<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, 1996
COMMISSION FILE NUMBER 0-14713
[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)
62 FOURTH AVENUE, 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 31,1996 was 17,459,219.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INTERLEAF, INC.
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated balance sheets at September 30, 1996 and March 31, 1996 . . . . 3
Consolidated statements of operations for the three and six months
ended September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . 4
Consolidated statements of cash flows for the six months ended
September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to Vote of Security Holders . . . . . . . . .15
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . .15
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .15
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2
<PAGE>
INTERLEAF, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
In thousands, except for share and per share amounts (unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,942 $ 12,725
Accounts receivable, net 15,890 19,771
Prepaid expenses and other current assets 2,013 2,112
-------- --------
TOTAL CURRENT ASSETS 22,845 34,608
Property and equipment, net 7,521 7,800
Intangible assets 7,864 6,164
Other assets 628 344
-------- --------
TOTAL ASSETS $ 38,858 $ 48,916
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 374 $ -
Accounts payable 2,982 2,908
Accrued expenses 13,804 13,252
Unearned revenue 11,444 15,986
Other current liabilities 4,830 1,348
-------- --------
TOTAL CURRENT LIABILITIES 33,434 33,494
Other liabilities 225 3
-------- --------
TOTAL LIABILITIES 33,659 33,497
-------- --------
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 861,911
at September 30, 1996 and 923,304 at March 31, 1996 86 92
Common stock, par value $.01 per share, authorized
30,000,000 shares, issued and outstanding 17,459,219 at September
30, 1996 and 16,697,988 at March 31, 1996 175 167
Additional paid-in capital 76,224 72,348
Retained earnings (deficit) (71,085) (56,958)
Cumulative translation adjustment (201) (230)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 5,199 15,419
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 38,858 $ 48,916
-------- --------
-------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended September 30 Six months ended September 30
1996 1995 1996 1995
In thousands, except for per share
amounts (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Products $ 4,614 $ 9,273 $ 11,660 $18,710
Maintenance 7,410 8,399 14,882 16,191
Services 4,561 5,639 9,097 11,537
-------- ------- -------- -------
TOTAL REVENUES 16,585 23,311 35,639 46,438
-------- ------- -------- -------
COSTS OF REVENUES:
Products 1,527 1,564 3,153 3,224
Maintenance 1,291 1,314 2,599 2,683
Services 4,362 4,767 8,562 9,576
-------- ------- -------- -------
TOTAL COSTS OF REVENUES 7,180 7,645 14,314 15,483
-------- ------- -------- -------
Gross Margin 9,405 15,666 21,325 30,955
-------- ------- -------- -------
OPERATING EXPENSES:
Selling, general and administrative 10,481 10,871 21,903 21,853
Research and development 4,306 3,931 8,576 7,857
Restructuring expense 4,800 - 4,800 -
-------- ------- -------- -------
TOTAL OPERATING EXPENSES 19,587 14,802 35,279 29,710
-------- ------- -------- -------
Income (loss) from operations (10,182) 864 (13,954) 1,245
Other income (expense) (145) 58 (173) 149
-------- ------- -------- -------
Income (loss) before income taxes (10,327) 922 (14,127) 1,394
Provision for income taxes - - - -
-------- ------- -------- -------
NET INCOME (LOSS) $(10,327) $ 922 $(14,127) $ 1,394
-------- ------- -------- -------
-------- ------- -------- -------
Net income (loss) per share $ (0.59) $ .05 $ (0.82) $ .08
-------- ------- -------- -------
-------- ------- -------- -------
Shares used in computing net
income (loss) per share 17,457 18,618 17,229 18,134
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended September 30
1996 1995
In thousands (unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(14,127) $ 1,394
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Restructuring expense 4,800 -
Depreciation and amortization expense 3,901 3,863
Loss from disposal of property and equipment - 20
Changes in assets and liabilities:
Decrease in accounts receivable, net 3,942 2,573
Decrease in other assets 341 293
Decrease in accounts payable and accrued expenses (49) (1,286)
Decrease in unearned revenue (4,493) (2,399)
Decrease in other liabilities (1,305) (1,662)
Other, net 113 (83)
-------- -------
Net cash provided by (used in) operating activities (6,877) 2,713
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,736) (441)
Capitalized software development costs (737) (2,352)
-------- -------
Net cash used in investing activities (2,473) (2,793)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net 374 -
Net proceeds from issuance of common stock 1,250 2,009
Repayment of long-term debt and capital leases (4) (1,674)
-------- -------
Net cash provided by financing activities 1,620 335
-------- -------
Effect of exchange-rate changes on cash (53) (50)
-------- -------
Net increase (decrease) in cash and cash equivalents (7,783) 205
Cash and cash equivalents at beginning of period 12,725 10,441
-------- -------
Cash and cash equivalents at end of period $ 4,942 $10,646
-------- -------
-------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
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 1995
amounts have been reclassified to conform to the 1996 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, 1996.
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. Acquisition
On May 1, 1996, the Company purchased all of the outstanding equity
securities of The Learning Alliance, Inc. ("TLA") for $2,690,000. The
Company issued 341,500 shares of common stock to the selling shareholders
of TLA for the entire purchase amount. TLA provides sales training services
and develops and markets related software for the sales force automation
and integration marketplace.
The acquisition was accounted for using the purchase method of accounting,
whereby the purchase price was allocated to the assets acquired and
liabilities assumed based on their respective fair market values. The
acquisition resulted in goodwill of approximately $2.6 million which is
being amortized over five years and is included in Intangible Assets.
The operating results of TLA have been included in the consolidated
financial statements since the date of the acquisition. Pro forma
presentations have not been included as the acquisition was not material to
the results of operations of the Company.
6
<PAGE>
INTERLEAF, INC.
4. Noncash Financing Activities
Senior Series B Convertible Preferred Stock holders converted 61,393 and
496,429 shares of preferred stock into 82,496 and 667,077 shares of the
Company's common stock during the six months ended September 30, 1996 and
1995, 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.
5. Credit Agreement
The Company has a revolving line of credit of up to $10 million from a
major commercial lender. The credit agreement also provides for the
issuance of letters of credit of up to $2 million. Borrowings from the line
of credit bear interest at the higher of 9% or prime rate plus 2% and are
secured by substantially all tangible and intangible domestic assets of the
Company. Outstanding letters of credit bear interest at 2%. The credit
agreement expires in May 1997, but may be extended annually for successive
one year periods with the consent of the lender. At September 30, 1996,
there was approximately $0.4 million outstanding under this line of credit.
Borrowings under the credit agreement are based on the level of eligible
North American accounts receivable, modified by cash collections during the
previous 90 days. As of September 30, 1996, approximately $1.0 million of
standby letters of credit were outstanding and the amount available for
additional borrowings was approximately $1.4 million. The agreement
contains certain financial covenants relating to the Company's current
ratio, tangible net worth, and working capital, as well as restrictions on
certain additional indebtedness, acquisitions, capital expenditures, and
dividend payments.
6. Restructuring
In July 1996, the Company announced a restructuring plan and recorded a
charge of $4.8 million to reduce employment by approximately 75 people, to
close or reduce space in seven sales offices, and to implement the second
and final stage of relocating corporate headquarters to smaller and less
expensive space. The employee terminations affected all groups throughout
the organization. Cash outlays are anticipated to be approximately $4.1
million of the total $4.8 million restructuring charge and will require
lease payments through December 2000. Approximately $1.3 million of the
restructuring charge was for employee termination benefits and $3.5 million
for other exit costs, primarily related to facility leases.
In October 1996, the Company announced a restructuring plan to further
reduce employment by approximately 100 people and to close or reduce space
in six sales offices. The employee terminations affected all groups
throughout the organization. During the third quarter of fiscal 1997, the
Company will record a charge of approximately $3.0 million to $4.0 million
to cover costs associated with the restructuring.
During the six months ended September 30, 1996, the Company paid
approximately $0.9 million for employee termination benefits and
approximately $0.4 million, net of sublease receipts, related to the July
1996 and fiscal 1995 restructurings.
7
<PAGE>
INTERLEAF, INC.
7. Shareholders' Equity
On October 15, 1996, the Company issued 1,004,904 shares of newly
authorized Series C Convertible Preferred Stock ("Series C") at a price of
$9.9512 per share. The Company received net proceeds of approximately $9.4
million which will be used for working capital and general corporate
purposes. Each Series C share is initially convertible into 4 shares of
common stock, which rate is adjustable upon certain issuances of common
stock by the Company. Dividends of $0.24878 per share are payable on April
15, 1998 and October 15, 1998, and $0.49756 per share on each April 15 and
October 15 thereafter. Holders of outstanding shares of Series C Preferred
Stock are entitled to the number of votes equal to one-half the number of
shares of common stock into which the Series C shares are convertible.
Series C shareholders are entitled to receive upon liquidation an amount
equal to $9.9512 per share plus any declared or accrued but unpaid
dividends, which amount is payable prior to any payments to holders of the
Series B Preferred Stock and common stock. Series C shareholders must
convert their shares into common stock upon the consolidation, merger or
sale of substantially all assets of the Company or, subject to certain
conditions, if the Company's common stock trades for twenty consecutive
days above $3.7317. The Company may, at its option, redeem the Series C
shares on or after October 16, 1999. The initial redemption premium is 25%,
which decreases 5% annually until October 16, 2004.
On September 12, 1996, the Board of Directors authorized a repricing
program which allows employees to elect to reprice all or some of their
outstanding options, ranging in exercise price from $2.75 to $10.75 per
share, to the September 12, 1996 closing price of $2.5625. Any options
repriced may not be exercised until March 12, 1997. Options for
approximately 2.3 million shares are eligible to be repriced.
8. 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, 1996 is restricted for potential payment of the
German withholding taxes. The Company believes the final outcome will not
have a material adverse effect on results of operations of the Company.
8
<PAGE>
INTERLEAF, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company recorded a net loss of approximately $10.3 million, on total
revenues of $16.6 million, for the second quarter and a net loss of
approximately $14.1 million, on total revenues of $35.6 million, for the six
months ended September 30, 1996. This compares with net income of
approximately $0.9 million, on total revenues of $23.3 million, for the
second quarter and net income of approximately $1.4 million, on total
revenues of $46.4 million, for the six months ended September 30, 1995. As a
result of the significant decline in revenues the Company has initiated two
restructuring plans, in July 1996 and October 1996, to reduce worldwide
employment and facility costs. A $4.8 million restructuring charge was
recorded in July 1996 and a restructuring charge of approximately $3.0 to
$4.0 million will be recorded during the third quarter. Combined, these
restructurings reduced employment by approximately 175 people,
approximately one-third of the Company's worldwide workforce prior to the
July restructuring. In addition, the Company has or will close or reduce
space in 12 sales offices and implement the second and final stage of
relocating corporate headquarters to smaller and less expensive space. See
Note 6 to the Consolidated Financial Statements.
REVENUES
Total revenues decreased approximately $6.7 million (29%) and $10.8 million
(23%) for the second quarter and six months ended September 30, 1996, when
compared with the same periods a year ago. Revenue has declined in all
geographic regions. Product revenue declined significantly during these
periods as sales of the Company's stand-alone products continue to decrease.
The Company has been refocusing its business strategy on providing document
management applications targeted toward specific vertical and horizontal
markets. While the Company has built well-accepted integrated document
management ("IDM") based solutions for individual customers, it has not yet
demonstrated the ability to develop, market and sell IDM applications. There
is no assurance that the Company will be successful in implementing its
9
<PAGE>
strategy, and therefore the Company is unable to predict if or when product
revenues will stabilize or grow. Additionally, since the Company's services
and maintenance revenue is largely dependent on new product licenses, these
revenue components have also experienced downward pressure. This trend will
continue unless product revenue stabilizes.
Maintenance revenue, resulting from contracts to provide telephone support
and upgrades to the Company's software products, declined approximately 12%
and 8% during the second quarter and six months ended September 30, 1996,
respectively, when compared with the same periods a year ago, primarily due
to significant renewal contract volume in the second quarter of the prior
year which was not duplicated this year. Services revenue, consisting of
consulting and customer training revenue, decreased approximately 19% and 21%
for the second quarter and six months ended September 30, 1996, respectively,
when compared with the same periods a year ago. The Company leverages
software product licensing with services to provide IDM solutions to its
customers. In fiscal 1996, the Company had several large consulting
projects, which were completed during early fiscal 1996, that have not been
replaced with similar sized projects. This was primarily attributable to the
decline in product licensing over the past few quarters.
COSTS OF REVENUES
Cost of product revenues remained relatively stable as increased amortization
of capitalized software development costs was offset by lower direct product
costs associated with the decrease in product license revenue. Because of
the decline in product revenues, however, cost of product revenues increased
as a percentage of product revenues to 33% and 27% for the second quarter and
six months ended September 30, 1996, respectively, compared with
approximately 17% and 17% for the corresponding periods in the prior year.
Cost of maintenance revenues remained relatively stable in both amount and as
a percentage of maintenance revenues relative to the prior year. Cost of
services revenue decreased primarily as a result of a decline in services
personnel. However, cost of services revenue increased as a percentage of
services revenue to approximately 96% and 94% for the second quarter and six
months ended September 30, 1996, respectively, compared with approximately
85% and 83% for the corresponding periods in the prior year, as the decline
in services revenue discussed above was only partially offset by the decline
in services personnel.
10
<PAGE>
OPERATING EXPENSES
Selling, general and administrative ("SG&A") expenses remained relatively
stable as a decline in selling costs were offset by increased investment in
marketing programs and advertising campaigns. Because of the decrease in
total revenues, SG&A expenses increased as a percentage of total revenues to
approximately 63% and 61% for the second quarter and six months ended
September 30, 1996, respectively, compared with approximately 47% and 47% for
the corresponding periods in the prior year. SG&A expenses are expected to
decrease as a result of the fiscal 1997 restructuring plans.
Research and development ("R&D") expenses increased approximately 10% from
the prior year primarily due to a reduction in capitalized software
development costs partially offset by lower personnel expenses. For the
second quarters ended September 30, 1996 and 1995, R&D expenses were
approximately 26% and 17%, respectively, of total revenues. R&D spending,
which excludes the offset for capitalized software development costs,
represented approximately 27% and 22% of total revenues for the second
quarters ended September 30, 1996 and 1995, respectively. For the six months
ended September 30, 1996 and 1995, R&D expenses were approximately 24% and
17%, respectively, and R&D spending was approximately 26% and 22%,
respectively, of total revenues. The Company's product development plans are
to focus on IDM-based product offerings as well as enhancements to existing
products. R&D spending is expected to decline as a result of the fiscal 1997
restructuring plans.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $4.9 million of cash and cash equivalents at
September 30, 1996, a decrease of approximately $7.8 million from March 31,
1996. The decrease was primarily attributable to the Company's operations
during the first six months of fiscal 1997 and payments associated with the
July 1996 restructuring. Capital expenditures of approximately $1.7 million
were principally for improvements to the Company's information systems
infrastructure. These cash outflows were partially offset by common stock
issuances related to the Company's incentive stock option plans and employee
stock purchase plan of approximately $1.2 million. 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 in 1990. The Company is appealing this assessment. At September 30,
1996, the Company had approximately
11
<PAGE>
$1.1 million of cash restricted for potential payment of German withholding
taxes, and approximately $0.3 million as collateral for various lease
commitments.
As part of the Company's strategy to develop sales force automation and
integration applications, the Company acquired The Learning Alliance, Inc.
("TLA") in May 1996 for $2,690,000. The Company issued 341,500 shares of
common stock to the selling shareholders of TLA for the entire purchase
amount (see Note 3 to the Consolidated Financial Statements for further
discussion).
Total accrued restructuring charges associated with both the fiscal 1995 and
July 1996 restructuring plans were approximately $4.8 million at September
30,1996. Cash payments related to these restructurings are anticipated to
continue until December 2000. As previously discussed, the Company announced
a further restructuring plan in October (see Note 6 to the Consolidated
Financial Statements for further discussion).
The Company has a revolving line of credit from a major commercial lender.
Borrowings from the line of credit are secured by substantially all tangible
and intangible domestic assets of the Company. At September 30, 1996, there
was approximately $0.4 million outstanding under this line of credit and the
amount available for additional borrowings was approximately $1.4 million. At
November 8, 1996, there were no loans outstanding under this line of credit
and the amount available for borrowings was approximately $1.2 million. See
Note 5 to the Consolidated Financial Statements regarding borrowing limits
and restrictive covenants associated with the credit agreement.
In October 1996, the Company sold Series C Convertible Preferred Stock in a
private placement resulting in net proceeds of approximately $9.4 million
(see Note 7 to the Consolidated Financial Statements for further discussion).
The Company had approximately $13.8 million in cash and cash equivalents at
October 31, 1996, which included restricted cash of approximately $1.4
million, and approximately $0.7 million oustanding under the line of credit.
The objectives of the Company's two restructurings in the last four months
and the Series C private placement were to enable the Company to return to a
sustainable profitable condition. However, due to the uncertainty among the
Company's customers and employees created by the Company's two
restructurings, along with the downward trend in the Company's revenue, the
Company is unable to predict with
12
<PAGE>
certainty its future revenue. The Company will continue to closely monitor
revenue and manage its expenses and cost structure accordingly. While the
Company believes its current cash position will meet the Company's liquidity
needs for the remainder of fiscal 1997, there can be no assurance in this
regard, and there can be no assurance that the Company can fund its longer
term ongoing business operations. If the Company's cash resources are
insufficient to fund its operations at any time, there can be no assurance
that the Company will be able to obtain additional capital or, if it does so,
that such capital can be obtained at commercially reasonable terms or without
incurring substantial dilution to existing shareholders.
The Company has retained the investment banking firm Hambrecht & Quist LLC to
assist it in exploring long-term strategic alternatives.
RISK FACTORS
From time to time, information provided by the Company or statements made by
its employees may contain forward-looking information. The Company's actual
future results may differ materially from those projections or suggestions
made in such forward-looking information as a result of various potential
risks and uncertainties including, but not limited to, the factors discussed
below.
The Company's future operating results are dependent on its ability to
develop and market integrated document management software products and
services that meet the changing needs of organizations with complex document
management requirements. There are numerous risks associated with this
process, including the uncertainty among customers and employees created by
the Company's recent financial difficulties, rapid technological change in
the information technology industry and the requirement to bring to market
IDM solutions that solve complex business needs in a timely manner. In
addition, the existing document publishing, electronic distribution, and
document management markets are highly competitive. The Company competes
against a number of companies for sales of its software products on both an
individual product basis and integrated with services in large IDM solution
sales.
Sales cycles associated with IDM solution sales are long as organizations
frequently require the Company to solve complex business problems which
typically involve reengineering of their business processes. In addition, a
high
13
<PAGE>
percentage of the Company's product license revenues are generally realized
in the last month of a fiscal quarter and can be difficult to predict until
the end of a fiscal 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.
The Company markets its software products and services worldwide. Global
and/or regional economic factors, currency exchange rate fluctuations, and
potential changes in laws and regulations affecting the Company's business
could impact the Company's financial condition or future operating results.
The market price of the Company's common stock may be volatile at times in
response to fluctuations in the Company's quarterly operating results,
changes in analysts' earnings estimates, market conditions in the computer
software industry, as well as general economic conditions and other factors
external to the Company.
14
<PAGE>
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 8, 1996 ("Annual
Meeting") the shareholders of the Company elected the following three
nominees as Class III directors of the Company whose terms shall expire at
the Company's 1999 shareholder meeting: David A. Boucher, by a vote of
15,477,533 in favor to 1,287,369 against, Frederick B. Bamber, by a vote of
15,539,983 in favor to 1,224,919 against, and Ed Koepfler, by a vote of
15,567,271 in favor to 1,197,631 against. The Company also has two Class I
directors Clinton P. Harris (as a Preferred Class I director elected by the
Senior Series B Preferred Shareholders) and G. Gordon M. Large, whose terms
are set to expire at the annual shareholders' meeting in 1997, and one Class
III director George D. Potter, Jr., whose term is set to expire at the annual
shareholders' meeting in 1998. At the Annual Meeting, the shareholders
ratified and approved the amendment to the Company's 1987 Employee Stock
Purchase Plan to increase the number of shares of the Company's Common Stock
available for issuance from 1,750,000 to 2,500,000 under the plan, by a vote
of 14,799,328 in favor, 1,619,490 against, 86,577 abstentions, and 292,507 no
votes. The shareholders also ratified and approved the selection of Ernst &
Young LLP as the Company's independent auditors for fiscal 1997, by a vote of
16,591,663 in favor, 98,237 against, and 75,002 abstentions. A more complete
description of these matters appears in the Company's 1996 Proxy Statement,
dated June 28, 1996.
Item 5. Other Information
Effective as of November 12, 1996, G. Gordon M. Large has resigned as the
Company's Executive Vice President, Chief Financial Officer, Treasurer, and
as a Company Director. Effective as of the same date, the Board of Directors
has elected Robert M. Stoddard as the Company's Vice President of Finance and
Administration, Chief Financial Officer, and Treasurer. Effective November 4,
1996, Frederick J. Egan resigned as the Company's Vice President for
Asia/Pacific/Japan, and as an executive officer.
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, 1996.
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 11, 1996
/s/ G. Gordon M. Large
-----------------------------------
G. Gordon M. Large
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
INTERLEAF, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
3(a) Restated Articles of Organization of the Company, as [v]
amended
3(b) By-Laws of the Company, as amended [v]
4(a) Specimen Certificate for Shares of the Company's [xiii]
Common Stock
4(b) Rights Agreement, dated July 15, 1988, between the [xiv]
Company and the First National Bank of Boston
10(a) Company's 1983 Stock Option Plan, as amended [v]
10(a1) 1994 Employee Stock Option Plan, as amended Included
10(a2) 1993 Incentive Stock Option Plan, as amended [viii]
10(b) Company's 1989 Director Stock Option Plan [i]
10(b2) Company's 1987 Employee Stock Purchase Plan, as Included
amended
10(c) Company's 1989 Officer and Employee Severance [i]
Benefit Plans
10(cc) Company's 1993 Director Stock Option Plan [v]
10(d) Agreements between PruTech Research and Development [ii]
Partnership III and the Company, dated October 21,
1988.
10(e) Exclusive Marketing and Licensing Agreement, between [i]
Interleaf South America, Ltd. and the Company, and
related Option Agreement, dated
March 31, 1989.
10(f) Distribution and License Agreement between Interleaf [i]
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 increase in [iii]
conversion ratio, dated May 18, 1992.
10(i) Lease of Prospect Place, Waltham, MA, between [iv]
Prospect Place Limited
Partnership and Interleaf, Inc., and related
Agreements, dated March 30, 1990.
10(k) Letter Agreement between the Company and Richard P. [v]
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 Consulting [vi]
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 Richard P. [vi]
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 Consulting [vi]
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 A. [vi]
Boucher, the Company's Chairman of the Board, dated
July 20, 1994.
16
<PAGE>
INTERLEAF, INC.
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
10(p) Letter of Separation and Management Consulting [vi]
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.
10(q) Employment and severance agreement between the [vii]
Company and Edward Koepfler, the Company's
President, dated October 3, 1994.
10(r) Loan and Security Agreement between the Company and [ix]
Foothill Capital Corporation, dated May 2, 1995.
10(s) Employment and severance agreement between the [ix]
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 Principal [x]
Mutual Insurance Company and the Company.
10(u) Sublease, dated September 15, 1995, between [x]
Parametric Technology Corporation and the Company.
10(v) Employment and severance agreement between the [xi]
Company and Mark Cieplik, the Company's Vice
President, Americas, dated March 17, 1995.
10(w) Agreement between PruTech Research and Development [xii]
Partnership III and the Company, dated November 14,
1995.
10(x) Series C Preferred Stock Agreement between Included
Interleaf, Inc. and Lindner Investments, dated
October 14, 1996
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, 1994, File Number
0-14713.
[vi] 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.
[vii] 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.
[viii] 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.
[ix] 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.
17
<PAGE>
INTERLEAF, INC.
[x] Incorporated herein by reference is the applicable Exhibit to Company's
Registration Statement on Form S-2, File Number 33-63785.
[xi] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended September 30, 1995, File Number
0-14713.
[xii] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended December 31, 1995, File Number
0-14713.
[xiii] Incorporated herein by reference is the applicable Exhibit to
Company's Registration Statement on Form S-1, File Number 33-5743.
[xiv] Incorporated herein by reference is Exhibit 1 to Company's Registration
Statement on Form 8-A, filed July 27, 1988.
18
<PAGE>
EXHIBIT 10(a1)
INTERLEAF, INC.
1994 EMPLOYEE STOCK OPTION PLAN
Adopted by Board of Directors on July 14, 1994 and Amended on May 3, 1996
1. PURPOSE.
The purpose of this plan (the "Plan") is to secure for Interleaf, Inc.
(the "Company") and its shareholders the benefits arising from capital stock
ownership by employees, consultants or advisors to the Company (but
specifically excluding officers and directors) and its parent and subsidiary
corporations who are expected to contribute to the Company's future growth
and success. Except where the context otherwise requires, the term "Company"
shall include the parent and all present and future subsidiaries of the
Company as defined in Sections 425(e) and 425(f) of the Internal Revenue Code
of 1986, as amended or replaced from time to time (the "Code").
2. TYPE OF OPTIONS AND ADMINISTRATION.
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and shall be non-statutory options
which are not intended to meet the requirements of Section 422 of the Code.
(b) ADMINISTRATION. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms
and provisions of the Plan shall be final and conclusive. The Board of
Directors may in its sole discretion grant options to purchase shares of the
Company's Common Stock ("Common Stock") and issue shares upon exercise of
such options as provided in the Plan. The Board shall have authority, subject
to the express provisions of the Plan, to construe the respective option
agreements and the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
the respective option agreements, which need not be identical, and to make
all other determinations in the judgment of the Board of Directors necessary
or desirable for the administration of the Plan. The Board of Directors may
correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any option agreement in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and
final judge of such expediency. No director shall be liable for any action or
determination made in good faith. The Board of Directors may, to the full
extent permitted by or consistent with applicable laws or regulations,
delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee.
<PAGE>
3. ELIGIBILITY.
(a) GENERAL. Options shall be granted to persons who are, at the time of
grant, employees, consultants or advisors to, the Company, but who are not
officers or directors of Interleaf, Inc. at such time. A person who has been
granted an option may, if he or she is otherwise eligible, be granted an
additional option or options if the Board of Directors shall so determine.
4. STOCK SUBJECT TO PLAN.
Subject to adjustment as provided in Section 14 below, the maximum number
of shares of Common Stock of the Company which may be issued and sold under
the Plan is 1,500,000 shares. If an option granted under the Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for
subsequent option grants under the Plan. If shares issued upon exercise of an
option under the Plan are tendered to the Company in payment of the exercise
price of an option granted under the Plan, such tendered shares shall again
be available for subsequent option grants under the Plan.
5. FORMS OF OPTION AGREEMENTS.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent
with the Plan as may be approved by the Board of Directors. Such option
agreements may differ among recipients.
6. PURCHASE PRICE.
(a) GENERAL. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors, at the
time of grant of such option.
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i)
by delivery to the Company of shares of Common Stock of the Company already
owned by the optionee having a fair market value equal in amount to the
exercise price of the options being exercised, (ii) by any other means which
the Board of Directors determines are consistent with the purpose of the Plan
and with applicable laws and regulations (including, without limitation,
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares
of the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined in such manner as
may be prescribed by the Board of Directors.
2
<PAGE>
7. OPTION PERIOD.
Each option and all rights thereunder shall expire on such date as shall
be set forth in the applicable option agreement.
8. EXERCISE OF OPTIONS.
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of
the Plan.
9. NONTRANSFERABILITY OF OPTIONS.
Options granted hereunder shall not be assignable or transferable by the
person to whom it is granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution, and, during the life
of the optionee, shall be exercisable only by the optionee.
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
The Board of Directors shall determine the period of time during which an
optionee may exercise an option following (i) the termination of the
optionee's employment or other relationship with the Company or (ii) the
death or disability of the optionee. Such periods shall be set forth in the
agreement evidencing such option.
11. ADDITIONAL PROVISIONS.
(a) ADDITIONAL OPTION PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in any option granted under the
Plan, including without limitation restrictions on transfer, repurchase
rights, commitments to pay cash bonuses, to make, arrange for or guaranty
loans or to transfer other property to optionees upon exercise of options, or
such other provisions as shall be determined by the Board of Directors;
provided that such additional provisions shall not be inconsistent with any
other term or condition of the Plan.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all or any particular option or options granted under the
Plan may be exercised.
12. GENERAL RESTRICTIONS.
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option
for his or her own account for investment and not with any present intention
of selling or otherwise distributing the same, and to such other effects as
the Company deems necessary or appropriate in order to comply with federal
and applicable state securities laws, or with covenants or
3
<PAGE>
representations made by the Company in connection with any public offering of
its Common Stock.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other
condition is necessary as a condition of, or in connection with, the issuance
or purchase of shares thereunder, such option may not be exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval, or satisfaction of such condition shall have been effected or
obtained on conditions acceptable to the Board of Directors. Nothing herein
shall be deemed to require the Company to apply for or to obtain such
listing, registration or qualification, or to satisfy such condition.
13. RIGHTS AS A SHAREHOLDER.
The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, without limitation,
any rights to receive dividends or non-cash distributions with respect to
such shares) until the date of issue of a stock certificate to him or her for
such shares. No adjustment shall be made for dividends or other rights for
which the record date is prior to the date such stock certificate is issued.
14. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED TRANSACTIONS.
(a) GENERAL. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, or other similar transaction, (i) the outstanding
shares of Common Stock are increased or decreased or are exchanged for a
different number or kind of shares or other securities of the Company, or
(ii) additional shares or new or different shares or other securities of the
Company or other non-cash assets are distributed with respect to such shares
of Common Stock or other securities, an appropriate and proportionate
adjustment may be made in (x) the maximum number and kind of shares reserved
for issuance under the Plan, (y) the number and kind of shares or other
securities subject to then outstanding options under the Plan, and (z) the
price for each share subject to any then outstanding options under the Plan,
without changing the aggregate purchase price as to which such options remain
exercisable.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 14 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
4
<PAGE>
15. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
(a) GENERAL. In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any
other corporation or business entity or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of
any corporation assuming the obligations of the Company, may, in its
discretion, take any one or more of the following actions, as to outstanding
options: (i) provide that such options shall be assumed, or equivalent
options shall be substituted, by the acquiring or succeeding corporation (or
an affiliate thereof), (ii) upon written notice to the optionees, provide
that all unexercised options will terminate immediately prior to the
consummation of such transaction unless exercised by the optionee within a
specified period following the date of such notice, (iii) in the event of a
merger under the terms of which holders of the Common Stock of the Company
will receive upon consummation thereof a cash payment for each share
surrendered in the merger (the "Merger Price"), make or provide for a cash
payment to the optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding options
in exchange for the termination of such options, and (iv) provide that all or
any outstanding options shall become exercisable in full immediately prior to
such event.
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company,
or one of its subsidiaries, of property or stock of the employing
corporation. The Company may direct that substitute options be granted on
such terms and conditions as the Board of Directors considers appropriate in
the circumstances.
16. CHANGE IN CONTROL.
Notwithstanding any other provision of the Plan and except as otherwise
provided in the relevant option agreement, in the event of a "Change in
Control of the Company" (as defined below), the exercise dates of all options
then outstanding shall be accelerated in full and any restrictions on
exercising outstanding options issued pursuant to the Plan prior to any given
date shall terminate. For purposes of the Plan, a "Change in Control of the
Company" shall occur or be deemed to have occurred only if (i) any "person,"
as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (other than the Company, any
trustee of other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as their
ownership of stock of the
5
<PAGE>
Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities; (ii) during any period of two consecutive years
ending during the term of the Plan (not including any period prior to the
adoption of the Plan), individuals who at the beginning of such period
constitute the Board of Directors of the Company, and any new director (other
than a director designated by a person who has entered into an agreement with
the Company to effect any transaction described in clause (i), (iii), or (iv)
of this Section 16) whose election by the Board of Directors or nomination
for election by the Company's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who were either directors at
the beginning of the period or whose election or whose nomination for
election was previously so approved (collectively, the "Disinterested
Directors"), cease for any reason to constitute a majority of the Board of
Directors; (iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires more than 25% of the
combined voting power of the Company's then outstanding securities; or (iv)
the shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
17. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment
by the Company or interfere in any way with the right of the Company at any
time to terminate such employment or to increase or decrease the compensation
of the optionee.
18. OTHER EMPLOYEE BENEFITS.
The amount of any compensation deemed to be received by an employee as a
result of the exercise of an option or the sale of shares received upon such
exercise will not constitute compensation with respect to which any other
employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance
or salary continuation plan, except as otherwise specifically determined by
the Board of Directors.
6
<PAGE>
19. AMENDMENT OF THE PLAN.
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan.
20. WITHHOLDING.
The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so delivered
or withheld shall have a fair market value equal to such withholding
obligation. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Company as of the date that
the amount of tax to be withheld is to be determined. An optionee who has
made an election pursuant to this Section 20 may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to
any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
21. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant
in substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise
price per share which may be lower or higher than the exercise price per
share of the cancelled options or (ii) the amendment of the terms of any and
all outstanding options under the Plan to provide an option exercise price
per share which is higher or lower than the then-current exercise price per
share of such outstanding options.
22. EFFECTIVE DATE AND DURATION OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors. Unless otherwise provided, amendments to the Plan shall
become effective when adopted by the Board of Directors. Options may be
granted under the Plan at any time after the effective date and before the
date fixed for termination of the Plan.
7
<PAGE>
(b) TERMINATION. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate on the date on which all shares available for
issuance under the Plan shall have been issued pursuant to the exercise of
options granted under the Plan.
23. PROVISION FOR FOREIGN PARTICIPANTS.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
Adopted by the Board of Directors on July 14, 1994 and amended on May 3,
1996.
8
<PAGE>
EXHIBIT 10(b2)
INTERLEAF, INC.
1987 EMPLOYEE STOCK PURCHASE PLAN
AMENDED EFFECTIVE AS OF MAY 1, 1989, APRIL 11, 1991, MAY 2, 1993
AND MAY 3, 1996.
1. PURPOSES.
The 1987 Employee Stock Purchase Plan of Interleaf, Inc. (the "Plan") is
intended to provide a method whereby employees of Interleaf, Inc. and its
subsidiary corporations (hereinafter collectively referred to, unless the
context otherwise requires, as "the Company") will have an opportunity to
acquire a proprietary interest in the Company through the purchase of shares
of the common stock of the Company ("Common Stock"). It is the intention of
the Company to have the Plan qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). The provisions of the Plan shall, accordingly, be construed so as to
extend and limit participation in a manner consistent with the requirements
of that Section of the Code.
2. DEFINITIONS.
(a) "base pay" means regular straight-time earnings (as the same may be
adjusted from time to time) but excluding payments for overtime, shift
differentials, incentive compensation, bonuses and other special payments.
(b) "employee" means any person who is customarily employed for 20 or
more hours per week and more than five months in a calendar year by the
Company or by a subsidiary corporation.
(c) "Offering Commencement Date" means the applicable date on which an
Offering under the Plan commences pursuant to Paragraph 4.
(d) "Offering Termination Date" means the applicable date on which an
Offering under the Plan terminates pursuant to Paragraph 4.
(e) "subsidiary corporation" means any present or future corporation
which (i) is a "subsidiary corporation" as that term is defined in Section
425 of the Internal Revenue Code of 1954 and (ii) is designated as a
participant in the Plan by the Board of Directors or Committee described in
Paragraph 14.
(f) "total compensation" means base pay plus payments for overtime,
shift differentials, incentive compensation, bonuses and other special
payments.
3. ELIGIBILITY.
(a) Any employee who shall have completed three months employment and
shall be employed by the Company on the applicable Offering Commencement Date
shall be eligible to participate in the Plan.
(b) Any provision of the Plan to the contrary notwithstanding, no
employee shall be granted an option to participate in the Plan:
(i) if, immediately after the grant, such employee would own stock,
and/or hold outstanding options to purchase stock, possessing 5% or more
of the total combined voting power or value of all classes of stock of
the Company
1
<PAGE>
or of any subsidiary of the Company (for purposes of this
Paragraph the rules of Section 425(d) of the Code shall apply in
determining stock ownership of any employee); or
(ii) which permits his or her rights to purchase stock under all
employee stock purchase plans maintained by the Company and its
subsidiaries to accrue at a rate which exceeds $25,000 of the fair
market value of the stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at
any time.
4. OFFERING DATES.
The Plan will be implemented by sixteen (16) offerings (referred to
herein collectively as "Offerings" and individually as an "Offering"), of a
maximum of 50,000 shares (subject to adjustment as provided in Paragraphs
13(a) and (18) each of Common Stock for the first four Offerings and a
maximum of the total shares then remaining available to be issued and sold
under the Plan for the final thirteen Offerings, as follows:
(a) Offering I shall commence on May 1, 1987, and terminate on October
31, 1987.
(b) Offering II shall commence on November 1, 1987, and terminate on
April 30, 1988.
(c) Offering III shall commence on May 1, 1988, and terminate on October
31, 1988.
(d) Offering IV shall commence on November 1, 1988, and terminate on
April 30, 1989.
(e) Offering V shall commence on or about May 1, 1989, and terminate on
or about October 31, 1989.
(f) Offering VI shall commence on or about November 1, 1989, and
terminate on or about April 30, 1990.
(g) Offering VII shall commence on or about May 1, 1990, and terminate
on or about October 31, 1990.
(h) Offering VIII shall commence on or about November 1, 1990, and
terminate on or about April 30, 1991.
(i) Offering IX shall commence on or about May 1, 1991, and terminate on
or about April 30, 1992.
(j) Offering X shall commence on or about May 1, 1992, and terminate on
or about April 30, 1993.
(k) Offering XI shall commence on or about May 1, 1993, and terminate on
or about April 30, 1994.
(l) Offering XII shall commence on or about May 1, 1994, and terminate
on or about April 30, 1995.
(m) Offering XIII shall commence on or about May 1, 1995, and terminate
on or about April 30, 1996.
2
<PAGE>
(n) Offering XIV shall commence on or about May 1, 1996, and terminate
on or about April 30, 1997.
(o) Offering XV shall commence on or about May 1, 1997, and terminate on
or about April 30, 1998.
(p) Offering XVI shall commence on or about May 1, 1998, and terminate
on or about April 30, 1999.
Participation in any one or more of the sixteen (16) Offerings under the Plan
shall neither limit, nor require, participation in any other Offering.
5. PARTICIPATION.
All eligible employees will become participants in an Offering on the
applicable Offering Commencement Date. Payroll deductions for a participant
shall commence on the applicable Offering Commencement Date of the Offering
and shall end on the Offering Termination Date of such Offering, unless
sooner terminated pursuant to Paragraph 11.
6. PAYROLL DEDUCTIONS.
(a) Participants may elect to have amounts withheld from their total
compensation by completing an authorization for a payroll deduction
("Authorization") on the form provided by the Company and filing it with the
Human Resources Department. At the time a participant files his Authorization
for a payroll deduction, the participant shall elect to have deductions made
from his or her pay on each payday during the time he or she is a
participant in an Offering at the rate of 0, 1, 2, 3, 4, 5, 6, 7, 8, 9 or 10%
of his or her total compensation. If a participant has not filed an
Authorization for the applicable Offering at least seven (7) days prior to
the applicable Offering Commencement Date, he or she shall be deemed to file
an Authorization electing to withhold 0% of total compensation.
(b) All payroll deductions made for a participant shall be credited to
his or her account maintained by the Company under the Plan. A participant
may not make any separate cash payment into such account.
(c) Except as provided in Paragraphs 8(b) or 10, a participant may only
make changes to the rate of deductions from his or her total compensation
during an Offering by completing a new Authorization on the form provided by
the Company and filing it with the Human Resources Department as provided
herein. Such new Authorization shall be effective upon the commencement of
the first pay period subsequent to its filing. A participant may change his
or her Authorization at any time (subject to limitations on the frequency of
such changes as may be imposed by rules adopted by the "Committee" (as
defined in Paragraph 13)).
7. GRANTING OF OPTION.
(a) For each of the Offerings, a participating employee shall be deemed
to have been granted an option (the "Option") on the applicable Offering
Commencement Date, to purchase a maximum number of shares of the Common Stock
equal to an amount determined as follows: 85% of the market value of a share
of the Company's Common Stock on the applicable Offering Commencement Date
shall be divided into an amount equal to 12% of the employee's estimated
annualized total compensation as
3
<PAGE>
of such Offering Commencement Date. For all purposes of the Plan, the market
value of the Company's Common Stock shall be determined as provided in clause
(i) of subparagraph (b) below.
Estimated annualized total compensation of participating employees
shall be determined as follows: (i) in the case of full-time employees
normally paid on an hourly rate, by multiplying his or her annualized base
pay by 105%; (ii) in the case of salaried employees not eligible for bonuses,
his or her annualized base pay; (iii) in the case of salespersons, two times
annualized base pay; and (iv) in the case of employees eligible for bonuses,
annualized base pay plus 80% of the maximum eligible bonuses as determined by
management by objective for the current fiscal year.
The annualized base pay of participating employees shall be determined
as follows: (i) in the case of a full-time employee normally paid on an
hourly rate, by multiplying his or her normal hourly rate of base pay by
2080, (ii) in the case of a part-time employee normally paid on an hourly
rate, by multiplying his or her normal hourly rate of base pay by the product
of 52 times the number hours in his or her normal work week, (iii) in the
case of an employee normally paid at a bi-weekly rate, by multiplying his or
her normal bi-weekly rate of base pay by 26, (iv) in the case of a part-time
employee normally paid at a weekly rate, by multiplying his or her normal
weekly rate of base pay by 52; and (v) in the case of an employee normally
paid at a monthly rate, by multiplying his or her normal monthly rate of base
pay by 12.
(b) The purchase price of a share of Common Stock purchased pursuant to
the Plan during each Offering (the "Option Exercise Price") shall be the
lower of:
(i) 85% of the last sale price of the Common Stock on the NASDAQ
National Market System, as reported in THE WALL STREET JOURNAL, on the
applicable Offering Commencement Date (or on the next regular business
date on which shares of Common Stock shall be traded if no shares of
Common Stock shall have been traded on such Offering Commencement Date);
or
(ii) 85% of the last sale price of Common Stock on the NASDAQ
National Market System, as reported in THE WALL STREET JOURNAL, on the
applicable Offering Termination Date (or on the next regular business
date on which shares of Common Stock shall be traded if no shares of
Common Stock shall have been traded on such Offering Termination Date).
8. EXERCISE OF OPTION.
With respect to each Offering during the term of the Plan:
(a) Unless a participant gives written notice of withdrawal to the
Company as provided in Paragraphs 8(b) and 10, his or her Option will be
deemed to have been exercised automatically on the Offering Termination Date
applicable to such Offering, for the purchase of the number of full shares of
Common Stock which the accumulated payroll deductions (without interest) in
his or her account maintained by the Company under the Plan at that time will
purchase at the applicable Option Exercise Price (but not in excess of the
number of shares for which options have been granted the employee pursuant to
Paragraph 7(a)), and any excess in his or her account at that time will be
returned to him or her, with simple interest at the rate of 4% per annum,
4
<PAGE>
based on the assumption that such excess comprises funds most recently
deducted from the participant's pay; provided that any excess returned on
account of fractional shares will not be credited with any interest.
(b) By written notice to the Human Resources Department of the Company
at any time prior to the Offering Termination Date applicable to any such
Offering, a participant may elect to withdraw all, but not less than all, the
accumulated payroll deductions in his or her account at such time, with
simple interest computed at the rate of 4% per annum as aforesaid.
(c) Fractional shares will not be issued under the Plan and any
accumulated funds in a participant's account which would have been used to
purchase a fractional shares or which are in excess of the limitations of
Paragraph 7(a) shall be returned to an employee promptly following the
termination of an Offering.
9. DELIVERY.
As promptly as practicable after the Offering Termination Date of each
Offering, the Company will deliver to each participant, as appropriate, the
certificate or certificates representing the shares of Common Stock purchased
upon the exercise of such participant's Option.
10. WITHDRAWAL.
(a) As indicated in Paragraph 8(b), a participant may withdraw payroll
deductions credited to his or her account with the Company under any Offering
at any time prior to the applicable Offering Termination Date by giving
written notice of withdrawal to the Human Resources Department. All of the
participant's payroll deductions credited to his or her account will be paid
to the participant promptly after receipt of such notice of withdrawal and no
further funds will be credited to his or her account during such Offering.
The Company may, at its option, treat any attempt by an employee to borrow on
the security of accumulated payroll deductions as an election, under
Paragraph 8(b) to withdraw such payroll deductions.
(b) A participant's withdrawal from any Offering will not have any
effect upon his or her eligibility to participate in any succeeding Offering
or in any similar plan which may hereafter be adopted by the Company.
(c) Upon termination of the participant's employment for any reason,
including retirement but excluding death or disability while in the employ of
the Company, the payroll deductions credited to his or her account will be
returned to the participant, with simple interest at the rate of 4% per
annum, or, in the case of his or her death subsequent to the termination of
employment, to the person or persons entitled thereto under Paragraph 14.
(d) Upon termination of the participant's employment because of
disability or death, the participant or his or her beneficiary (as defined in
Paragraph 14) shall have the right to elect, by written notice given to the
Company's Human Resources Department prior to the expiration of the period of
30 days commencing with the date of the disability or death of the
participant, either
(i) to withdraw all of the funds credited to the participant's
account under the Plan with simple interest at the rate of 4% per annum;
or
5
<PAGE>
(ii) to exercise the participant's Option on the Offering
Termination Date next following the date of the participant's disability
or death for the purchase of the number of full shares of Common Stock
which the accumulated funds in the participant's account at the date of
the participant's disability or death will purchase at the applicable
Option Exercise Price, and any excess in such account will be returned
to the participant or said beneficiary.
If no such written notice of election is received by the Human
Resources Department, the participant or beneficiary shall automatically be
deemed to have elected to withdraw the funds credited to the participant's
account at the date of the participant's disability or death and the same
will be paid promptly to the participant or said beneficiary with simple
interest at the rate of 4% per annum as aforesaid.
6
<PAGE>
11. INTEREST.
No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any participant employee except upon withdrawal as
provided under Paragraphs 8(b) and 10 or upon the return of funds credited to
the account as provided under Paragraph 12(a). In the event of the return of
excess funds under Paragraphs 8(a) and 12(a), interest thereon, if any, shall
be computed assuming that such excess comprises funds most recently deducted
from the participant's pay.
12. STOCK.
(a) Subject to adjustment as provided in Paragraph 17, the maximum
number of shares of Common Stock of the Company which may be issued and sold
under the Plan is 2,500,000 shares. Such shares may be authorized and
unissued shares or may be shares issued and thereafter acquired by the
Company. The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 50,000 shares, subject to
adjustment as provided in Paragraph 17, for each of the first four Offerings
and the total shares then remaining available to be issued and sold under the
Plan for each of the remaining Offerings. For Offerings XI, XII, XIII, XIV,
XV, and XVI, such limit shall not exceed 250,000 shares of common stock for
each of said Offering. If the total number of shares for which Options are
exercised on any Offering Termination Date in accordance with Paragraph 8
exceeds the number of shares made available, the Company shall make a pro
rata allocation of the shares available for delivery and distribution in as
nearly a uniform manner as shall be practicable and as it shall determine to
be equitable, and the balance of funds credited to the account of each
participant under the Plan shall be returned to him or her as promptly as
possible, with simple interest on such balance at the rate of 4% per annum,
based on the assumption that such excess comprises funds most recently
deducted from the participant's pay. If less than the number of shares made
available are purchased during an Offering, the amount not purchased may be
carried over to and made available during any subsequent Offering.
(b) The participant will have no interest in Common Stock covered by his
or her Option until such Option has been exercised.
(c) Common Stock to be delivered to a participant under the Plan will be
registered in the name of the participant, or, if the participant so directs,
by written notice to the Company prior to the Offering Termination Date
applicable thereto, in the names of the participant and one such other person
as may be designated by the participant, as joint tenants with rights of
survivorship, to the extent permitted by applicable law.
13. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee appointed by
the Board of Directors of the Company (the "Committee"). The officer of the
Company charged with day-to-day administration of the Plan shall, for matters
involving the Plan, be an ex-officio member of that Committee. The
interpretation and construction of any provision of the Plan and the adoption
of rules and regulations for administering the Plan shall be made by the
Committee, subject, however, at all times to the final approval of the Board
of Directors of the Company. Such rules may include, without
7
<PAGE>
limitation, restrictions on the frequency of changes in withholding rates.
Determinations made by the Committee and approved by the Board of Directors
of the Company with respect to any matter or provision contained in the Plan
shall be final, conclusive and binding upon the Company and upon all
participants, their heirs or legal representatives. Any rule or regulation
adopted by the Committee shall remain in full force and effect unless and
until altered, amended, or repealed by the Committee or the Board of
Directors of the Company.
14. DESIGNATION OF BENEFICIARY.
A participant may file a written designation of a beneficiary who is to
receive any shares of Common Stock and/or cash in the event of the death of
the participant prior to the delivery of such shares or cash to the
participant. Such designation of beneficiary may be changed by the
participant at any time by written notice to the Human Resources Department
of the Company. Within 30 days after the participant's death, the beneficiary
may, as provided in Paragraph 10(d), elect to exercise the participant's
Option when it becomes exercisable on the Offering Termination Date of the
then current Offering. Upon the death of a participant and upon receipt by
the Company of proof of the identity and existence at the participant's death
of a beneficiary validly designated by the participant under the Plan, and
notice of election of the beneficiary to exercise the participant's Option,
the Company shall deliver such stock and/or cash to such beneficiary. In the
event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company) the
Company, in its discretion, may deliver such cash to the spouse or to any one
or more dependents of the participant as the Company may determine. No
beneficiary shall prior to the death of the participant by whom he has been
designated acquire any interest in the stock or cash credited to the
participant's account maintained by the Company under the Plan.
15. TRANSFERABILITY.
Neither funds credited to a participant's account nor any rights with
regard to the exercise of an Option or to receive stock under the Plan may be
assigned, transferred, pledged, or otherwise disposed of in any way by the
participant otherwise than by will or the laws of descent and distribution.
Any such attempted assignment, transfer, pledge, or other disposition shall
be without effect, except that the Company may treat such act as an election
to withdraw funds in accordance with Paragraph 8(b).
16. USE OF FUNDS.
All funds received or held by the Company under this Plan may be used by
the Company for any corporate purpose and the Company shall not be obligated
to segregate such funds.
17. EFFECT OF CHANGES OF COMMON STOCK.
In the event of any changes of outstanding shares of the Common Stock by
reason of stock dividends, subdivisions, combinations and exchanges of
shares, recapitalizations, mergers in which the Company is the surviving
corporation,
8
<PAGE>
consolidations, and the like, the aggregate number and class of shares
available under the Plan and the Option Exercise Price per share shall be
appropriately adjusted by the Board of Directors of the Company, whose
determination shall be conclusive. Any such adjustments may provide for the
elimination of any fractional shares which would otherwise become subject to
any Options.
9
<PAGE>
18. AMENDMENT OR TERMINATION.
The Board of Directors of the Company may at any time terminate or amend
the Plan. Except as hereinafter provided, no such amendment may make any
change in Options previously granted which would adversely affect the rights
of any participant. In addition, no amendment may be made to the Plan without
prior approval of the shareholders of the Company if such amendment would (a)
materially increase the benefits accruing to participants under the Plan, (b)
materially increase the number of shares which may be issued under the Plan,
or (c) materially modify the requirements as to eligibility for participation
under the Plan.
19. NOTICES.
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received by the Human Resources Department.
20. MERGER OR CONSOLIDATION.
If the Company shall at any time merge into or consolidate with another
corporation and the Company is the surviving entity, the holder of each
option then outstanding will thereafter be entitled to receive at the next
Offering Termination Date upon the automatic exercise of such Option under
Paragraph 8(a) (unless previously withdrawn pursuant to Paragraph 10) for
each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to
receive upon and at the time of such merger or consolidation, and the Board
of Directors of the Company shall take such steps in connection with such
merger or consolidation as the Board of Directors shall deem necessary to
assure that the provisions of Paragraph 17 shall thereafter be applicable, as
nearly as reasonably may be, to such securities or property. In the event of
a merger or consolidation in which the Company is not the surviving entity,
or of a sale of assets in which the Company is not the surviving entity, the
Plan shall terminate, and all funds credited to participants' accounts shall
be returned to them, with simple interest at the rate of 4% per annum.
21. APPROVAL OF SHAREHOLDERS.
All grants of options provided under any amendments shall be conditional
upon the approval of the Plan by the shareholders of the Company at its next
annual meeting. If such shareholder approval is not obtained at the Company's
next annual meeting of shareholders, any options previously granted under the
amendment to the Plan shall terminate and no further options shall be
granted. In such event, the balance of funds credited to the account of each
participant under the Plan shall be returned to him or her as promptly as
possible, with simple interest computed upon such balance at the rate of 4%
per annum.
22. REGISTRATION AND QUALIFICATION OF THE PLAN UNDER APPLICABLE SECURITIES
LAWS.
No Option shall be granted under the Plan until such time as the Company
has qualified or registered the shares which are subject to the Options under
all applicable state and federal securities laws to the extent required by
such laws.
Approved by the Board of Directors on February 27, 1987.
10
<PAGE>
Approved by the Shareholders on August 14, 1987.
Amended by the Board of Directors effective May 1, 1989 and approved by
the shareholders at a Special Meeting in Lieu of an Annual Meeting of
Shareholders held August 11, 1989.
Amended by the Board of Directors effective April 11, 1991, and approved
by the Shareholders at a Special Meeting in Lieu of an Annual Meeting of
Shareholders held on August 9, 1991.
Amended by the Board of Directors on May 2, 1993, and approved by
Shareholders at a Special Meeting in Lieu of an Annual Meeting of
Shareholders held on August 5, 1993.
Amended by the Board of Directors on May 3, 1996, and approved at an
Annual Meeting of Shareholders held on August 8, 1996.
11
<PAGE>
EXHIBIT 10(X)
_______________________________________________________________________________
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
between
INTERLEAF, INC.
and
LINDNER INVESTMENTS
October 14, 1996
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Authorization and Sale of Shares.............................. 1
1.1 Authorization............................................ 1
1.2 Sale of Shares........................................... 1
1.3 Use of Proceeds.......................................... 1
2. The Closing.................................................... 1
3. Representations of the Company................................. 2
3.1 Organization and Standing................................. 2
3.2 Capitalization............................................ 2
3.3 Authorization of Transaction.............................. 3
3.4 Noncontravention.......................................... 3
3.5 Reports and Financial Statements.......................... 3
3.6 Absence of Material Adverse Changes....................... 4
3.7 Litigation................................................ 4
4. Representations of the Purchaser............................... 5
4.1 Investment................................................ 5
4.2 Authority................................................. 5
4.3 Experience................................................ 5
4.4 Access to Information..................................... 5
4.5 Status.................................................... 6
5. Covenants of the Company....................................... 6
5.1 Inspection................................................ 6
5.2 Financial Statements and Other Information................ 6
5.3 Reservation of Common Stock............................... 6
6. Transfer of Shares............................................. 6
6.1 Restricted Shares......................................... 6
6.2 Requirements for Transfer................................. 7
6.3 Legend.................................................... 7
7. Registration Rights............................................ 7
7.1 Registration of Shares.................................... 7
<PAGE>
7.2 Limitations on Registrations.............................. 8
7.3 Registration Procedures................................... 9
7.4 Requirements of the Purchaser............................. 10
7.5 Indemnification........................................... 10
8. Miscellaneous.................................................. 10
8.1 Successors and Assigns.................................... 10
8.2 Confidentiality........................................... 11
8.3 Survival of Representations and Warranties................ 11
8.4 Notices................................................... 11
8.5 Brokers and Closing Costs................................. 12
8.6 Entire Agreement.......................................... 12
8.7 Amendments and Waivers.................................... 12
8.8 Counterparts.............................................. 12
8.9 Section Headings.......................................... 12
8.10 Severability.............................................. 13
8.11 Governing Law............................................. 13
Exhibit A Certificate of Vote of Directors Establishing a Series
of a Class of Stock
Exhibit B Opinion of Hale and Dorr
Exhibit C Opinion of John K. Hyvner, Esq.
Exhibit D Issuance of Shares
ii
<PAGE>
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of October 14, 1996 is entered into by and
between Interleaf, Inc., a Massachusetts corporation (the "Company"), and
Lindner Investments, a Massachusetts business trust (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has duly authorized the sale and
issuance, pursuant to the terms of this Agreement, of 1,200,000 shares of its
Series C Convertible Preferred Stock, $0.10 par value per share (the "Series
C Preferred Stock"), having the rights, restrictions, privileges and
preferences set forth in the Certificate of Vote of Directors Establishing a
Series of a Class of Stock attached hereto as EXHIBIT A (the "Certificate of
Vote"). The Company has adopted and will file prior to the Closing (as
defined below) the Certificate of Vote with the Secretary of State of the
Commonwealth of Massachusetts.
1.2 SALE OF SHARES. Subject to the terms and conditions of this
Agreement, at the Closing the Company will issue and sell to the Purchaser,
and the Purchaser will purchase, 1,004,904 shares of Series C Preferred Stock
for the purchase price of $9.9512 per share. The shares of Series C
Preferred Stock being sold under this Agreement are referred to as the
"Shares."
1.3 USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Shares for working capital and general corporate purposes.
2. THE CLOSING. The closing ("Closing") of the sale and purchase of the
Shares under this Agreement shall take place at the offices of Hale and Dorr,
60 State Street, Boston, Massachusetts at 3:00 p.m. on October 15, 1996. The
date of the Closing is hereinafter referred to as the "Closing Date." At the
Closing:
(a) the Company shall deliver to the Purchaser a certificate, as of
the most recent practicable date, as to the
-1-
<PAGE>
corporate good standing of the Company issued by the Secretary of State of
the Commonwealth of Massachusetts;
(b) the Company shall deliver to the Purchaser the Articles of
Organization of the Company, as amended and in effect as of the Closing Date
(excluding the Certificate of Vote), certified by the Secretary of State of
the Commonwealth of Massachusetts, and the Certificate of Vote with a stamped
filing acknowledgment by the Secretary of the Commonwealth of Massachusetts;
(c) Hale and Dorr, counsel for the Company, shall deliver to the
Purchaser an opinion, dated the Closing Date, in substantially the form
attached hereto as EXHIBIT B;
(d) John K. Hyvnar, General Counsel of the Company, shall deliver to
the Purchaser an opinion, dated the Closing Date, in substantially the form
attached hereto as EXHIBIT C;
(e) the Company shall deliver to the Purchaser certificates for the
Shares being purchased by the Purchaser, registered in the name of one or
more series into which the Purchaser's shares of beneficial interest have
been divided, as set forth on EXHIBIT D attached hereto;
(f) the Purchaser shall pay to the Company the purchase price for the
Shares, by wire transfer or certified check; and
(g) the Company and the Purchaser shall execute and deliver a
Cross-Receipt.
3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents and
warrants to the Purchaser as follows as of the date hereof:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Company is duly qualified to do business
as a foreign corporation and is in good standing in any jurisdiction in which
the failure to so qualify would have a material adverse effect on the
operations or financial condition of the Company.
3.2 CAPITALIZATION. The authorized capital stock of the Company at
the Closing will consist of (a) 30,000,000 shares of common stock, $.01 par
value per share, of which 17,459,219 shares were issued and outstanding as of
September 30, 1996, and
-2-
<PAGE>
(b) 5,000,000 shares of Preferred Stock, $.01 par value per share, of which
(i) 200,000 shares have been designated as Series A Junior Participating
Preferred Stock (none of which are issued or outstanding), (ii) 2,142,857
shares have been designated as Senior Series B Convertible Preferred Stock
(of which 861,911 shares were outstanding as of September 30, 1996) and (iii)
1,200,000 shares have been designated as Series C Preferred Stock (none of
which are issued and outstanding immediately prior to the Closing). At the
Closing, the Common Stock and the Preferred Stock of the Company will have
the voting powers, designations, preferences, rights and qualifications, and
limitations or restrictions set forth in the Articles of Organization
(including the Certificate of Vote). All of the issued and outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. All of the Shares, and all of
the shares of Series C Preferred Stock issued pursuant to Section 7.1(b),
will be, when issued in accordance with this Agreement, duly authorized,
validly issued, fully paid and nonassessable.
3.3 AUTHORIZATION OF TRANSACTION. The Company has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated hereby by the
Company have been duly and validly authorized by all necessary corporate
action on the part of the Company. The issuance, sale and delivery of the
Shares in accordance with this Agreement, and the issuance and delivery of
the shares of Common Stock issuable upon conversion of the Shares, have been
duly authorized by all necessary corporate action on the part of the Company,
and all such shares have been duly reserved for issuance. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against it in
accordance with its terms.
3.4 NONCONTRAVENTION. Neither the execution and delivery of this
Agreement by the Company, nor the consummation by the Company of the
transactions contemplated hereby, will (a) conflict with or violate any
provision of the Articles of Organization or By-laws of the Company, (b)
require on the part of the Company any filing with, or permit, authorization,
consent or approval of, any governmental entity (other than the filing of the
Certificate of Vote), (c) conflict with, result in breach of, constitute a
default under, or require any notice, consent or waiver under, any contract,
agreement or other instrument to which the Company is a party or by which it
is bound (other than any consent as waiver which has already been obtained),
or
-3-
<PAGE>
(d) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company.
3.5 REPORTS AND FINANCIAL STATEMENTS.
(a) The Company has previously furnished to the Purchaser complete
and accurate copies, as amended or supplemented, of its (i) Annual Report on
Form 10-K for the fiscal year ended March 31, 1996, as filed with the
Securities and Exchange Commission (the "SEC"), and (ii) its Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996, as filed with the SEC (such
reports are collectively referred to herein as the "Company Reports"). The
Company Reports constitute all of the documents required to be filed by the
Company under Section 13 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") with the SEC since March 31, 1996. As of their
respective dates, the Company Reports did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
financial statements and unaudited interim financial statements of the
Company included in the Company Reports (i) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto,
and in the case of quarterly financial statements, as permitted by Form 10-Q
under the Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Company as of the
respective dates thereof and for the periods referred to therein, and (iv)
are consistent with the books and records of the Company.
(b) The Company has provided to the Purchaser a copy of its press
release dated September 30, 1996 with respect to the financial results of the
Company for the quarter then ended. The Company has also provided to and
discussed with the Purchaser such information as the Purchaser has requested
(to the extent available) regarding the financial results of the Company for
such quarter and the current operations, financial condition (including the
amount of available cash) and plans of the Company.
3.6 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as disclosed by the
Company to the Purchaser prior to the date hereof, since June 30, 1996, there
has not been any material
-4-
<PAGE>
adverse change in the assets, business, financial condition or results of
operations of the Company.
3.7 LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the
Company's knowledge, any basis therefor or threat thereof, against the
Company, which questions the validity of this Agreement or the right of the
Company to enter into it, or which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
assets or condition, financial or otherwise, of the Company.
4. REPRESENTATIONS OF THE PURCHASER. The Purchaser represents and
warrants to the Company as follows:
4.1 INVESTMENT. The Purchaser is acquiring the Shares, and the
shares of Common Stock into which the Shares may be converted, for its own
account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of
distributing or selling the same; and the Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof. The Purchaser acknowledges
that the Shares are restricted securities as defined under the Securities Act
of 1933, as amended (the "Securities Act") and shall bear the legend set
forth in Section 6.3 hereof.
4.2 AUTHORITY. The Purchaser has full power and authority to enter
into and to perform this Agreement in accordance with its terms. The
Purchaser represents that it has not been organized, reorganized or
recapitalized specifically for the purpose of investing in the Company. This
Agreement has been duly executed and delivered by the Purchaser and
constitutes a valid and binding obligation of the Purchaser, enforceable
against it in accordance with its terms.
4.3 EXPERIENCE. The Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has
made detailed inquiry concerning the Company, its business and its personnel;
the officers of the Company have made available to the Purchaser any and all
written information which it has requested and have answered to the
Purchaser's satisfaction all inquiries made by the Purchaser; and the
Purchaser has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of
its investment in the Company and is able
-5-
<PAGE>
financially to bear the risks thereof, including a complete loss of its
investment.
4.4 ACCESS TO INFORMATION. The Purchaser acknowledges that the
Company has provided to and discussed with the Purchaser such information as
the Purchaser has requested (to the extent available) regarding the financial
results of the Company for the quarter ended September 30, 1996 and the
current operations, financial condition (including the amount of available
cash) and plans of the Company. The Purchaser represents and warrants that,
in making this investment, it has not relied upon any information or
representations and warranties of Hambrecht & Quist LLC, including without
limitation representations and warranties regarding the Company, its
officers, financial condition, business and prospects, or the terms of the
purchase of the Shares.
4.5 STATUS. The Purchaser is an "accredited Investor" as that term
is defined in Rule 501 of Regulation D promulgated under the Securities Act.
5. COVENANTS OF THE COMPANY.
5.1 INSPECTION. So long as the Purchaser (or any of its affiliates)
holds at least 25% of the Shares originally issued pursuant to this
Agreement, the Company shall permit the Purchaser, or any authorized
representative thereof, to visit and inspect the properties of the Company,
including its corporate and financial records, and to discuss its business
and finances with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably requested,
without interruption of the business of the Company and subject to the
confidentiality obligations of Section 8.2 hereof.
5.2 FINANCIAL STATEMENTS AND OTHER INFORMATION. So long as the
Purchaser (or any of its affiliates) holds at least 25% of the Shares
originally issued pursuant to this Agreement, the Company shall deliver to
the Purchaser:
(a) within 90 days after the end of each fiscal year of the Company,
an audited balance sheet of the Company as at the end of such year, and
audited statements of income and of cash flows of the Company for such year,
certified by certified public accountants of established national reputation
selected by the Company, and prepared in accordance with generally accepted
accounting principles;
-6-
<PAGE>
(b) within 45 days after the end of each fiscal quarter of the
Company, an unaudited balance sheet of the Company as at the end of such
quarter, and unaudited statements of income and of cash flows of the Company
for such fiscal quarter and for the current fiscal year to the end of such
fiscal quarter; and
(c) with reasonable promptness, such other notices, information and
data with respect to the Company as the Company files with the SEC or
delivers to the holders of its Common Stock, and such other information and
data as the Purchaser may from time to time reasonably request.
5.3 RESERVATION OF COMMON STOCK. The Company shall reserve and
maintain a sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
6. TRANSFER OF SHARES.
6.1 RESTRICTED SHARES. "Restricted Shares" means (i) the Shares,
(ii) the shares of Common Stock issued or issuable upon conversion of the
Shares, and (iii) any other shares of capital stock of the Company issued in
respect of such shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock which are Restricted Shares shall cease to be
Restricted Shares (i) upon any sale pursuant to a registration statement
under the Securities Act, Section 4(1) of the Securities Act or Rule 144
under the Securities Act, or (ii) at such time as they become eligible for
sale under Rule 144(k) under the Securities Act.
6.2 REQUIREMENTS FOR TRANSFER. Restricted Shares shall not be sold
or transferred unless either (a) they first shall have been registered under
the Securities Act, or (b) the Company first shall have been furnished with
an opinion of legal counsel, reasonably satisfactory to the Company, to the
effect that such sale or transfer is exempt from the registration
requirements of the Securities Act.
6.3 LEGEND. Each certificate representing Restricted Shares shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and
until such
-7-
<PAGE>
shares are registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that
such registration is not required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION OF SHARES.
(a) The Company shall use its best efforts to file with the SEC,
as promptly as practicable following the Closing, a registration statement on
Form S-3 (the "Registration Statement") covering the resale to the public by
the Purchaser of the shares of common stock of the Company issued upon
conversion of the Shares (the "Registrable Shares"). The Company shall use
its best efforts to cause the Registration Statement to be declared effective
by the SEC as soon as practicable, but in no event later than January 15,
1997. The Company shall cause the Registration Statement to remain effective
until the date three years after the Closing Date or such earlier time as all
of the Registrable Shares covered by the Registration Statement have been
sold pursuant thereto.
(b) In the event the Registration Statement has not been
declared effective under the Securities Act by the SEC by the close of
business on January 15, 1997, the Company shall issue to the Purchaser within
15 days following the end of each calendar month (beginning with January
1997), until the Registration Statement is declared effective, such number of
shares of Series C Preferred Stock as is equal to (i) (A) the number of
shares purchased at the Closing pursuant to this Agreement multiplied by (B)
$.001 multiplied by (C) the number of weeks (including fractions of a week)
during such month for which the Registration Statement was not declared
effective (excluding, for January 1997, any period prior to the close of
business on January 15, 1997) divided by (ii) (A) the average of the daily
trading volume-weighted last reported sale prices per share of the common
stock of the Company on the Nasdaq National Market, as reported by Nasdaq, on
the last ten trading days of such month multiplied by (B) four. Any shares
of Series C Preferred Stock issuable pursuant to this Section 7.1(b) shall be
considered "Shares" for purposes of Sections 4, 6 and 7 of this Agreement.
The issuance by the Company of such shares of Series C Preferred
-8-
<PAGE>
Stock pursuant to this Section 7.1(b) shall constitute liquidated damages
with respect to the Company's failure to cause the Registration Statement to
be declared effective by January 15, 1997, and shall be in lieu of any other
claims or damages to which the Purchaser may be entitled with respect thereto.
7.2 LIMITATIONS ON REGISTRATIONS.
(a) The Company may, by written notice to the Purchaser, (i)
delay the filing or effectiveness of the Registration Statement or (ii)
suspend the Registration Statement after effectiveness and require that the
Purchaser immediately cease sales of shares pursuant to the Registration
Statement, in the event that (A) the Company files a registration statement
(other than a registration statement on Form S-8 or Form S-4 or their
successor forms) with the SEC for a public offering of its securities, or (B)
the Company is engaged in any activity or transaction or preparations or
negotiations for any activity or transaction that the Company desires to keep
confidential for business reasons, if the Company determines in good faith
that the public disclosure requirements imposed on the Company under the
Securities Act in connection with the Registration Statement would require
disclosure of such activity, transaction, preparations or negotiations.
Notwithstanding the foregoing, such right shall not be exercised more than
twice in any 12-month period, and no such delay or suspension may continue
for more than 30 days.
(b) If the Company delays or suspends the Registration Statement
or requires the Purchaser to cease sales of shares pursuant to paragraph (a)
above, the Company shall, as promptly as practicable following the
termination of the circumstance which entitled the Company to do so, take
such actions as may be necessary to file or reinstate the effectiveness of
the Registration Statement and/or give written notice to the Purchaser
authorizing them to resume sales pursuant to the Registration Statement. If
as a result thereof the prospectus included in the Registration Statement has
been amended to comply with the requirements of the Securities Act, the
Company shall enclose such revised prospectus with the notice to the
Purchaser given pursuant to this paragraph (b), and the Purchaser shall make
no offers or sales of shares pursuant to the Registration Statement other
than by means of such revised prospectus. Moreover, if the Company delays or
suspends the Registration Statement or requires the Purchaser to cease sales
of shares pursuant to clause (i) of paragraph (a) above as a result of the
circumstances set forth in clause (A) of such paragraph (a), the Company
shall permit the Purchaser to include
-9-
<PAGE>
in a registration statement filed by the Company during such period, any
Registrable Shares that would have been included in the Registration
Statement, subject to the right of the Company to limit the number of
Registrable Shares to be included in a registration statement relating to a
unwritten offering of securities of the Company if the managing underwriter
of such offering determines that the inclusion of such shares in such
offering would adversely affect the marketability of such offering.
7.3 REGISTRATION PROCEDURES.
(a) In connection with the filing by the Company of the
Registration Statement, the Company shall furnish to the Purchaser a copy of
the prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act.
(b) The Company shall use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under
the securities laws of such states as the Purchaser shall reasonably request.
(c) If the Company has delivered preliminary or final
prospectuses to the Purchaser and after having done so the prospectus is
amended to comply with the requirements of the Securities Act, the Company
shall promptly notify the Purchaser and, if requested by the Company, the
Purchaser shall immediately cease making offers or sales of shares under the
Registration Statement and return all prospectuses to the Company. The
Company shall promptly provide the Purchaser with revised prospectuses and,
following receipt of the revised prospectuses, the Purchaser shall be free to
resume making offers and sales under the Registration Statement.
(d) The Company shall pay the expenses incurred by it in
complying with its obligations under this Section 7 including all
registration and filing fees, exchange listing fees, fees and expenses of
counsel for the Company, and fees and expenses of accountants for the
Company, but excluding (i) any brokerage fees, selling commissions or
underwriting discounts incurred by the Purchaser in connection with sales
under the Registration Statement.
7.4 REQUIREMENTS OF THE PURCHASER.
(a) The Purchaser shall furnish to the Company in writing such
information regarding the Purchaser and the proposed
-10-
<PAGE>
sale of Registrable Shares by the Purchaser as shall be required in
connection therewith by the SEC or any state securities law authorities.
(b) The Purchaser shall indemnify the Company and each of its
directors and officers against, and hold the Company and each of its
directors and officers harmless from, any losses, claims, damages, expenses
or liabilities (including reasonable attorneys fees) to which the Company or
such directors and officers may become subject by reason of any statement or
omission in the Registration Statement made in reliance upon, or in
conformity with, a written statement by the Purchaser furnished pursuant to
this Section 7.4.
(c) The Purchaser shall report to the Company sales made
pursuant to the Registration Statement.
7.5 INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Purchaser against any losses, claims, damages, expenses or
liabilities to which the Purchaser may become subject by reason of any untrue
statement of a material fact contained in the Registration Statement or any
omission to state therein a fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as such losses,
claims, damages, expenses or liabilities arise out of or are based upon
information furnished to the Company by or on behalf of the Purchaser for use
in the Registration Statement. The Company shall have the right to assume
the defense and settlement of any claim or suit for which the Company may be
responsible for indemnification under this Section 7.5.
8. MISCELLANEOUS.
8.1 SUCCESSORS AND ASSIGNS. This Agreement, and the rights and
obligations of the Purchaser hereunder, may be assigned by the Purchaser to
any person or entity to which at least 10% of the Shares originally issued
pursuant to this Agreement are transferred by the Purchaser, and such
transferee shall be deemed a "Purchaser" for purposes of this Agreement;
provided that the transferee provides to the Company a written instrument
notifying the Company of such transfer and assignment and agreeing to be
bound by the terms of this Agreement.
8.2 CONFIDENTIALITY. The Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary
or secret information which the Purchaser may obtain from the Company
pursuant to financial statements, reports and other materials submitted by
the Company
-11-
<PAGE>
to the Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or
until such information becomes known, to the public; PROVIDED, HOWEVER, that
the Purchaser may disclose such information (i) to its attorneys,
accountants, consultants, and other professionals to the extent necessary to
obtain their services in connection with its investment in the Company, (ii)
to any prospective purchaser of any Shares from the Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section, or (iii) to any affiliate of the Purchaser; subject to the agreement
of such party to keep such information confidential as set forth herein.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All agreements,
representations and warranties contained herein shall survive the execution
and delivery of this Agreement and the closing of the transactions
contemplated hereby.
8.4 NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be
delivered by hand, sent via a reputable nationwide overnight courier service
or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at Interleaf, Inc., 62 Fourth Avenue, Waltham,
Massachusetts 02154, Attn: Clerk, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchaser; or
If to the Purchaser, at 7711 Carondelet Avenue, Suite 700, St. Louis,
Missouri 63105, or at such other address or addresses as may have been
furnished in writing by the Purchaser to the Company.
Notices provided in accordance with this Section 8.4 shall be deemed
delivered upon personal delivery, one business day after being sent via a
reputable nationwide overnight courier service, or two business days after
deposit in the mail.
8.5 BROKERS AND CLOSING COSTS.
(a) The Company and the Purchaser each agree to indemnify and
save the other harmless from and against any and all claims, liabilities or
obligations with respect to brokerage or finders' fees or commissions in
connection with the transactions contemplated by this Agreement asserted by
any person on the basis of any agreement, statement or representation alleged
to have been made by such indemnifying party. The
-12-
<PAGE>
Company specifically acknowledges that it is responsible for the fees and
expenses of Hambrecht & Quist LLC relating to this transaction.
(b) The Company will pay all costs and expenses relating to the
Closing, including the fees and expenses of counsel for the Purchaser (which
shall not exceed $2,000).
8.6 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating
to such subject matter.
8.7 AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth
in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the Purchaser. Any amendment or waiver
effected in accordance with this Section 8.7 shall be binding upon each
holder of any Shares (including shares of Common Stock into which such Shares
have been converted), each future holder of all such securities and the
Company. No waivers of or exceptions to any term, condition or provision of
this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
8.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
8.9 SECTION HEADINGS. The section headings are for the convenience
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
8.10 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
8.11 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
-13-
<PAGE>
Executed as of the date first written above.
INTERLEAF, INC.
By:/s/ G. Gordon M. Large
-------------------------------
G. Gordon M. Large
Executive Vice President and
Chief Financial Officer
(print name and title)
LINDNER INVESTMENTS
By:/s/ Larry Callahan
-------------------------------
Larry Callahan
Vice President
(print name and title)
-14-
<PAGE>
EXHIBIT A
to
Certificate of Vote of Directors Establishing
a Series of a Class of Stock
of
INTERLEAF, INC.
To be Designated
SERIES C CONVERTIBLE PREFERRED STOCK
Interleaf, Inc., a Massachusetts corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation
by the Articles of Organization and in accordance with the provisions of
Section 26 of the Business Corporation Law of the Commonwealth of
Massachusetts, certifies that the Board of Directors of the Corporation, at a
meeting duly called and held, at which a quorum was present and acting
throughout, duly voted to establish a series of Preferred Stock, $0.10 par
value per share, of the Corporation and that the designation and number of
shares, and the preferences, voting powers, qualifications, and special or
relative rights or privileges thereof are fixed as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
as "Series C Convertible Preferred Stock" (the "Series C Preferred Stock")
and the number of shares constituting the Series C Preferred Stock shall be
1,200,000.
2. DIVIDENDS. The holders of shares of Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends of
$.24878 per share on April 15, 1998 and October 15, 1998, and $.49756 per
share on each April 15
<PAGE>
and October 15 thereafter (subject in each case to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares). Such dividends shall accrue and
shall be cumulative, from and after October 15, 1997, whether or not declared
by the Board of Directors.
3. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series
C Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series C
Preferred Stock (collectively referred to as "Senior Preferred Stock"), but
before any payment shall be made to the holders of Common Stock, Series A
Preferred Stock, Series B Preferred Stock or any other class or series of
stock ranking on liquidation junior to the Series C Preferred Stock (such
Common Stock, Series A Preferred Stock, Series B Preferred Stock and other
stock being collectively referred to as "Junior Stock") by reason of their
ownership thereof, an amount equal to $9.9512 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus
any declared or accrued but unpaid dividends on such shares. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders
shall be insufficient to pay the holders of shares of Series C Preferred
Stock the full amount to which they shall be entitled, the holders of shares
of Series C Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Series C Preferred Stock shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Senior Preferred Stock, Series C Preferred Stock and any
other class or series of stock
-2-
<PAGE>
of the Corporation ranking on liquidation on a parity with the Series C
Preferred Stock, upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation
available for distribution to its stockholders, in accordance with the terms
of such Junior Stock.
(c) Any merger or consolidation of the Corporation or a subsidiary
into or with another corporation or a sale of all or substantially all of the
assets of the Corporation shall not be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Section 3.
4. VOTING.
(a) Each holder of outstanding shares of Series C Preferred Stock
shall be entitled to the number of votes equal to one-half the number of
whole shares of Common Stock into which the shares of Series C Preferred
Stock held by such holder are convertible (as adjusted from time to time
pursuant to Section 5 hereof) as of the record date, at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu
of meetings) with respect to any and all matters presented to the
stockholders of the Corporation for their action or consideration. Except as
provided by law or by the provisions of Subsections 3(b) or 3(c) below or by
the provisions establishing any other series of stock, holders of Series C
Preferred Stock and of any other outstanding series of stock shall vote
together with the holders of Common Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series C Preferred Stock so as to
affect adversely the Series C Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares
of Series C Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization
of any shares of capital stock with preference or priority over the Series C
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution
-3-
<PAGE>
or winding up of the Corporation shall be deemed to affect adversely the
Series C Preferred Stock and the authorization of any shares of capital stock
on a parity with Series C Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding
up of the Corporation shall not be deemed to affect adversely the Series C
Preferred Stock.
(c) So long as at least 251,226 shares of Series C Preferred Stock
(subject to appropriate adjustment in the event of any dividend, stock split,
combination or other similar recapitalization affecting such shares) are
outstanding, the Corporation shall not, without the prior written consent of
the holders of at least a majority of the then outstanding shares of Series C
Preferred Stock, given in writing or by vote at a meeting, consenting or
voting (as the case may be) separately as a class: (i) take any action that
would result in the holders of the Series C Preferred Stock becoming subject
to taxation under Section 305 of the Internal Revenue Code of 1986, as
amended; or (ii) declare or pay any dividends on capital stock (other than
dividends payable solely in capital stock).
5. OPTIONAL CONVERSION. The holders of the Series C Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series C Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $9.9512 by the Conversion Price (as
defined below) in effect at the time of conversion. The "Conversion Price"
shall initially be $2.4878. Such Conversion Price, and the rate at which
shares of Series C Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series C
Preferred Stock pursuant to Section 7 hereof, the Conversion Right of the
shares designated for redemption shall terminate at the close of business on
the fifth full day preceding the date fixed for redemption, unless the
redemption price is not paid when due, in which case the Conversion Right for
such shares shall continue until such price is paid in full. In the event of
a liquidation of the Corporation, the Conversion Right shall terminate at the
close of business on the first full business day preceding the date fixed for
the payment of any amounts distributable on liquidation to the holders of
Series C Preferred Stock.
-4-
<PAGE>
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series C Preferred Stock to convert
shares of Series C Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series C
Preferred Stock, at the office of the transfer agent for the Series C
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of the
Series C Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. If required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation
shall, as soon as practicable after the Conversion Date, issue and deliver at
such office to such holder of Series C Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash in lieu of
any fraction of a share.
(ii) The Corporation shall at all times when the Series C
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series C Preferred Stock.
(iii) All shares of Series C Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed
to be outstanding and all
-5-
<PAGE>
rights with respect to such shares, including the rights, if any, to receive
notices and to vote or to receive dividends, shall immediately cease and
terminate on the Conversion Date. Any shares of Series C Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time
take such appropriate action as may be necessary to reduce the authorized
number of shares of Series C Preferred Stock accordingly.
(iv) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series C Preferred Stock pursuant
to this Section 5. The Corporation shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock in a name other than that in
which the shares of Series C Preferred Stock so converted were registered,
and no such issuance or delivery shall be made unless and until the person or
entity requesting such issuance has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 5(d),
the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "ORIGINAL ISSUE DATE" shall mean the date on which a
share of Series C Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 5(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than:
-6-
<PAGE>
(I) shares of Common Stock issued or issuable by
reason of a dividend or other distribution on shares of Common
Stock that is covered by Subsection 5(e) or 5(f) below; or
(II) shares of Common Stock issued or issuable to
employees or directors of, or consultants to, the
Corporation pursuant to plans adopted by the Board of
Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which the Series C Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 5(d)(v)) for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the applicable
Conversion Price in effect on the date of, and immediately prior to, the
issue of such Additional Shares, or (b) if the Corporation receives written
notice from the holders of at least a majority of the then outstanding shares
of Series C Preferred Stock, agreeing that no such adjustment shall be made
as the result of such issuance of Additional Shares of Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK.
If the Corporation at any time or from time to time after the Original
Issue Date 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 of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) 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, shall be deemed to be
Additional Shares of Common Stock
-7-
<PAGE>
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 Stock shall not be deemed to have been issued
unless the consideration per share (determined pursuant to Subsection 5(d)(v)
hereof) of such Additional Shares of Common Stock would be less than the
applicable Conversion Price 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 Stock are deemed
to be issued:
(A) No further adjustment in the Conversion Price 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, upon the exercise, conversion or
exchange thereof, the Conversion Price 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
becoming effective, be recomputed to reflect such increase insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Conversion Price shall not be readjusted, but the Additional
Shares of Common Stock deemed issued as the result of the original issue of
such Option shall not be deemed issued for the purposes of any subsequent
adjustment of the Conversion Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting
from the anti-dilution provisions thereof, the Conversion Price then in
effect shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment which was made upon the issuance of such Option
or Convertible Security not exercised or converted prior to such change been
made upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any
issuances of Additional
-8-
<PAGE>
Shares of Common Stock between the original adjustment date and such
readjustment date.
In the event the Corporation, after the Original Issue Date, amends any
Options or Convertible Securities (whether such Options or Convertible
Securities were outstanding on the Original Issue Date or were issued after
the Original Issue Date) to increase the number of shares issuable thereunder
or decrease the consideration to be paid upon exercise or conversion thereof,
then such Options or Convertible Securities, as so amended, shall be deemed
to have been issued after the Original Issue Date and the provisions of this
Subsection 5(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK.
In the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Subsection 5(d)(iii), but
excluding shares issued as a stock split or combination as provided in
Subsection 5(e) or upon a dividend or distribution as provided in Subsection
5(f)), without consideration or for a consideration per share less than the
applicable Conversion Price 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 (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of shares of
Common Stock which the aggregate consideration received or to be received by
the Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at such Conversion Price; and (B) 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 Stock
so issued; PROVIDED THAT, (i) for the purpose of this Subsection 5(d)(iv),
all shares of Common Stock issuable upon conversion or exercise of
Convertible Securities or Options
-9-
<PAGE>
outstanding immediately prior to such issue shall be deemed to be
outstanding, and (ii) for the purpose of this Subsection 5(d)(iv), the number
of shares of Common Stock deemed issuable upon conversion or exercise of such
outstanding Convertible Securities or Options shall not give effect to any
adjustments to the conversion price or conversion rate or exercise price of
such Convertible Securities or Options resulting from the issuance of
Additional Shares of Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 5(d), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue,
as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
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 (I) and (II)
above, as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 5(d)(iii), 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,
-10-
<PAGE>
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) MULTIPLE CLOSING DATES. In the event the Corporation shall
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities,
and such issuance dates occur within a period of no more than 120 days, then
the Conversion Price shall be adjusted only once on account of such
issuances, with such adjustment to occur upon the final such issuance and to
give effect to all such issuances as if they occurred on the date of the
final such issuance.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in
effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after
the Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Conversion Price for the Series C Preferred Stock then in effect shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Conversion Price for the Series C Preferred Stock then in
effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
-11-
<PAGE>
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Price for the Series C Preferred Stock
shall be recomputed accordingly as of the close of business on such record
date and thereafter the Conversion Price for the Series C Preferred Stock
shall be adjusted pursuant to this paragraph as of the time of actual payment
of such dividends or distributions; and provided further, however, that no
such adjustment shall be made if the holders of Series C Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series C Preferred Stock had been
converted into Common Stock on the date of such event.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue
Date for the Series C Preferred Stock shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation other
than shares of Common Stock, then and in each such event provision shall be
made so that the holders of the Series C Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation that they
would have received had the Series C Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
giving application to all adjustments called for during such period under
this paragraph with respect to the rights of the holders of the Series C
Preferred Stock; and provided further, however, that no such adjustment shall
be made if the holders of Series C Preferred Stock simultaneously receive a
dividend or other distribution of such securities in an amount equal to the
amount of such securities as they would have received if all outstanding
shares of Series C Preferred Stock had been converted into Common Stock on
the date of such event.
-12-
<PAGE>
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series C Preferred Stock
shall be changed into the same or a different number of shares of any class
or classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or
sale of assets provided for below), then and in each such event the holder of
each such share of Series C Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock and other
securities and property receivable, upon such reorganization,
reclassification, or other change, by holders of the number of shares of
Common Stock into which such shares of Series C Preferred Stock might have
been converted immediately prior to such reorganization, reclassification, or
change, all subject to further adjustment as provided herein.
(i) NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Organization or through any reorganization, 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 Corporation, but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 5 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 Series C Preferred Stock against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Within 30 days after the
occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Section 5, the Corporation at its expense shall compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series C 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 Series C Preferred Stock, furnish or
cause to be furnished to such holder a similar certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Price then in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of
other property which then would be received upon the conversion of Series C
Preferred Stock.
-13-
<PAGE>
(k) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or substantially all
of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall mail to the holders of the Series C Preferred
Stock at their last addresses as shown on the records of the Corporation, at
least ten days prior to the date specified in (A) below or twenty days before
the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon
-14-
<PAGE>
such reclassification, consolidation, merger, sale, dissolution or
winding up.
6. MANDATORY CONVERSION.
(a) Effective upon either of the following times (each a "Mandatory
Conversion Time"), all outstanding shares of Series C Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
conversion rate:
(i) Immediately prior to the consummation of any consolidation
or merger of the Corporation with or into, or the sale of all or
substantially all of the assets of the Corporation to, another corporation
whose common stock is listed on the Nasdaq National Market or a national
securities exchange; or
(ii) Upon the close of business on the 20th trading day in any
period of 20 consecutive trading days for which the volume-weighted average
of the last reported sale prices per share of the Common Stock of the
Corporation on the Nasdaq National Market, as reported by Nasdaq, is equal to
or greater than $3.7317 (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other similar recapitalizations affecting
such shares); provided that no such Mandatory Conversion Time shall be deemed
to occur under this clause (ii) unless the Registration Statement (as defined
in the Series C Preferred Stock Purchase Agreement between the Corporation
and Lindner Investments dated October 14, 1996) is effective under the
Securities Act of 1933, as amended, at all times during such 20-day period.
(b) No later than 20 days prior to the Mandatory Conversion Time (in
the case of a Mandatory Conversion Time under clause (i) above) or no later
than 20 days after the Mandatory Conversion Time (in the case of a Mandatory
Conversion Time under clause (ii) above), the Corporation shall deliver
written notice of the Mandatory Conversion Time, and the conversion of the
Series C Preferred Stock effected pursuant thereto, to all holders of record
of shares of Series C Preferred Stock. Such notice shall be sent by first
class or registered mail, postage prepaid, to each record holder of Series C
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series C Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series C Preferred Stock shall promptly
surrender his or its certificate or certificates for all such shares to the
Corporation in
-15-
<PAGE>
accordance with the instructions set forth in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 6. As of the
Mandatory Conversion Time, all rights with respect to the Series C Preferred
Stock so converted, including the rights, if any, to receive notices and vote
(other than as a holder of Common Stock) will terminate, except only the
rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such Series C Preferred Stock has been converted. If
so required by the Corporation, certificates surrendered for conversion shall
be endorsed or accompanied by written instrument or instruments of transfer,
in form satisfactory to the Corporation, duly executed by the registered
holder or by his or its attorney duly authorized in writing. As soon as
practicable after the surrender of the certificate or certificates for Series
C Preferred Stock, the Corporation shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 5(b)
in respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(c) All certificates evidencing shares of Series C Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Time, be
deemed to have been retired and cancelled and the shares of Series C
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. Upon such mandatory
conversion of the Series C Preferred Stock pursuant to this Section 6, all
provisions hereof included under the caption "Series C Convertible Preferred
Stock", and all references herein to the Series C Preferred Stock, shall be
deleted and shall be of no further force or effect, and the Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to give effect thereto.
7. OPTIONAL REDEMPTION.
(a) At any time and from time to time on or after October 16, 1999,
the Corporation may, at the option of its Board of Directors, redeem the
Series C Preferred Stock, in whole or in part, for the following redemption
prices per share (subject to
-16-
<PAGE>
appropriate adjustment for stock splits, stock dividends, combinations or
other similar recapitalizations affecting such shares), plus any declared or
accrued but unpaid dividends thereon to the Redemption Date (as defined
below), which shall be payable in cash (hereinafter referred to as the
"Redemption Price").
If the Redemption Date is
From October 16, 1999 through October 15, 2000 $12.43900
From October 16, 2000 through October 15, 2001 $11.94144
From October 16, 2001 through October 15, 2002 $11.44388
From October 16, 2002 through October 15, 2003 $10.94632
From October 16, 2003 through October 15, 2004 $10.44876
From and after October 16, 2004 $ 9.9512
(b) In the event of any redemption of only a part of the then
outstanding Series C Preferred Stock, the Corporation shall effect such
redemption pro rata among the holders thereof based on the number of shares
of Series C Preferred Stock held by such holders on the date of the
Redemption Notice (as defined below).
(c) At least 30 days prior to the date fixed for any redemption of
Series C Preferred Stock (hereinafter referred to as the "Redemption Date"),
written notice shall be mailed, by first class or registered mail, postage
prepaid, to each holder of record of Series C Preferred Stock to be redeemed,
at his or its address last shown on the records of the transfer agent of the
Series C Preferred Stock (or the records of the Corporation, if it serves as
its own transfer agent), notifying such holder of the election of the
Corporation to redeem such shares, specifying the Redemption Date and the
time at which such holder's conversion rights (pursuant to Section 5 hereof)
as to such shares terminate (which shall be the close of business on the
fifth full day preceding the Redemption Date) and calling upon such holder to
surrender to the Corporation, in the manner designated, his or its
certificate or certificates representing the shares to be redeemed (such
notice is hereinafter referred to as the "Redemption Notice"). On or prior
to the Redemption Date, each holder of Series C Preferred Stock to be
redeemed shall surrender his or its certificate or certificates representing
such shares to the Corporation, in the manner designated in the Redemption
Notice, and thereupon the Redemption Price of such shares shall be payable to
the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. In the
-17-
<PAGE>
event less than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed
shares. From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of the
Series C Preferred Stock designated for redemption in the Redemption Notice
as holders of Series C Preferred Stock of the Corporation (except the right
to receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Any shares of Series C Preferred Stock so redeemed shall
permanently be retired, shall no longer be deemed outstanding and shall not
under any circumstances be reissued, and the Corporation may from time to
time take such appropriate action as may be necessary to reduce the
authorized Series C Preferred Stock accordingly. Nothing herein contained
shall prevent or restrict the purchase by the Corporation, from time to time
either at public or private sale, of the whole or any part of the Series C
Preferred Stock at such price or prices as the Corporation may determine,
subject to the provisions of applicable law.
8. WAIVER. Any of the rights of the holders of Series C Preferred Stock
set forth herein may be waived by the affirmative vote of the holders of more
than fifty percent (50%) of the shares of Series C Preferred Stock then
outstanding.
-18-
<PAGE>
EXHIBIT D
Lindner Growth Fund 502,452 shares
Lindner Dividend Fund 502,452 shares
<PAGE>
INTERLEAF, INC.
EXHIBIT 11-COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30 September 30
1996 1995 1996 1995
---- ---- ---- ----
(unaudited) (unaudited)
In thousands, except for per share amounts
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding of Common Stock 17,457 15,084 17,229 14,725
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 17,457 18,618 17,229 18,134
-------- ------- -------- -------
Net income (loss) $(10,327) $ 922 $(14,127) $ 1,394
-------- ------- -------- -------
Net income (loss) per share $ (0.59) $ 0.05 $ (0.82) $ 0.08
-------- ------- -------- -------
FULLY DILUTED
Weighted average shares outstanding of Common Stock 17,457 15,084 17,229 14,725
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 17,457 18,668 17,229 18,560
-------- ------- -------- -------
Net income (loss) $(10,327) $ 922 $(14,127) $ 1,394
-------- ------- -------- -------
Net income (loss) per share $ (0.59) $ 0.05 $ (0.82) $ 0.08
-------- ------- -------- -------
</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, 1996, 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-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 4,942
<SECURITIES> 0
<RECEIVABLES> 17,435
<ALLOWANCES> 1,545
<INVENTORY> 330
<CURRENT-ASSETS> 28,845
<PP&E> 50,039
<DEPRECIATION> 42,518
<TOTAL-ASSETS> 38,858
<CURRENT-LIABILITIES> 33,434
<BONDS> 0
0
86
<COMMON> 175
<OTHER-SE> 4,938
<TOTAL-LIABILITY-AND-EQUITY> 38,858
<SALES> 11,660
<TOTAL-REVENUES> 35,639
<CGS> 3,153
<TOTAL-COSTS> 14,314
<OTHER-EXPENSES> 35,159<F1>
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> (14,127)<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,127)<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,127)<F1>
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
<FN>
<F1>INCLUDES A $4.8 MILLION CHARGE FOR RESTRUCTURING OF THE COMPANY'S WORLDWIDE
OPERATIONS.
</FN>
</TABLE>
