder to any affiliate of such Holder, or a transfer by a
Holder which is a corporation to a shareholder of such corporation, or a
transfer by a Holder which is a partnership to a partner of such partnership or
a retired partner of such partnership who retires after the date hereof, or to
the estate of any such partner or retired partner or the transfer by gift, will
or intestate succession of any partner to his spouse or lineal descendants or
ancestors, if the transferee agrees in writing to be subject to the terms hereof
to the same extent as if such transferee were the original Holder hereunder.
Each certificate evidencing the Securities transferred as above provided shall
bear the appropriate restrictive legend set forth above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for the Company such legend is not required in order to establish compliance
with any provisions of the Securities Act.
10. Miscellaneous. This Warrant shall be governed by the laws of the
State of California. The headings in this Warrant are for purposes of
convenience of reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the Company and the registered holder hereof. All notices and other
communications from the Company to the holder of this Warrant shall be delivered
personally or mailed by first class mail, postage prepaid, to the address
furnished to the Company in writing by the last holder of this Warrant who shall
have furnished an address to the Company in writing, and if mailed shall be
deemed given three days after deposit in the U.S. Mail.
11. Taxes. The Company shall pay all taxes and other governmental
charges that may be imposed in respect of the issuance or delivery of the Shares
or any portion thereof.
ISSUED this Day day of Month, Year.
RASTER GRAPHICS, INC.,
a California corporation
By:_____________________________________
Rak Kumar, President
-5-
<PAGE> 1
EXHIBIT 4.3
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE, TRANSFER
OR OTHER DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL
FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED.
Shares Issuable Upon Exercise: _____
WARRANT TO PURCHASE
SHARES OF SERIES B PREFERRED STOCK
EXPIRES JANUARY 11, 1998
THIS CERTIFIES THAT, for value received, ___________, is entitled to
subscribe for and purchase _______ shares (as adjusted pursuant to provisions
hereof, the "Shares") of the fully paid and nonassessable Series B Preferred
Stock of Raster Graphics, Inc., a California corporation (the "Company"), at a
price per share of $2.50 (such price and such other price as shall result, from
time to time, from adjustments specified herein is herein referred to as the
"Warrant Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth. As used herein, the term "Preferred Stock" shall mean the
Company's presently authorized Series B Preferred Stock, and any stock into or
for which such Series B Preferred Stock may hereafter be converted or exchanged
pursuant to the Articles of Incorporation of the Company as from time to time
amended as provided by law and in such Articles, and the term "Grant Date" shall
mean January 11, 1989.
1. Term. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from and after the Grant
Date and prior to the earlier of the ninth annual anniversary date of the Grant
Date or the fourth annual anniversary of the consummation of the Company's
initial public offering of its Common Stock, the aggregate gross proceeds from
which exceed $5,000,000.
2. Method of Exercise; Net Issue Exercise.
2.1 Method of Exercise; Payment; Issuance of New Warrant. The
purchase right
-1-
<PAGE> 2
represented by this Warrant may be exercised by the holder hereof, in whole or
in part and from time to time, by either, at the election of the holder hereof,
(a) the surrender of this Warrant (with the notice of exercise form attached
hereto as Exhibit A duly executed) at the principal office of the Company and by
the payment to the Company, by check, of an amount equal to the then applicable
Warrant Price per share multiplied by the number of Shares then being purchased
or (b) if in connection with a registered public offering of the Company's
securities, the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A-1 duly executed) at the principal office of the
Company together with notice of arrangements reasonably satisfactory to the
Company for payment to the Company either by check or from the proceeds of the
sale of shares to be sold by the holder in such public offering of an amount
equal to the then applicable Warrant Price per share multiplied by the number of
Shares then being purchased. The person or persons in whose name(s) any
certificate(s) representing shares of Preferred Stock shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the shares
represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of stock so purchased shall be
delivered to the holder hereof as soon as possible and in any event within
thirty days of receipt of such notice and, unless this Warrant has been fully
exercised or expired, a new Warrant representing the portion of the Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be issued to the holder hereof as soon as possible and in any event within
such thirty-day period.
2.2 Net Issue Exercise.
(a) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
cancelled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
Holder a number of shares of the Company's Preferred Stock computed using the
following formula:
X = Y (A - B)
---------
A
Where X - The number of shares of Preferred Stock to be issued to Holder.
Y - the number of shares of Preferred Stock purchasable under this
Warrant.
-2-
<PAGE> 3
A - the fair market value of one share of the Company's
Preferred Stock.
B - Warrant price (as adjusted to the date of such
calculations).
(b) For purposes of this Section, fair market value
of the Company's Preferred Stock shall mean the average of the closing bid and
asked prices of the Company's Preferred Stock quoted in the Over-The-Counter
Market Summary or the closing price quoted on any exchange on which the
Preferred Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the ten trading days prior to the date of
determination of fair market value. If the Preferred Stock is not traded
Over-The-Counter or on an exchange, the fair market value shall be the price per
share which the Company could obtain from a willing buyer for shares sold by the
Company from authorized but unissued shares, as such price shall be agreed by
the Company and the Holder.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant and Common
Stock issuable upon conversion of the Preferred Stock will, upon issuance, be
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by the Warrant may be exercised, the Company will at all times have
authorized and reserved for the purpose of issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Preferred Stock (and Common Stock issuable upon conversion thereof) to provide
for the exercise of the right represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares.
(a) Adjustments. In the event that the Company, at any time or
from time to time after the Grant Date, effects a subdivision or combination of
the outstanding shares of Series B Preferred Stock into a greater or lessor
number of shares, then, and in each such event, the Warrant Price shall be
proportionately decreased or increased, as the case may be, and the number of
Shares purchasable hereunder shall be proportionately increased or decreased, as
the case may be.
(b) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions
-3-
<PAGE> 4
of this Paragraph 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
(c) Notices of Record Date. In the event of any taking by the
Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed merger or consolidation of
the Company with or into any other corporation, or any proposed sale, lease or
conveyance of all or substantially all of the assets of the Company, or any
proposed liquidation, dissolution or winding up of the Company, the Company
shall mail to the holder of the Warrant, at least twenty (20) days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
5. Notice of Adjustments. Whenever the Warrant Price, and number of
Shares shall be adjusted pursuant to the provisions hereof, or whenever the
Conversion Price for the Company's Series B Preferred Stock, as that term is
defined in the Company's Amended and Restated Articles of Incorporation (the
"Articles"), is adjusted pursuant to the provisions of the Articles, the Company
shall within thirty (30) days of such adjustment deliver a certificate signed by
its chief financial officer to the registered holder(s) hereof setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Warrant
Price and number of shares, or Conversion Price, after giving effect to such
adjustment.
6. Fractional Shares. No fractional shares of Preferred Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Preferred Stock.
(a) Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant, the shares of Preferred
Stock to be issued upon exercise hereof and the Common Stock to be issued upon
conversion of such Preferred Stock are being acquired for investment and that
such holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Preferred Stock to be issued upon exercise hereof (or Common Stock
issued upon conversion of the Preferred Stock) except under circumstances which
will not result in a
-4-
<PAGE> 5
violation of the Securities Act of 1933, as amended (the "Act"). This Warrant
and all shares of Preferred Stock issued upon exercise of this Warrant or shares
of Common Stock issued on conversion (unless registered under the Act) shall be
stamped or imprinted with a legend in substantially the following form
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED."
(b) Disposition of Warrant and Shares. With respect to any
offer, sale or other disposition of this Warrant or any shares of Preferred
Stock acquired pursuant the exercise of this Warrant (or Common Stock issued
upon conversion of such Preferred Stock) prior to registration of such shares,
the holder hereof and each subsequent holder of the Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state law then in effect) of this Warrant or
such shares of Preferred Stock or Common Stock and indicating whether or not
under the Act certificates for this Warrant or such shares of Preferred Stock or
Common Stock to be sold or otherwise disposed of require any restrictive legend
as to applicable restrictions on transferability in order to insure compliance
with the Act. Each certificate representing this Warrant or the shares of
Preferred Stock or Common Stock thus transferred (except a transfer pursuant to
Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order insure compliance with the Act, unless in the aforesaid
opinion of counsel for the holder, such legend is not required in order to
insure compliance with the Act. Nothing herein shall restrict the transfer of
this Warrant or any portion hereof by the initial holder hereof to any
partnership affiliated with the initial holder, or to any partner of any such
partnership provided such transfer may be made in compliance with applicable
federal and state securities laws. The Company may issue stop transfer
instructions to its transfer agent in connection with the foregoing
restrictions.
8. Rights as Shareholders; Information.
-5-
<PAGE> 6
8.1 Shareholder Rights. No holder of the Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of
Preferred Stock or any other securities of the Company which may at any time be
issuable on the exercise thereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
8.2 Financial Statements and Information. The Company shall
deliver to the registered holder hereof (i) within 120 days after the end of the
fiscal year of the Company, a consolidated statement of income for such fiscal
year, a consolidated balance sheet of the Company as of the end of such year and
a consolidated statement of the sources and application of funds for such year,
which year-end financial reports shall be in reasonable detail and certified by
independent public accountants of nationally recognized standing selected by the
Company, and (ii) within 45 days after the end of each fiscal quarter other than
the last fiscal quarter, unaudited consolidated statements of income and sources
and application of funds for such quarter and a consolidated balance sheet as of
the end of such quarter. In addition, the Company shall deliver to the
registered holder hereof any other information or data provided to the
shareholders of the Company.
9. Registration Rights. The Company and the Warrantholder (which term
shall mean any registered holder of this Warrant or any registered transferee
thereof pursuant to Section 7 hereof) agree that concurrent with the execution
of this Warrant, the Warrantholder, the Company, and the holders of at least the
majority of the shares of the Company's Series A and Series B Preferred Stock
outstanding shall have executed an Amended and Restated Registration Rights
Agreement substantially in the form of Exhibit B attached hereto (the
"Registration Rights Agreement") wherein the Warrantholder shall be entitled to
registration rights with respect to any Common Stock issuable upon conversion of
the Preferred Stock purchasable hereunder.
10. Additional Rights.
10.1 Secondary Sales. The Company agrees to assist the holder
of this Warrant in obtaining liquidity if opportunities to make secondary sales
of the Company's securities become available. To this end, the Company will
promptly provide the holder of this Warrant with notice of any offer to acquire
from the Company's security holders more than five percent (5%)
-6-
<PAGE> 7
of the total voting power of the Company and will allow holder, if it so
chooses, to sell this Warrant to the person or persons making such offer.
10.2 Mergers. Unless the Company provides the holder of this
Warrant with at least 30 days' notice of the terms and conditions of the
proposed transaction, the Company will not (i) sell, lease, exchange, convey or
otherwise dispose of all or substantially all of its property or business, or
(ii) merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary of the Company), or effect any transaction (including a
merger or other reorganization) or series of related transactions, in which more
than 50% of the voting power of the Company is disposed of. The Company will
cooperate with the holder in arranging the sale of this Warrant in connection
with any such transaction.
11. Representations and Warranties. This Warrant is issued and
delivered on the basis of the following:
(a) This Warrant has been duly authorized and executed by the
Company and when delivered will be the valid and binding obligation of the
Company enforceable in accordance with its terms;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the shares of Preferred Stock and the holders thereof
are as set forth in the Company's Articles of Incorporation, as amended, a true
and complete copy of which has been delivered to the original Warrantholder;
(d) The shares of Common Stock issuable upon conversion of the
Shares have been duly authorized and reserved and, when issued in accordance
with the terms of the Company's Articles of Incorporation, as amended, will be
validly issued, fully paid and nonassessable; and
(e) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Articles of
Incorporation or by-laws, do not and will not contravene any law, governmental
rule or regulation, judgment or order applicable to the Company, and do not and
will not contravene any provision of, or constitute a default under, any
-7-
<PAGE> 8
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration with or the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person.
12. Amendment of Conversion Rights. During the term of this Warrant,
the Company agrees that it shall not amend its Articles of Incorporation without
the prior written consent of the holder or holders entitled to purchase a
majority of the Shares upon exercise of this Warrant if as a result of such
amendment any of the conversion rights, including without limitation the
conversion price or antidilution protection privileges, of the Series B
Preferred Stock issuable upon exercise of this Warrant would be affected
adversely and differently from the effect on the Series B Preferred Stock. The
company also agrees to give the holder of this Warrant prior notice of any
amendments to the rights of the Series B Preferred Stock otherwise not included
in this Section 12.
13. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
14. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefore on the signature page of this
Warrant.
15. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Preferred Stock issuable upon the exercise of
this Warrant shall survive the exercise and termination of this Warrant and all
of the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof. The Company will, at the time of
the exercise of this Warrant, in whole or in part, upon request of the holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the holder hereof in respect of any rights (including, without
limitation, any right to registration of the shares of Registrable Securities)
to which the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof to
make any such request shall not affect the continuing obligation of the Company
to the holder hereof in respect of such rights.
-8-
<PAGE> 9
16. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
17. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
18. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
RASTER GRAPHICS
By:
Title:
Address:
Date:
-9-
<PAGE> 10
EXHIBIT A
Notice of Exercise
To:
1. The undersigned hereby elects to purchase ___________ shares
of Series __ Preferred Stock of __________ Corporation pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
(Name)
(Address)
3. The undersigned represents that the aforesaid shares being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distribution or reselling such shares.
(Signature)
(Date)
-10-
<PAGE> 11
EXHIBIT A-1
Notice of Exercise
To:
1. Contingent upon and effective immediately prior to the closing
(the "Closing") of the Company's public offering contemplated by the
Registration Statement of Form S-__, filed _________, 19___, the undersigned
hereby elects to purchase ________ shares of Series ___ Preferred Stock of the
Company (or such lesser number of shares as may be sold on behalf of the
undersigned at the Closing) pursuant to the terms of the attached Warrant.
2. Please deliver to the custodian for the selling shareholders a
stock certificate representing such ____________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $___________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such shares,
the undersigned agrees to deliver the difference to the Company prior to the
Closing.
(Signature)
(Date)
-11-
<PAGE> 1
EXHIBIT 5.1
July 12, 1996
Raster Graphics, Inc.
3025 Orchard Parkway
San Jose, California 95134
REGISTRATION STATEMENT ON FORM S-1; FILE NO. 333-06617
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No.
333-06617)(the "Registration Statement") filed by you, Raster Graphics, Inc.,
with the Securities and Exchange Commission on June 21, 1996 in connection with
the registration under the Securities Act of 1933, as amended, of 3,450,000
shares of your Common Stock (the "Shares"). The Shares include an over-allotment
option to purchase 450,000 shares granted to the Underwriters. As your counsel
in connection with this transaction, we have examined the proceedings taken and
are familiar with the proceedings proposed to be taken by you in connection
with the sale and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares when issued and sold in the
manner described in the Registration Statement will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and in any amendment thereto.
Very truly yours,
VENTURE LAW GROUP
A Professional Corporation
/s/ Venture Law Group
<PAGE> 1
Exhibit 10.2
RASTER GRAPHICS, INC.
1996 STOCK PLAN
AS AMENDED JUNE 21, 1996
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock
Options (as defined under Section 422 of the Code) or Nonstatutory Stock
Options, at the discretion of the Board and as reflected in the terms of the
written option agreement. Stock purchase rights may also be granted under the
Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity in which the Company owns
an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in
Section 4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
(h) "Company" shall mean Raster Graphics, Inc., a Delaware
corporation.
(i) "Consultant" shall mean any person who is engaged by the
Company or any Parent, Subsidiary or Affiliate to render consulting services and
is compensated for such consulting services, and any director of the Company
whether compensated for such services or not.
(j) "Continuous Status as an Employee or Consultant" shall
mean the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military
<PAGE> 2
leave, or any other leave of absence approved by the Administrator; provided
that such leave is for a period of not more than 90 days or reemployment upon
the expiration of such leave is guaranteed by contract or statute. For purposes
of this Plan, a change in status from an Employee to a Consultant or from a
Consultant to an Employee will not constitute a termination of employment.
(k) "Director" shall mean a member of the Board.
(l) "Employee" shall mean any person, including Named
Executives, Officers and Directors employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock as quoted on such system on the date of
determination (if for a given day no sales were reported, the closing bid on
that day shall be used), as such price is reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(o) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(p) "Named Executive" shall mean any individual who, on the
last day of the Company's fiscal year, is the chief executive officer of the
Company (or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
-2-
<PAGE> 3
(q) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an Incentive Stock Option, as designated in the
applicable written option agreement.
(r) "Officer" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" shall mean a stock option granted pursuant to the
Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(u) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(v) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" shall mean this 1996 Stock Plan.
(x) "Restricted Stock" shall mean shares of Common Stock
acquired pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act as the same may be amended from time to time, or any successor
provision.
(z) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 15 of the Plan.
(aa) "Stock Purchase Right" shall mean the right to purchase
Common Stock pursuant to Section 11 below.
(bb) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 15
of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Plan is 800,000. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
Notwithstanding any other provision of the Plan, shares issued under the Plan
and later repurchased by the Company shall not become available for future grant
or sale under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
-3-
<PAGE> 4
(i) Multiple Administrative Bodies. If permitted by
Rule 16b-3, and by the legal requirements relating to the administration of
incentive stock option plans, if any, of applicable securities laws and the Code
(collectively, the "Applicable Laws"), the Plan may (but need not) be
administered by different administrative bodies with respect to Directors,
Officers who are not directors and Employees who are neither Directors nor
Officers.
(ii) Administration with respect to Directors and
Officers. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are also Officers or Directors of the Company, the
Plan shall be administered by (A) the Board, if the Board may administer the
Plan in compliance with Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary plan and Section 162(m) of the Code as it applies
so as to qualify grants of Options to Named Executives as performance-based
compensation, or (B) a Committee designated by the Board to administer the Plan,
which Committee shall be constituted in such a manner as to permit the Plan to
comply with Rule 16b-3 as it applies to a plan intended to qualify thereunder as
a discretionary plan, to qualify grants of Options to Named Executives as
performance-based compensation under Section 162(m) of the Code and otherwise so
as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons.
With respect to grants of Options to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(iv) General. If a Committee has been appointed
pursuant to subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused)
and remove all members of a Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (ii), to the extent permitted by Rule 16b-3
as it applies to a plan intended to qualify thereunder as a discretionary plan,
and to the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom
Options may from time to time be granted hereunder;
-4-
<PAGE> 5
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any Option and/or the shares of Common Stock relating thereto, based
in each case on such factors as the Administrator shall determine, in its sole
discretion);
(vii) to determine whether, to what extent and under
what circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the election
of the participant (including providing for and determining the amount, if any,
of any deemed earnings on any deferred amount during any deferral period); and
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees, provided, however, that Employees of an Affiliate shall not
be eligible to receive Incentive Stock Options. An Employee or Consultant who
has been granted an Option may, if he or she is otherwise eligible, be granted
an additional Option or Options.
(b) Type of Option. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
-5-
<PAGE> 6
(c) No Employment Rights. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 21 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 17 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
in this Plan, the maximum number of Shares which may be subject to options or
stock purchase rights granted to any one Employee under this Plan for any fiscal
year of the Company shall be 500,000.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant;
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes
-6-
<PAGE> 7
of stock of the Company or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of the grant;
(B) granted to a person who, at the time of
the grant of such Option, is a Named Executive of the Company, the per share
Exercise Price shall be no less than 100% of the Fair Market Value on the date
of grant;
(iii) In the case of an Option granted on or after
the effective date of registration of any class of equity security of the
Company pursuant to Section 12 of the Exchange Act and prior to six months after
the termination of such registration, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(b) Permissible Consideration. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares
that (x) in the case of Shares acquired upon exercise of an Option either have
been owned by the Optionee for more than six months on the date of surrender or
were not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (5) authorization from
the Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (6) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(7) delivery of an irrevocable subscription agreement for the Shares that
irrevocably obligates the option holder to take and pay for the Shares not more
than twelve months after the date of delivery of the subscription agreement, (8)
any combination of the foregoing methods of payment, or (9) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Applicable Laws. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exer-
-7-
<PAGE> 8
cised has been received by the Company. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment allowable
under Section 9(b) of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 15 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such other
period of time, not exceeding three (3) months in the case of an Incentive Stock
Option or six (6) months in the case of a Nonstatutory Stock Option, as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the optionee does not
exercise such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 10(b)
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her total and permanent disability
(as defined in Section 22(e)(3) of the Code), he or she may, but only within six
(6) months (or such other period of time not exceeding twelve (12) months as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) from the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his or
her Option to the extent he or she was entitled to exercise it at the date of
such termination. To the extent that he or she was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the time
of his death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding six (6) months, as is determined by the
Administrator, with such determination in the case of an Incentive Stock
-8-
<PAGE> 9
Option being made at the time of grant of the Option) following the date of
death (but in no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance
but only to the extent of the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous Status as an Employee or
Consultant three (3) months (or such other period of time as is determined by
the Administrator as provided above) after the date of death, subject to the
limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of
time not exceeding three (3) months as is determined by the Administrator, with
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option or may be exercised, at any time within six
(6) months following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement), by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the higher of either the original
purchase price or the Fair Market Value on the date of the repurchase.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder
-9-
<PAGE> 10
when his or her purchase is entered upon the records of the duly authorized
transfer agent of the Company. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Stock Purchase
Right is exercised, except as provided in Section 15 of the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
12. Withholding Taxes. As a condition to the exercise of Options and
Stock Purchase Rights granted hereunder, the Optionee or Stock Purchase Right
holder shall make such arrangements as the Administrator may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the exercise, receipt or vesting of such
Option or Stock Purchase Right. The Company shall not be required to issue any
Shares under the Plan until such obligations are satisfied.
13. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees and Stock Purchase Right holders may
satisfy withholding obligations as provided in this paragraph. When an Optionee
or Stock Purchase Right holder incurs tax liability in connection with an Option
or Stock Purchase Right which tax liability is subject to tax withholding under
applicable tax laws, and the Optionee or Stock Purchase Right holder is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee or Stock Purchase Right holder may satisfy the
withholding tax obligation by one or some combination of the following methods:
(a) by cash payment, or (b) out of the Optionee's or the Stock Purchase Right
holder's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee or Stock
Purchase Right holder for more than six months on the date of surrender, and
(ii) have a fair market value on the date of surrender equal to or less than the
Optionee's or the Stock Purchase Right holder's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option or Stock Purchase Right that
number of Shares having a fair market value equal to the amount required to be
withheld. For this purpose, the fair market value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
Any surrender by an Officer or Director of previously
owned Shares to satisfy tax withholding obligations arising upon exercise of an
Option or Stock Purchase Right must comply with the applicable provisions of
Rule 16b-3 and shall be subject to such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.
-10-
<PAGE> 11
All elections by an Optionee or Stock Purchase Right
holder to have Shares withheld to satisfy tax withholding obligations shall be
made in writing in a form acceptable to the Administrator and shall be subject
to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the election
is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator;
(d) if the Optionee or Stock Purchase Right holder is an
Officer or Director, the election must comply with the applicable provisions of
Rule 16b-3 and shall be subject to such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.
In the event the election to have Shares withheld is
made by an Optionee or Stock Purchase Right holder and the Tax Date is deferred
under Section 83 of the Code because no election is filed under Section 83(b) of
the Code, the Optionee shall receive the full number of Shares with respect to
which the Option or Stock Purchase Right is exercised but such Optionee or Stock
Purchase Right holder shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
14. Non-Transferability of Options and Stock Purchase Rights. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution. The designation of a beneficiary by an Optionee or
Stock Purchase Right holder will not constitute a transfer. An Option or Stock
Purchase Right may be exercised, during the lifetime of the Optionee or Stock
Purchase Right holder only by the Optionee or Stock Purchase Right holder or a
transferee permitted by this Section 14.
-11-
<PAGE> 12
15. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, the number of shares of Common
Stock that have been authorized for issuance under the Plan but as to which no
Options or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the maximum number of shares of Common Stock for which Options
or Stock Purchase Rights may be granted to any employee under Section 8 of the
Plan, and the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Option or Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Administrator. The Administrator may, in the
exercise of its sole discretion in such instances, declare that any Option or
Stock Purchase Right shall terminate as of a date fixed by the Administrator and
give each Optionee or Stock Purchase Right holder the right to exercise his or
her Option or Stock Purchase Right as to all or any part of the Optioned Stock
or Restricted Stock, including Shares as to which the Option or Stock Purchase
Right would not otherwise be exercisable. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Option or Stock Purchase Right may be
assumed or an equivalent option or stock purchase right substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event the Option or Stock Purchase Right is not assumed or substituted,
the Optionee or Stock Purchase Right holder shall have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock or Restricted
Stock, including Shares as to which the Option would not otherwise be
exercisable, and any Restricted Stock held by a purchaser shall be released from
the Company's repurchase option.
16. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
-12-
<PAGE> 13
17. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
21 of the Plan:
(i) any increase in the number of Shares subject to
the Plan, other than an adjustment under Section 15 of the
Plan;
(ii) any change in the designation of the class of
persons eligible to be granted Options or Stock Purchase
Rights;
(iii) any change in the limitation on grants to
employees as described in Section 8 of the Plan or other
changes which would require shareholder approval to qualify
options or stock purchase rights granted hereunder as
performance-based compensation under Section 162(m) of the
Code; or
(iv) any revision or amendment requiring shareholder
approval in order to preserve the qualification of the Plan
under Rule 16b-3.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 17(a) of the Plan is made subsequent to the
first registration of any class of equity securities by the Company under
Section 12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 21 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Stock Purchase Right Holder
and the Board, which agreement must be in writing and signed by the Optionee or
Stock Purchase Right Holder and the Company.
18. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and
-13-
<PAGE> 14
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
19. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
20. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve.
21. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. Such shareholder approval shall be obtained in the
manner and to the degree required under applicable federal and state law and the
rules of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 21(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the later
of (1) the first registration of any class of equity securities of the Company
under Section 12 of the Exchange Act or (2) the granting of an Option or Stock
Purchase Right hereunder to an officer or director after such registration, do
the following:
(i) furnish in writing to the holders entitled to
vote for the Plan substantially the same information that would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities
and Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to shareholders.
22. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and Stock Purchase Right holder, during the period for which
such Optionee or holder
-14-
<PAGE> 15
has one or more Options or Stock Purchase Rights outstanding, copies of all
annual reports and other information which are provided to all shareholders of
the Company.
-15-
<PAGE> 1
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of
____________, 199__. by and between Raster Graphics, Inc., a Delaware
corporation (the "Company"), and ________________ (the "Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting officers and
directors to expensive litigation risks at the same time as the availability and
coverage of liability insurance has been severely limited. Indemnitee does not
regard the current protection available as adequate under the present
circumstances, and Indemnitee and other officers and directors of the Company
may not be willing to continue to serve as officers and directors without
additional protection. The Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, or, with respect to any
criminal action or proceeding, that Indemnitee had reasonable cause to believe
that Indemnitee's conduct was unlawful.
<PAGE> 2
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld), in
each case to the extent actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action or suit if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company and its stockholders, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudicated by court order or
judgment to be liable to the Company in the performance of Indemnitee's duty to
the Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
Indemnitee in connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is
intended to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referred to in Section l(a) or Section 1(b) hereof (including amounts actually
paid in settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby. Any advances to be made under this
Agreement shall be paid by the Company to Indemnitee within twenty (20) days
following delivery of a written request therefor by Indemnitee to the Company.
<PAGE> 3
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received on the third business day after the
date postmarked if sent by domestic certified or registered mail, properly
addressed; otherwise notice shall be deemed received when such notice shall
actually be received by the Company. In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for
in Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 11 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Section 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in
<PAGE> 4
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 3(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ counsel in any such proceeding at Indemnitee's
expense; and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be deemed to be
within the purview of Indemnitee's rights and the Company's obligations under
this Agreement. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in
<PAGE> 5
another capacity while holding such office. The indemnification provided under
this Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he may have ceased to serve
in an such capacity at the time of any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
<PAGE> 6
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any
<PAGE> 7
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that if
Indemnitee is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
11. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Delaware, without giving effect to principles of conflict of
law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and
<PAGE> 8
merges all prior discussions between them. No modification of or amendment to
this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the parties to this Agreement. The failure
by either party to enforce any rights under this Agreement shall not be
construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or
permitted to be given under this Agreement shall be in writing and shall be
deemed sufficient when delivered personally or sent by telegram or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, and addressed to the party to be notified at such
party's address as set forth below or as subsequently modified by written
notice.
(e) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and its successors and assigns, and inure to the benefit of
Indemnitee and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Company to effectively bring suit to enforce such rights.
[Signature Page Follows]
<PAGE> 9
The parties hereto have executed this Agreement as of the day and year
set forth on the first page of this Agreement.
Raster Graphics, Inc.
By:
Title:
Address: 3025 Orchard Parkway
San Jose, CA 95134
AGREED TO AND ACCEPTED:
(Signature)
Address:
<PAGE> 1
EXHIBIT 11.1
RASTER GRAPHICS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss).................................. $ 41 $ (2,128) $ 77
======= ======= =======
Computations of weighted average common and
weighted average common shares outstanding....... 354 330 220
Common equivalent shares from stock options,
convertible preferred stock and warrants......... 4,025 -- 6,165
Shares related to SAB Nos. 55, 64, and 83.......... 802 802 802
------- ------- -------
Shares used in computing net loss per share........ 5,181 1,132 7,187
======= ======= =======
Net loss per share................................. $ 0.01 $ (1.88) $ 0.01
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 23, 1996, except as to Note 13, as to which the date is July , 1996,
related to Raster Graphics, Inc., in the Registration Statement (Form S-1) and
related Prospectus of Raster Graphics, Inc. for the registration of 3,450,000
shares of its common stock.
Our audits also included the financial statement schedule of Raster
Graphics, Inc. listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Jose, California
July , 1996
------------------------------------
The foregoing consent is in the form that will be signed upon the
completion of reincorporation of the Company from California to Delaware and the
reverse stock split.
/s/ ERNST & YOUNG LLP
San Jose, California
July 11, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Onyx Graphics Corporation:
We consent to the use of our report dated November 11, 1994, on the
statements of operations and cash flows of Onyx Graphics Corporation for the
year ended September 30, 1994 included herein and to the reference to our firm
under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Salt Lake City, Utah
July 15, 1996
