<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
COMMISSION FILE NUMBER 0-14713
[INTERLEAF LOGO]
INTERLEAF, INC.
(exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2729042
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
PROSPECT PLACE, 9 HILLSIDE AVE., WALTHAM, MA 02154
(Address of principal executive offices) (Zip Code)
(617) 290-0710
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)has been subject to
such filing requirements for the past 90 days.
Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's Common Stock,
$.01 par value, as of October 31, 1995 was 15,659,118.
<PAGE>
INTERLEAF, INC.
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated balance sheets at September 30, 1995 and March 31, 1995 3
Consolidated statements of operations for the three and
six months ended September 30, 1995 and 1994 4
Consolidated statements of cash flows for the six months ended
September 30, 1995 and 1994 5
Notes to consolidated financial statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to Vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURE 11
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INTERLEAF, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September March 31,
30, 1995 1995
In thousands, except for share and per (unaudited)
share amounts
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,646 $ 10,441
Accounts receivable, net 19,961 22,766
Prepaid expenses and other current assets 1,935 2,122
-------- --------
TOTAL CURRENT ASSETS 32,542 35,329
Property and equipment, net 8,863 11,058
Intangible assets 4,777 3,801
Other assets 435 605
-------- --------
TOTAL ASSETS $ 46,617 $ 50,793
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,964 $ 2,687
Accrued expenses 15,518 16,193
Unearned revenue 13,114 15,649
Other current liabilities 2,286 5,024
-------- --------
TOTAL CURRENT LIABILITIES 32,882 39,553
Other liabilities 19 625
-------- --------
TOTAL LIABILITIES 32,901 40,178
-------- --------
Contingencies
SHAREHOLDERS' EQUITY
Preferred stock, par value $.10 per share,
authorized 5,000,000 shares:
Series A Junior Participating, none
issued and outstanding
Senior Series B Convertible, issued
and outstanding 1,232,144 at
September 30, 1995 and 1,728,573
at March 31, 1995 123 173
Common stock, par value $.01 per share,
authorized
30,000,000 shares, issued and
outstanding 15,650,968 at September 30,
1995 and 14,203,027 at March 31, 1995 157 142
Additional paid-in capital 69,426 67,382
Retained earnings (deficit) (55,875) (57,269)
Cumulative translation adjustment (115) 187
-------- --------
TOTAL SHAREHOLDERS' EQUITY 13,716 10,615
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 46,617 $ 50,793
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Three months ended September 30 Six months ended September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
In thousands, except
for per share amounts (unaudited) (unaudited)
REVENUES:
Products $ 9,273 $ 10,871 $ 18,710 $ 17,461
Maintenance 8,399 7,439 16,191 14,879
Services 5,639 4,701 11,537 9,911
------- ------- ------- -------
TOTAL REVENUES 23,311 23,011 46,438 42,251
------- ------- ------- -------
COSTS OF REVENUES:
Products 1,564 2,395 3,224 4,543
Maintenance 1,314 1,660 2,683 3,234
Services 4,767 5,025 9,576 9,762
------- ------- ------- -------
TOTAL COSTS OF REVENUES 7,645 9,080 15,483 17,539
------- ------- ------- -------
Gross Margin 15,666 13,931 30,955 24,712
------- ------- ------- -------
OPERATING EXPENSES:
Selling, general and
administrative 10,871 14,791 21,853 29,177
Research and
development 3,931 4,349 7,857 8,699
Restructuring expense - 7,109 - 7,109
------- ------- ------- -------
TOTAL OPERATING EXPENSES 14,802 26,249 29,710 44,985
------- ------- ------- -------
Income (loss) from
operations 864 (12,318) 1,245 (20,273)
Other income (expense) 58 (129) 149 (270)
------ ------- ------- -------
Income (loss) before 922 (12,447) 1,394 (20,543)
income taxes
Provision for income taxes - 2,109 - 2,166
------ ------- ------- -------
NET INCOME (LOSS) 922 $(14,556) $ 1,394 $(22,709)
------ ------- ------- -------
------ ------- ------- -------
Net income (loss) per share $ .05 $ (1.05) $ .08 $ (1.64)
------ ------- ------- -------
------ ------- ------- -------
Shares used in computing
net income (loss) per
share 18,618 13,929 18,134 13,845
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended September 30
1995 1994
In thousands (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,394 $(22,709)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Restructuring expense - 7,109
Depreciation and amortization expense 3,863 5,314
Loss from disposal of property and equipment 20 94
Deferred income taxes - 1,860
Changes in assets and liabilities:
Decrease in accounts receivable, net 2,573 9,843
(Increase) decrease in other assets 293 (749)
Decrease in accounts payable and accrued expenses (1,286) (834)
Decrease in unearned revenue (2,399) (1,191)
Decrease in other liabilities (1,662) (1,389)
Other, net (83) (100)
------- -------
Net cash provided by (used in) operating
activities 2,713 (2,752)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (441) (4,076)
Capitalized software development costs (2,352) (2,016)
------- -------
Net cash used in investing activities (2,793) (6,092)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 2,009 1,287
Property and equipment financing - 652
Repayment of long-term debt and capital leases (1,674) (1,060)
------- -------
Net cash provided by financing activities 335 879
------- -------
Effect of exchange-rate changes on cash (50) 168
------- -------
Net increase (decrease) in cash and cash
equivalents 205 (7,797)
Cash and cash equivalents at beginning of period 10,441 23,364
------- -------
Cash and cash equivalents at end of period $10,646 $15,567
------- -------
------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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INTERLEAF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of
Interleaf, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. Interleaf, Inc. and its subsidiaries are
collectively referred to as the "Company." Certain 1994 amounts
have been reclassified to conform to the 1995 method of
presentation.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all financial information and
disclosures required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
these financial statements include all adjustments (consisting
only of normal recurring accruals) necessary for a fair
presentation of the results of operations for the interim
periods reported and of the financial condition of the Company
as of the date of the interim balance sheet. The results of
operations for interim periods are not necessarily indicative of
the results to be expected for the full year.
These financial statements should be read in conjunction with
the Company's audited consolidated financial statements and
related notes included in the Company's Annual Report on Form
10-K for the year ended March 31, 1995.
2. Net Income (Loss) Per Share
Per share amounts are calculated using the weighted average
number of common shares and common share equivalents outstanding
during periods of net income. Common share equivalents are
attributable to stock options, common stock warrants and
convertible preferred stock. Per share amounts are calculated
using only the weighted average number of common shares
outstanding during periods of net loss. Fully diluted earnings
per share is not materially different from reported primary
earnings per share.
3. Noncash Financing Activities
Senior Series B Convertible Preferred Stock holders converted
496,429 and 57,142 shares of preferred stock into 667,077 and
76,784 shares of the Company's common stock during the six
months ended September 30, 1995 and 1994, respectively. The
Company issued 171,635 shares of common stock, during the six
months ended September 30, 1995, in connection with the exercise
of a warrant. The Company received no proceeds upon the
conversion of the warrant into common stock.
4. Research and Development Agreements
In October 1988, the Company entered into a joint venture (the
"Venture") with PruTech Research and Development Partnership III
("PruTech"), for the purpose of developing and marketing certain
products. PruTech contributed approximately $2,950,000 in cash
to the Venture; the Company licensed to the Venture certain base
technology and was required to perform certain development,
marketing and administrative services for the Venture.
In March 1994, PruTech commenced an arbitration action against
the Company alleging, among other things, (i) that the Company
had mismanaged the Venture; (ii) that PruTech is entitled to
cash distributions of 30% of Venture revenues; and (iii) that
certain Venture-owned technology was used in the Company's other
products. The Company has denied such allegations.
6
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INTERLEAF, INC.
The Company has agreed to pay PruTech $2.1 million (the
"Purchase Price") solely in consideration of (i) the acquisition
by the Company of PruTech's interest in the Venture, and (ii)
the settlement of the pending arbitration action and the release
by PruTech of all claims that it may have against the Company
arising out of the formation and operation of the Venture. At
the Company's option, the Purchase Price shall be payable in
cash, by the issuance of Common Stock, or a combination thereof.
The Company intends to issue to PruTech Common Stock shares
having a value of $2.1 million for payment of the Purchase
Price. This will not have a material adverse effect on the
financial position or results of operations of the Company.
5. Contingencies
Interleaf's German subsidiary, Interleaf GmbH, has been notified
that it is liable for certain German withholding taxes related
to payments remitted to the United States from Germany. The
Company is appealing this assessment, however, approximately
$1.1 million of the cash and cash equivalents balance at
September 30, 1995 has been reserved for potential payment of
the German withholding taxes. The Company believes the final
outcome will not have a material adverse effect on the financial
position or results of operations of the Company.
7
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INTERLEAF, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company recorded net income of $922,000 and $1,394,000 for its second
quarter and six months ended September 30, 1995, respectively, compared with
a net loss of approximately $14.6 million and $22.7 million for the
corresponding periods of fiscal 1995. The continued improvement in the
Company's operating results is primarily attributable to a significant
reduction in operating expenses, due to a decline in personnel and facility
expenses arising from the Company's fiscal 1995 restructuring. The second
quarter of fiscal 1995 included a restructuring charge of approximately $7.1
million and a $1.9 million charge related to a revaluation of the Company's
deferred tax asset. Further reductions in operating expenses from their
current level are not anticipated as the majority of the benefits from the
previous year's restructuring have been realized.
REVENUES
Total revenues increased $0.3 million (1%) and $4.2 million (10%) for the
second quarter and six months ended September 30, 1995, respectively, when
compared with the same periods a year ago. Product license revenues declined
15% for the second quarter of fiscal 1996 from the previous year due to a
decrease in domestic revenues relative to particularly strong results last
year, partially offset by increases in Europe and Asia/Pacific/Japan regions.
Product license revenues increased approximately $1.2 million (7%) for the
six months ended September 30, 1995, when compared with the same period a
year ago. This increase was primarily attributable to the major decline in
product license revenues during the first quarter of fiscal 1995 which
resulted in the reorganization and restructuring of the Company initiated in
September 1994.
Maintenance revenue, resulting from contracts to provide telephone support
and upgrades to the Company's software products, increased by approximately
$1.0 million (13%) and $1.3 million (9%) for the second quarter and six
months ended September 30, 1995, respectively, when compared with the same
periods a year ago. The increase was primarily due to increased renewal
contracts during the second quarter of fiscal 1996. Future maintenance
revenue will become increasingly dependent on the Company's ability to
maintain its existing customer base and to increase maintenance contract
volume as the product upgrades and new products are shipped. This will be
necessary to offset the general downward pricing pressure on maintenance in
the software industry.
Services revenue, consisting of consulting and customer training revenue,
increased approximately $0.9 million (20%) and $1.6 million (16%) for the
second quarter and six months ended September 30, 1995, respectively, when
compared with the same periods a year ago. This was primarily related to
price increases and increased customer demand for the Company's expert
services to implement document management solutions, partially offset by a
small decline in training services.
Revenues from the Company's international operations were approximately 38%
($8.9 million) and 37% ($17.2 million) of total revenues for the second
quarter and six months ended September 30, 1995, respectively, compared with
31% ($7.2 million) and 31% ($13.1 million) for the corresponding periods of
fiscal 1995. The increase from the prior year was primarily due to a
significant increase in product license revenues in Japan and Europe.
8
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INTERLEAF, INC.
Growth in revenues during the remainder of fiscal 1996 will be largely
dependent on customer acceptance of the Company's product upgrades and new
products and the Company's ability to leverage product license revenues with
services to provide integrated document management solutions to its
customers. The Company completed the port of its publishing product
(Interleaf 6) to the Windows NT operating system. In addition, upgrades to
WorldView Viewer, RDM, Production Manager, SGML conversion tools, and
Liaison, a new strategic open Application Programming Interface for
simplifying the creation of integrated document management solutions, began
shipping in the latter part of the second quarter and beginning of the third
quarter.
The Company's sales cycles have become longer as the Company provides more
integrated document management solutions combined with expert services to
satisfy its customers' requirements. In addition, a high percentage of the
Company's revenues are generally realized in the last month of a quarter and
can be difficult to predict until the end of a quarter. Accordingly, given
the Company's relatively fixed cost structure, a shortfall or increase in
product license revenue will have a significant impact on the Company's
operating results.
COSTS OF REVENUES
Cost of product revenues includes amortization of capitalized software
development costs; product media, documentation materials, packaging and
shipping costs; and royalties paid for licensed technology. Cost of
product revenues declined approximately $0.8 million (35%) and $1.3 million
(29%) for the second quarter and six months ended September 30, 1995,
respectively, when compared to the same periods a year ago. The decline
was primarily related to decreased amortization of capitalized software
development costs due to the write-down of capitalized software costs in
the fourth quarter of fiscal 1995 associated with older software products
for which revenue projections did not support the capitalized amounts. Also
contributing to the decrease in cost of product revenues was a decline in
royalties associated with certain time-based royalty agreements. Cost of
maintenance revenues declined 21% and 17% for the second quarter and six
months ended September 30, 1995, respectively, when compared to the
same periods a year ago, primarily due to a decrease in customer support
personnel related to the Company's fiscal 1995 restructuring. Cost of
services revenue decreased 5% for the second quarter ended September 30,
1995, when compared to the same period a year ago, primarily
attributable to a decline in consulting personnel.
OPERATING EXPENSES
Selling, general and administrative ("SG&A") expenses decreased approximately
$3.9 million (27%) and $7.3 million (25%) for the second quarter and six
months ended September 30, 1995, respectively, when compared with the same
periods a year ago. This was primarily due to significant personnel and
facilities expense reductions related to the Company's fiscal 1995
restructuring. SG&A expenses were approximately 47% and 64% of total revenues
for the second quarters ended September 30, 1995 and 1994, respectively.
Research and development ("R&D") expenses consist primarily of personnel
expenses to support product development offset by capitalized software
development costs. R&D expenses decreased approximately 10% for the second
quarter and six months ended September 30, 1995, when compared with the same
periods a year ago. This was primarily due to reduced personnel expenses
associated with the Company's fiscal 1995 restructuring and increased
capitalization of software development costs as several product upgrades were
near completion. For the second quarters ended September 30, 1995 and 1994,
R&D expenses were approximately 17% and 19%, respectively, of total revenues.
R&D spending, which excludes the offset for capitalized software development
costs, represented approximately 22% and 23% of total revenues, respectively.
The Company completed several major releases, as discussed above, as a result
capitalization of software development costs is anticipated to decline for
the remainder of fiscal 1996. The Company expects to ship additional product
upgrades and new products during the third quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $10.6 million of cash and cash equivalents at
September 30, 1995, an increase of $205,000 from March 31, 1995. The increase
was primarily attributable to the Company's net income for the six months
ended September 30, 1995 and proceeds from common stock issuances related to
its stock option plans and employee stock purchase plan of approximately $2.0
million.
9
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INTERLEAF, INC.
Significant expenditures were incurred to liquidate collateralized and other
lease obligations of approximately $1.7 million and restructuring payments of
approximately $1.1 million. Capital expenditures were approximately $0.4
million, a significant reduction from the prior fiscal year. Future
commitments consist primarily of operating leases related to both open and
closed facilities.
The Company relocated part of its headquarters operations in October 1995.
The Company expended approximately $0.4 million as of September 30 and will
incur additional payments of approximately $0.6 million in the third quarter
to complete the move. The reduction in office space and rental rate and
sub-lease of the vacated space will result in annual cash and expense savings
slightly in excess of $1.0 million beginning in fiscal 1997. Interleaf's
German subsidiary, Interleaf GmbH, has been notified that it is liable for
German withholding taxes related to payments remitted to the United States
from Germany. The Company is appealing this assessment, however,
approximately $1.1 million of the cash and cash equivalents balance at
September 30, 1995 has been reserved for potential payment of the German
withholding taxes.
Accrued restructuring charges are approximately $2.3 million at September 30,
1995. This reserve should be sufficient to cover remaining expenditures,
primarily attributable to operating lease payments for closed facilities,
which are expected to continue until the year 2000. The Company is attempting
to sub-lease closed facilities to reduce future obligations.
In May 1995, the Company obtained a revolving line of credit from a major
commercial lender. Borrowings from the line of credit are secured by
substantially all domestic assets of the Company. The credit agreement limits
borrowing based upon the level of North American accounts receivable,
modified by the previous quarter's cash collections. As of October 31, 1995,
the amount available for borrowings was approximately $4.3 million. The
agreement contains certain financial covenants as well as restrictions on
certain additional indebtedness, acquisitions, capital expenditures, and
dividend payments. At September 30, 1995, there were no loans outstanding
under this line of credit.
In October 1988, the Company entered into a joint venture (the "Venture")
with PruTech Research and Development Partnership III ("PruTech"), for the
purpose of developing and marketing certain products. In March 1994, PruTech
commenced an arbitration action against the Company alleging, among other
things, (i) that the Company had mismanaged the Venture; (ii) that PruTech is
entitled to cash distributions of 30% of Venture revenues; and (iii) that
certain Venture-owned technology was used in the Company's other products.
The Company has denied such allegations. The Company has agreed to pay
PruTech $2.1 million (the "Purchase Price") solely in consideration of (i)
the acquisition by the Company of PruTech's interest in the Venture, and (ii)
the settlement of the pending arbitration action and the release by PruTech
of all claims that it may have against the Company arising out of the
formation and operation of the Venture. At the Company's option, the Purchase
Price shall be payable in cash, by the issuance of Common Stock, or a
combination thereof. The Company intends to issue to PruTech Common Stock
shares having a value of $2.1 million for payment of the Purchase Price.
The Company believes that existing cash and cash equivalents and borrowing
availability, together with cash generated from operations, will provide
sufficient funds to meet the Company's planned operations for the
foreseeable future.
10
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INTERLEAF, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
At the Annual Meeting of Shareholders held on August 17, 1995 ("Annual
Meeting") the shareholders of the Company elected the following two nominees
as Class II directors of the Company whose terms shall expire at the
Company's 1998 shareholder meeting: Andre Harari, by a vote of 15,331,638 in
favor to 259,497 against, and George D. Potter, Jr., by a vote of 15,418,207
in favor to 172,928 against. The Company also has three Class III directors
Frederick B. Bamber, David A. Boucher, and Ed Koepfler, whose terms are set
to expire at the annual shareholders' meeting in 1996, and two Class I
directors Clinton P. Harris (as a Preferred Class I director elected solely
by the Senior Series B Preferred Shareholders) and Patrick J. Sansonetti,
whose terms are set to expire at the annual shareholders' meeting in 1997. At
the Annual Meeting, the shareholders ratified and approved the amendment to
the Company's 1993 Stock Option Plan to increase the number of shares of the
Company's Common Stock available for issuance from 750,000 to 1,500,000 under
the plan, by a vote of 7,670,661 in favor, 1,397,040 against, 75,423
abstentions, and 6,448,011 no votes. The shareholders also ratified and
approved the selection of Ernst & Young LLP as the Company's independent
auditors for fiscal 1996, by a vote of 15,506,820 in favor, 48,478 against,
and 35,837 abstentions. A more complete description of these matters appears
in the Company's 1995 Proxy Statement, dated July 1, 1995.
Item 5. Other Information
Effective September 1, 1995, Andre Harari resigned as a Class II
director. Accordingly, the Company currently has six directors.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed in the accompanying Exhibit Index are
filed as part of this Quarterly Report on Form 10-Q.
(b) No reports were filed on Form 8-K by the Company during
the quarter ended September 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTERLEAF, INC.
November 10, 1995
/s/ G. Gordon M. Large
-----------------------------------
G. Gordon M. Large
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
11
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INTERLEAF, INC.
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
- ------- ----------- ----------------
10(a) Company's 1983 Stock Option Plan, as amended [vi]
10(a1) 1994 Employee Stock Option Plan [vii]
10(a2) 1993 Incentive Stock Option Plan, as amended [ix]
10(b) Company's 1989 Director Stock Option Plan [i]
10(b2) Company's 1987 Employee Stock Purchase Plan, [vi]
as amended
10(c) Company's 1989 Officer and Employee [i]
Severance Benefit Plans
10(cc) Company's 1993 Director Stock Option Plan [vi]
10(d) Agreements between PruTech Research and [ii]
Development Partnership III and the Company,
dated October 21, 1988.
10(e) Exclusive Marketing and Licensing Agreement, [i]
between Interleaf South America, Ltd. and
the Company, and related Option Agreement,
dated March 31, 1989.
10(f) Distribution and License Agreement between [i]
Interleaf Italia, S.r.l. and the Company,
and related Joint Venture Agreement, dated
October 31, 1988.
10(g) Preferred Stock Purchase Agreements, for the [ii]
issuance of 2,142,857 shares of the Company's
Senior Series B Convertible Preferred Stock, dated
September 29, 1989.
10(h) Notification to Preferred Shareholder of [iii]
increase in conversion ratio, dated May 18, 1992.
10(i) Lease of Prospect Place, Waltham, MA, [iv]
between Prospect Place Limited Partnership and
Interleaf, Inc., and related Agreements, dated
March 30, 1990.
10(j) Management Consulting Agreement between the [v]
Company and David A. Boucher, the Company's
Chairman of the Board, dated July 15, 1992.
10(k) Letter Agreement between the Company and [vi]
Richard P. Delio, the Company's former Sr.
Vice President of Finance and Administration
and Chief Financial Officer, dated March 30,
1994, concerning his employment and severance
with the Company.
10(l) Letter of Separation and Management [vii]
Consulting Agreement between the Company and
Mark K. Ruport, the Company's former President,
Chief Executive Officer and Director, dated
July 25, 1994, concerning his separation and
consulting obligations to the Company.
10(m) Letter Agreement between the Company and [vii]
Richard P. Delio, the Company's former Sr.
Vice President of Finance and Administration
and Chief Financial Officer and Acting
President, dated August 3, 1994, concerning
his employment and severance with the Company.
10(n) Letter of Separation and Management [vii]
Consulting Agreement between the Company and
Peter Cittadini, the Company's former Sr.
Vice President Worldwide Operations, dated
July 27, 1994, concerning his separation and
consulting obligations to the Company.
10(o) Executive Compensation Arrangement for David [vii]
A. Boucher, the Company's Chairman of the
Board, dated July 20, 1994.
10(p) Letter of Separation and Management [vii]
Consulting Agreement between the Company and
Lawrence S. Bohn, the Company's former Sr.
Vice President, Marketing and Business
Development, dated September 20, 1994,
concerning his separation and consulting
obligations to the Company.
12
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INTERLEAF, INC.
Exhibit
Number Description Method of Filing
- ------- ----------- ----------------
10(q) Employment and severance agreement between [viii]
the Company and Edward Koepfler, the
Company's President, dated October 3, 1994.
10(r) Loan and Security Agreement between the [x]
Company and Foothill Capital Corporation,
dated May 2, 1995.
10(s) Employment and severance agreement between [x]
the Company and G. Gordon M. Large, the
Company's Executive Vice President and Chief
Financial Officer, dated June 5, 1995
10(t) Net Lease, dated August 14, 1995, between [xi]
Principal Mutual Insurance Company and the
Company.
10(u) Sublease, dated September 15, 1995, between [xi]
Parametric Technology Corporation and the
Company.
10(v) Employment and severance agreement between Included
the Company and Mark Cieplik, the Company's
Vice President, Americas, dated March 17,
1995.
11 Computation of Earnings Per Share Included
27 Financial Data Schedule Included
________________________
[i] Incorporated herein by reference is the applicable Exhibit to
Company's Annual Report on Form 10-K for the year ended March 31,
1989, File Number 0-14713.
[ii] Incorporated herein by reference is the applicable Exhibit to
Company's Annual Report on Form 10-K for the year ended March 31,
1990, File Number 0-14713.
[iii] Incorporated herein by reference is the applicable Exhibit to
Company's Annual Report on Form 10-K for the year ended March 31,
1992, File Number 0-14713.
[iv] Incorporated herein by reference is the applicable Exhibit to
Company's Report on Form 8-K filed April 13, 1990, File Number 0-14713.
[v] Incorporated herein by reference is the applicable Exhibit to
Company's Annual Report on Form 10-K for the year ended March 31,
1993, File Number 0-14713.
[vi] Incorporated herein by reference is the applicable Exhibit to
Company's Annual Report on Form 10-K for the year ended March 31,
1994, File Number 0-14713.
[vii] Incorporated herein by reference is the applicable Exhibit to
Company's Report on Form 10-Q for the quarter ended September 30,
1994, File Number 0-14713.
[viii] Incorporated herein by reference is the applicable Exhibit
to Company's Report on Form 10-Q for the quarter ended December 31,
1994, File Number 0-14713.
[ix] Incorporated herein by reference is the applicable Exhibit to
Company's Annual Report on Form 10-K for the year ended March 31,
1995, File Number 0-14713.
[x] Incorporated herein by reference is the applicable Exhibit to
Company's Report on Form 10-Q for the quarter ended June 30, 1995,
File Number 0-14713.
[xi] Incorporated herein by reference is the applicable Exhibit to
Company's Registration Statement on Form S-2, File Number 33-63785.
13
<PAGE>
EXHIBIT 10(v)
March 17, 1995
Mark Cieplik
23366 N. Chesapeake
Lake Barrington, IL 60010
Dear Mark,
It is with great pleasure that I confirm our offer to have you join
Interleaf, Inc. as Vice President in charge of all field operations in North
and South America. As discussed, we look forward to having you join the
company April 10th or sooner, if possible. We are enthusiastic about getting
going and I know that I speak for the rest of the executive board members and
employees in welcoming you to the team.
The following outlines the elements of your package:
Position: Vice President
On Target Earnings: $310,000
Salary: Base salary of $210,000 per year subject to annual review by the
Compensation Committee of the Board of Directors.
Loan:
/ / Interleaf will extend a loan of $80,000 to be paid upon your
request to SSA. If you leave during the first year, of employment,
then you owe the entire amount back to the firm. If you leave during
the second year of employment you will owe one half of the amount.
After completion of the second year, no payment will be required.
Bonus:
/ / Quarterly and annual bonuses commensurate with Interleaf's current
executive compensation plan. Such plan for our fiscal year 96 is
pending Compensation Committee approval.
Stock Options:
In order to induce to accept the offer of employment set in this letter,
Interleaf will grant to you a stock option for the purchase of 110,000 shares
of common stock of Interleaf, Inc, at an exercise price equal to the fair
market value of the Interleaf common stock on the day you start your
employment with Interleaf. This option will vest over a four year period and
will automatically terminate if for any reason you fail to commence your
employment with Interleaf on or before April 13, 1995. It is agreed by you
and by Interleaf that the grant of this stock option is an essential
inducement to your accepting employment with Interleaf. In addition,
executives' and key employees' stock options are evaluated and granted on an
annual basis as part of our employee stock option program.
Benefits:
Commensurate with Interleaf's benefit package for senior management, the
company will provide complete health, dental, short and long term disability
benefits, as well as life insurance in the amount of $500,000.
<PAGE>
If Interleaf's benefit does not cover current pre-existing conditions, then
Interleaf agrees to reimburse employee for the COBRA payments for up to one
year.
Severance:
In the event, during the first two years of employment, of the company
terminating your employment for any reason but cause, we will provide one
year of salary.
Change of Control Provisions:
In the event, during the first two years of your employment, that the company
is purchased, we will vest one-half of all unvested stock options at the time
of acquisition.
Start Date:
Per our conversation, we would expect you to resign your current position as
soon as possible, and start at the company on or before April 13, 1995.
Mark, we are truly looking forward to your joining Interleaf, Inc. as Vice
President and leading the company over the coming years. We believe that
while there are challenges ahead. we offer an outstanding opportunity to
build a premiere software organization. Assuming these terms and conditions
are acceptable to you, please sign in the appropriate place below and return
this letter to me.
Sincerely,
/s/ Ed Koepfler
- ---------------
Ed Koepfler
President and CEO
cc. Clinton P. Harris
Accepted by:
/s/ Mark Cieplik Date: April 13, 1995
- ----------------
Mark Cieplik
<PAGE>
INTERLEAF, INC.
EXHIBIT 11-COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30 September 30
1995 1994 1995 1994
---- ---- ---- ----
In thousands, except for per (unaudited) (unaudited)
share amounts
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares
outstanding of Common Stock 15,084 13,929 14,725 13,845
Dilutive Senior Series B
Convertible Preferred Stock 2,000 - 2,160 -
Dilutive stock options 1,286 - 1,081 -
Dilutive stock purchase warrants 203 - 141 -
Dilutive stock purchase plan rights 45 - 27 -
------ ------ ------ ------
TOTAL 18,618 13,929 18,134 13,845
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) $ 922 $(14,556) $ 1,394 $(22,709)
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) per share $ .05 $(1.05) $ .08 $ 1.64
------ ------ ------ ------
------ ------ ------ ------
FULLY DILUTED
Weighted average shares
outstanding of Common Stock 15,084 13,929 14,725 13,845
Dilutive Senior Series B
Convertible Preferred Stock 2,000 - 2,160 -
Dilutive stock options 1,323 - 1,366 -
Dilutive stock purchase warrants 215 - 277 -
Dilutive stock purchase plan
rights 46 - 32 -
------ ------ ------ ------
TOTAL 18,668 13,929 18,560 13,845
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) $922 $(14,556) $1,394 $(22,709)
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) per share $ .05 $(1.05) $ .08 $(1.64)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The dilutive effect of stock options, stock purchase warrants, and stock
purchase plan rights are calculated using the treasury stock method. Under
this method, these common stock equivalents are assumed to be exercised
and proceeds from the exercise are assumed to be used to repurchase common
stock at the average market price for primary income (loss) per share and
the higher of the end of the period or average market price for fully
diluted income (loss) per share. The dilutive effect of Convertible
Preferred Stock is calculated using the if-converted method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3 and 4 of the Company's Form 10-Q for the quarterly period ended
September 30, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 10,646
<SECURITIES> 0
<RECEIVABLES> 21,730
<ALLOWANCES> 1,769
<INVENTORY> 120
<CURRENT-ASSETS> 32,542
<PP&E> 47,634
<DEPRECIATION> 38,771
<TOTAL-ASSETS> 46,617
<CURRENT-LIABILITIES> 32,882
<BONDS> 0
<COMMON> 157
0
123
<OTHER-SE> 13,436
<TOTAL-LIABILITY-AND-EQUITY> 46,617
<SALES> 18,710
<TOTAL-REVENUES> 46,438
<CGS> 3,224
<TOTAL-COSTS> 15,483
<OTHER-EXPENSES> 29,413
<LOSS-PROVISION> 297
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 1,394
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,394
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
