<PAGE>
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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 DECEMBER 31, 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 February 4, 1997 was 17,459,219.
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Interleaf, Inc.
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated balance sheets at December 31, 1996 and March 31, 1996 ........ 3
Consolidated statements of operations for the three and nine months
ended December 31, 1996 and 1995 ........................................... 4
Consolidated statements of cash flows for the nine months ended
December 31, 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 5 - Other Information ................................................ 13
Item 6 - Exhibits and Reports on Form 8-K ................................. 13
SIGNATURE ................................................................. 13
2
<PAGE>
Interleaf, Inc.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1996
In thousands, except for share and per share amounts (unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 13,738 $ 12,725
Accounts receivable, net 17,772 19,771
Prepaid expenses and other current assets 1,702 2,112
--------- ---------
Total current assets 33,212 34,608
Property and equipment, net 6,679 7,800
Intangible assets 4,684 6,164
Other assets 545 344
--------- ---------
Total assets $ 45,120 $ 48,916
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,104 $ 2,908
Accrued expenses 16,187 13,252
Unearned revenue 14,734 15,986
Other current liabilities 6,723 1,348
--------- ---------
Total current liabilities 39,748 33,494
Other liabilities 188 3
--------- ---------
Total liabilities 39,936 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 December 31, 1996 and 923,304 at March 31, 1996 87 92
Series C Convertible Preferred Stock, issued and outstanding
1,004,904 at December 31, 1996 and -0- at March 31, 1996 100 -
Common stock, par value $.01 per share, authorized
30,000,000 shares, issued and outstanding 17,459,219 at December 31,
1996 and 16,697,988 at March 31, 1996 174 167
Additional paid-in capital 85,505 72,348
Retained earnings (deficit) (80,594) (56,958)
Cumulative translation adjustment (88) (230)
--------- ---------
Total shareholders' equity 5,184 15,419
--------- ---------
Total liabilities and shareholders' equity $ 45,120 $ 48,916
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements
3
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Interleaf, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended December 31 Nine months ended December 31
1996 1995 1996 1995
In thousands, except for per share amounts (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Products $ 4,296 $ 7,915 $ 15,955 $ 26,625
Maintenance 6,903 7,932 21,785 24,123
Services 4,149 5,408 13,247 16,945
------- ------- -------- --------
Total Revenues 15,348 21,255 50,987 67,693
------- ------- -------- --------
Costs of revenues:
Products 1,416 1,598 4,569 4,822
Maintenance 1,159 1,300 3,758 3,983
Service 3,931 4,474 12,493 14,050
------- ------- -------- --------
Total costs of revenues 6,506 7,372 20,820 22,855
------- ------- -------- --------
Gross Margin 8,842 13,883 30,167 44,838
------- ------- -------- --------
Operating Expenses:
Selling, general and administrative 8,964 9,545 30,868 31,398
Research and development 3,227 3,992 11,802 11,849
Write-down of intangible assets 2,288 - 2,288 -
Restructuring expense 3,700 - 8,500 -
------- ------- -------- --------
Total operating expenses 18,179 13,537 53,458 43,247
------- ------- -------- --------
Income (loss) from operations (9,337) 346 (23,291) 1,591
Other income (expense) (172) 113 (345) 262
------- ------- -------- --------
Income (loss) before income taxes (9,509) 459 (23,636) 1,853
Provision for income taxes - 30 - 30
------- ------- -------- --------
Net income (loss) $(9,509) $ 429 $(23,636) $ 1,823
------- ------- -------- --------
------- ------- -------- --------
Net income (loss) per share $ (0.54) $ 0.02 $ (1.37) $ 0.10
------- ------- -------- --------
------- ------- -------- --------
Shares used in computing net
income (loss) per share 17,459 18,874 17,306 18,382
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
See notes to consolidated financial statements
4
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Interleaf, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
December 31
1996 1995
In thousands (unaudited)
Cash Flows from Operating Activities
Net income (loss) $(23,636) $ 1,823
Adjustments to reconcile net income (loss)
to net cash provided by
(used in) operating activities:
Restructuring expense 8,500 -
Write-down of intangible assets 2,288 -
Gain from settlement of legal dispute - (1,230)
Depreciation and amortization expense 5,880 5,833
Changes in assets and liabilities:
Decrease in accounts receivable, net 2,356 2,399
Decrease in other assets 740 448
Increase (decrease) in accounts payable
and accrued expenses 1,335 (189)
Decrease in unearned revenue (1,294) (1,465)
Decrease in other liabilities (3,099) (2,220)
Other, net 70 (4)
-------- -------
Net cash provided by (used in) operating activities (6,860) 5,395
-------- -------
Cash Flows from Investing Activities
Capital expenditures (1,796) (811)
Capitalized software development costs (887) (3,452)
-------- -------
Net cash used in investing activities (2,683) (4,263)
-------- -------
Cash Flows from Financing Activities
Net proceeds from issuance of common stock 1,250 2,655
Net proceeds from issuance of convertible
preferred stock 9,382 -
Repayment of long-term debt and capital leases (8) (1,680)
-------- -------
Net cash provided by financing activities 10,624 975
-------- -------
Effect of exchange-rate changes on cash (68) (114)
-------- -------
Net increase (decrease) in cash and cash equivalents 1,013 1,993
Cash and cash equivalents at beginning of period 12,725 10,441
-------- -------
Cash and cash equivalents at end of period $ 13,738 $12,434
-------- -------
-------- -------
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. The Learning Alliance
On May 1, 1996, the Company purchased all of the outstanding equity
securities of The Learning Alliance, Inc. ("TLA") for 341,500 shares of
common stock valued at $2,690,000. 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 estimated
fair market values. The acquisition resulted in goodwill of approximately
$2.6 million.
In December 1996, in order to allow the Company's management to focus on
development of its core businesses, the Company decided to divest itself
of TLA. TLA was sold in January 1997 for future royalty considerations
and foregone severance payments. As a result of this decision, in
December 1996 the Company recorded a write-down of approximately
$2.3 million of goodwill which had been recorded in connection with the
acquisition.
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
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Interleaf, Inc.
4. Noncash Financing Activities
Senior Series B Convertible Preferred Stock holders converted 61,393 and
805,269 shares of preferred stock into 82,496 and 1,082,081 shares of
the Company's common stock during the nine months ended December 31,
1996 and 1995, respectively. The Company issued 366,113 shares of common
stock, during the nine months ended December 31, 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 the 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. 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. At
December 31, 1996, there were no loans 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 December 31, 1996, approximately $0.8
million of standby letters of credit were outstanding to secure the leasing
of computer equipment, and the amount available for additional borrowings
was approximately $1.9 million. In January 1997, the Company received
notification that the lender does not plan to extend the line of credit
beyond May 1997. If the Company is unable to extend this financing
facility, the commercial lender will call the letter of credit. The Company
will then have to pay $800,000 to the lessor of the computer equipment.
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 and recorded
a charge of $3.7 million 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 nine months ended December 31, 1996, the Company paid
approximately $2.2 million for employee termination benefits and
approximately $1.0 million, net of sublease receipts, for other exit
costs related to the 1996 and 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 is being 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 December 31, 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
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Interleaf, Inc.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company recorded a net loss of approximately $9.5 million, on total
revenues of $15.3 million, for the third quarter and a net loss of
approximately $23.6 million, on total revenues of $51.0 million, for the nine
months ended December 31, 1996. This compares with net income of
approximately $0.4 million, on total revenues of $21.3 million, for the third
quarter and net income of approximately $1.8 million, on total revenues of
$67.7 million, for the nine months ended December 31, 1995. As a result of
the significant decline in revenues, the Company 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 $3.7 million was recorded during the third
quarter of fiscal 1997. Combined, these restructurings reduced employment by
approximately 175 people, approximately one-third of the Company's worldwide
workforce prior to the July restructuring. The Company has also closed or
reduced space in 12 sales offices and is implementing the final stage of
relocating its corporate offices to smaller and less expensive space. (See,
Note 6 to the Consolidated Financial Statements).
In addition, during the end of the third quarter and beginning of the fourth
quarter, a new senior management team has been installed, including a new
President and Chief Financial Officer. The new team will continue to review
and assess the Company's global operation, which may result in further
consolidation. In connection therewith, in the third quarter the Company
decided to divest itself of The Learning Alliance which was sold in January
1997.
Revenues
Total revenues decreased approximately $5.9 million (28%) and $16.7 million
(25%) for the third quarter and nine months ended December 31, 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 is refocusing its business strategy on providing document
management applications targeted toward specific vertical 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 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 13%
and 10% during the third quarter and nine months ended December 31, 1996,
respectively, when compared with the same periods a year ago. Services
revenue, consisting of consulting and customer training revenue, decreased
approximately 23% and 22% for the third quarter and nine months ended
December 31, 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.
9
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Interleaf, Inc.
Costs of Revenues
Cost of product were flat in the current period and year-to-date when
compared with prior year periods 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 29% for the third quarter and nine
months ended December 31, 1996, respectively, compared with approximately 20%
and 18% 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 95% and 94% for the third quarter and nine months ended
December 31, 1996, respectively, compared with approximately 83% for both 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.
Operating Expenses
Selling, general and administrative ("SG&A") expenses decreased slightly from
the prior year primarily due to the restructurings discussed previously.
Because of the decrease in total revenues, SG&A expenses increased as a
percentage of total revenues to approximately 58% and 61% for the third
quarter and nine months ended December 31, 1996, respectively, compared with
approximately 45% and 46% for the corresponding periods in the prior year.
SG&A expenses are expected to decrease further as a result of the fiscal 1997
restructurings.
Research and development ("R&D") expenses decreased slightly from the prior
year primarily due to lower personnel expenses. For the third quarters ended
December 31, 1996 and 1995, R&D expenses were approximately 21% and 19%,
respectively, of total revenues. For the nine months ended December 31, 1996
and 1995, R&D expenses were approximately 23% and 18%, 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 further as a result of the fiscal 1997 restructurings.
Liquidity and Capital Resources
The Company had approximately $13.7 million of cash and cash equivalents at
December 31, 1996, an increase of approximately $1.0 million from March 31,
1996. The increase was primarily attributable to the Company's sales of
convertible preferred stock (see below) which generated $9.4 million and
common stock which generated $1.2 million, offset by negative cash flow from
operations during the first nine months of fiscal 1997 and payments
associated with the July and October 1996 restructurings. In addition, a
large portion of the maintenance fees for calender 1997 were collected in
December 1996. Capital expenditures of approximately $1.8 million were
principally for improvements to the Company's information system
infrastructure. 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 December 31, 1996, the Company had approximately $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 341,500 shares of common stock valued at $2.7
million. In December 1996, in order to allow the Company's management to
focus on development of its core businesses, the Company decided to divest
itself of TLA. TLA was sold in January 1997 for future royalty considerations
and foregone severance obligations. As a result of this decision, in December
1996 the Company recorded a $2.3 million write-down of certain intangible
assets which had been recorded in connection with acquisition (See, Note 3 to
the Consolidated Financial Statements for further discussion).
10
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Interleaf, Inc.
Total accrued restructuring charges associated with both the fiscal 1995 and
1996 restructurings were approximately $6.7 million at December 31, 1996. Cash
payments related to these restructurings are anticipated to continue until
December 2000.
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 December 31, 1996, there
were no outstanding borrowings under this line of credit, but a letter of
credit in the amount of approximately $800,000 was issued and, therefore, the
amount available for borrowings was approximately $1.9 million (See, Note 5
to the Consolidated Financial Statements regarding borrowing limits and
restrictive covenants associated with the credit agreement). The Company has
received notification that the lender does not plan to extend the line of
credit beyond May 1997. If the Company is unable to extend this line of
credit, or secure other financing, the Company will be required to pay
approximately $800,000, the amount of the outstanding letter of credit.
In October 1996, the Company sold Series C Convertible Preferred Stock
("Series C") 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 objectives of the Company's two restructurings in the last six 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 restructurings,
along with the downward trend in the Company's revenue, the Company is unable
to predict 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, the Company can fund its longer term
ongoing business operations only by increasing revenues, combined with
tightly managed cost controls. 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, the appointment of new senior
management, 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 reenginering of their business processes. In addition, a
high percentage of the Company's product license revenues are generally
realized in the last month of a fiscal quarter and are 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 and
liquidity.
11
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Interleaf, Inc.
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.
12
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Interleaf, Inc.
PART II - OTHER INFORMATION
Item 5. Other Information
Effective November 15, 1996, the Company's Board of Directors ("Board")
accepted the resignation of Ed Koepfler as its President and Chief Executive
Officer and elected Rory J. Cowan as its President and Chief Executive
Officer on an interim basis. Effective January 24, 1997, the Board elected
Jaime W. Ellertson President and Chief Executive Officer and accepted Rory J.
Cowan's resignation.
Effective January 2, 1997 the Board appointed Robert R. Langer as Vice
President of Finance and Administration, Treasurer, and Chief Financial
Officer and Principal Financial and Accounting Officer, and accepted the
resignation of Robert M. Stoddard from these positions.
On November 15, 1996, the Board accepted the resignation of Stan Douglas, as
the Company's Vice President of Engineering Operations, and on February 3,
1997 the Board accepted the resignation of Robert T. Maher, as Vice President
of Engineering.
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 December 31, 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.
February 13, 1997
/s/ Robert R. Langer
---------------------------------
Robert R. Langer
Vice President of Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
13
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INTERLEAF, INC.
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
- -------- ----------- ----------------
3(a) Restated Articles of Organization of the Company,
as amended Included
3(b) By-Laws of the Company, as amended [v]
4(a) Specimen Certificate for Shares of the Company's
Common Stock [xiv]
4(b) Rights Agreement, dated July 15, 1988, between the
Company and the First National Bank of Boston [xv]
10(a) Company's 1983 Stock Option Plan, as amended [v]
10(a1) 1994 Employee Stock Option Plan, as amended [xiii]
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 amended [xiii]
10(c) Company's 1989 Officer and Employee Severance
Benefit Plans [i]
10(cc) Company's 1993 Director Stock Option Plan [v]
10(d) Agreements between PruTech Research and Development
Partnership III and the Company, dated October 21, 1988. [ii]
10(e) Exclusive Marketing and Licensing Agreement, between
Interleaf South America, Ltd. and the Company, and
related Option Agreement, dated March 31, 1989. [i]
10(f) Distribution and License Agreement between Interleaf
Italia, S.r.l. and the Company, and related Joint
Venture Agreement, dated October 31, 1988. [i]
10(g) Preferred Stock Purchase Agreements, for the issuance
of 2,142,857 shares of the Company's Senior Series B
Convertible Preferred Stock, dated September 29, 1989. [ii]
10(h) Notification to Preferred Shareholder of increase in
conversion ratio, dated May 18, 1992. [iii]
10(i) Lease of Prospect Place, Waltham, MA, between Prospect
Place Limited Partnership and Interleaf, Inc., and
related Agreements, dated March 30, 1990. [iv]
10(j) Employment and severance agreement between the Company
and Edward Koepfler, the Company's President, dated
October 3, 1994. [vii]
10(k) Loan and Security Agreement between the Company and
Foothill Capital Corporation, dated May 2, 1995. [ix]
10(l) Employment and severance agreement between the Company
and G. Gordon M. Large, the Company's Executive Vice
President and Chief Financial Officer, dated June 5, 1995. [ix]
10(m) Net Lease, dated August 14, 1995, between Principal
Mutual Insurance Company and the Company. [x]
10(n) Sublease, dated September 15, 1995, between Parametric
Technology Corporation and the Company. [x]
10(o) Employment and severance agreement between the Company
and Mark Cieplik, the Company's Vice President, Americas,
dated March 17, 1995. [xi]
10(p) Agreement between PruTech Research and Development
Partnership III and the Company, dated November 14, 1995. [xii]
10(q) Series C Preferred Stock Agreement between Interleaf,
Inc. and Lindner Investments, dated October 14, 1996. [xiii]
14
<PAGE>
Exhibit
Number Description Method of Filing
- -------- ----------- ----------------
10(r) Letter Agreement between the Company and Robert M.
Stoddard, as the Company's then Vice President of
Finance and Administration, and Chief Financial
Officer, dated November 11, 1996. Included
10(s) Letter Agreement between the Company and Rory J.
Cowan, the Company's President and Chief Executive
Officer, dated November 15, 1996, concerning his
employment and compensation with the Company. Included
10(t) Letter Agreement between the Company and Mark H.
Cieplik, the Company's Vice President of Sales,
dated November 15, 1996, concerning his employment
and compensation with the Company. Included
10(u) Letter Agreement between the Company and Michael L.
Shanker, the Company's Vice President of Professional
Services, dated November 15, 1996, concerning his
employment and compensation with the Company. Included
10(v) Letter Agreement between the Company and Stephen J.
Hill, the Company's Vice President of Europe, dated
November 15, 1996, concerning his employment and
compensation with the Company. Included
10(w) Resignation Agreement and Release and Employment
Agreement between Ed Koepfler, the Company's former
President and Chief Executive Officer, and the Company,
dated November 15, 1996, concerning his employment and
severance with the Company. Included
10(w1) Resignation Agreement and Release and Employment
Agreement between G. Gordon M. Large, the Company's
former Executive Vice President of Finance and
Administration and Chief Financial Officer, and the
Company, dated November 12, 1996, concerning his
employment and severance with the Company. Included
10(x) Resignation Agreement and Release and Employment
Agreement between Stan Douglas, the Company's former
Vice President of Engineering Operations, and the
Company, dated November 15, 1996, concerning his
employment and severance with the Company. Included
10(y) Terms of Engagement between the Company and Robert
R. Langer, Vice President of Finance and Administration
and Chief Financial Officer, dated December 30, 1996,
concerning his employment with the Company. Included
10(z) Offer Letter and Acceptance between Jaime W.
Ellertson, the Company's President and Chief Executive
Officer, and the Company, dated January 9, 1997. Included
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.
15
<PAGE>
INTERLEAF, INC.
[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.
[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 Report on Form 10-Q for the quarter ended September 30, 1996, File
Number 0-14713.
[xiv] Incorporated herein by reference is the applicable Exhibit to Company's
Registration Statement on Form S-1, File Number 33-5743.
[xv] Incorporated herein by reference is Exhibit 1 to Company's Registration
Statement on Form 8-A, filed July 27, 1988.
16
<PAGE>
Exhibit 3(a)
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State Federal Identification
No. 04-2729042
ONE ASHBURTON PLACE, BOSTON, MA 02108 ----------
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to
the Commonwealth of Massachusetts.
We, David A. Boucher , President, and
J. John Brennan , Clerk of
Interleaf, Inc.
(Name of Corporation)
located at Ten Canal Park, Cambridge, MA 02141
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted at a meeting held on August 14, 1987, by
vote of:
7,606,789 or more shares of Common Stock out of 11,254,990 shares
outstanding, being at least two-thirds of each class of stock outstanding and
entitled to vote and of each class or series of stock adversely affected
thereby:
1. The name by which the corporation shall be known is:
Interleaf, Inc.
2. The purposes for which the corporation is formed are as follows:
See Continuation Sheet 2A
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than
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<PAGE>
one article may be continued on a single sheet so long as each article
requiring each such addition is clearly indicated.
3. The total number of shares and the par value, if any, of each class of
stock which the corporation os authorized to issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR WITH PAR VALUE
VALUE
CLASS OF STOCK NUMBER OF NUMBER OF PAR VALUE
- -------------- SHARES SHARES
----------- ----------- -----------
<S> <C> <C> <C>
Preferred 5,000,000 $.10
Common 20,000,000 $.01
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each
class thereof and any series now established:
See Continuation Sheet 4A
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
None
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution,
or for limiting, defining, or regulating the powers of the corporation,
or of its directors or stockholders, or of any class of stockholders:
See Continuation Sheet 6A
*If there are no such provisions, state "None."
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<PAGE>
CONTINUATION SHEET 2A
To purchase, manufacture, produce, assemble, receive, lease or in any
manner acquire, hold, own, use, operate, install, maintain, service, repair,
process, alter, improve, market, import, export, sell, lease, assign, transfer
and generally to trade and deal in and with communications, data processing,
graphic processing, electronic and other equipment, devices, apparatus,
components, parts and supplies, products, machinery, systems, goods, wares,
merchandise and personal property of every kind, nature or description, tangible
or intangible, used or capable to being used for any purpose whatsoever; and to
engage and participate in any mercantile, manufacturing or trading business of
any kind or character.
To carry on any business or other activity which may be lawfully carried on
by a corporation organized under the Business Corporation Law of the
Commonwealth of Massachusetts, whether or not related to those referred to in
the foregoing paragraph.
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<PAGE>
CONTINUATION SHEET 4A
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the corporation is hereby authorized, within the
limitations and restrictions stated in these Articles of Organization to
determine or alter the rights, preferences, powers, privileges and the
restrictions, qualifications and limitations granted to or imposed upon any
wholly unissued series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof; and to increase or decrease the
number of shares constituting any such series; and to increase or decrease the
number of shares of any series subsequent to the issue of shares of that series,
but not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares then
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
The authority of the Board of Directors with respect to each such series of
Preferred Stock shall include, without limitation of the foregoing, the right to
determine and fix:
(1) The distinctive designation of such series and the number of shares to
constitute such series;
(2) The rate at which dividends on the shares of such series shall be
declared and paid, or set aside for payment, whether dividends at the rate so
determined shall be cumulative and whether the shares of such series shall be
entitled to any participating or other dividends in addition to dividends at the
rate so determined, and if so on what terms;
(3) The right, if any, of the corporation to redeem shares of the
particular series and, if redeemable, the price, terms and manner of such
redemption;
(4) The special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such series shall be entitled
to receive upon any voluntary or involuntary liquidation, dissolution or winding
up of the corporation;
(5) The terms and conditions, if any, upon which shares of such series
shall be convertible into, or exchangeable for, shares of stock of any other
class or classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
(6) The obligation, if any, of the corporation to retire or purchase
shares of such series pursuant to a sinking fund or fund of a similar nature or
otherwise, and the terms and conditions of such obligation;
(7) Voting rights, if any;
(8) Limitations, if any, on the issuance of additional shares of such
series or any
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<PAGE>
shares of any other series of Preferred Stock; and
CONTINUATION SHEET 4A (CONTINUED)
(9) Such other preferences or restrictions or qualifications thereof as
the Board of Directors may deem advisable and not inconsistent with the law and
the provisions of these Articles of Organization.
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<PAGE>
CONTINUATION SHEET 6A
6A. AMENDMENT OF BY-LAWS
The directors may make, amend, or repeal the By-Laws of the corporation in
whole or in part, except with respect to any provisions thereof which by law or
these Articles of Organization or the By-Laws requires action by the
stockholders.
6B. STOCKHOLDER MEETINGS
Meetings of the stockholders of the corporation may be held anywhere in the
United States.
6C. AUTHORITY
The corporation shall have the power to be a partner in any business
enterprise which this corporation would have the power to conduct by itself.
6D. LIMITATION OF DIRECTOR LIABILITY
To the fullest extent permitted by Chapter 156B of the Massachusetts
General Laws, as it may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
notwithstanding any provision of law imposing such liability.
6E. CLASSIFIED BOARD OF DIRECTORS
This Article is inserted for the management of the business and for the
conduct of the affairs of the Corporation, and it is expressly provided that it
is intended to be in furtherance and not in limitation or exclusion of the
powers conferred by the statutes of the Commonwealth of Massachusetts.
Section 1. Number of Directors. Subject to the rights of the holders of
Preferred Stock of the Corporation then outstanding to elect additional
directors under specified circumstances, the number of directors of the
Corporation shall not be less than three nor more than thirteen (13). The exact
number of directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time pursuant to a resolution
adopted by a majority of directors then in office, although less than a quorum.
Section 2. Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the authorized number of
directors by three, then, if such fraction is one-third, the extra director
shall be a
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<PAGE>
member of Class III and, if such fraction is two-thirds, one of the extra
directors shall be a member of Class III and one of the extra directors
shall be a member of Class II, unless otherwise provided for from time to time
by resolution adopted by a majority of the directors then in office, although
less than a quorum.
Section 3. Election of Directors. Elections of directors need not be by
written ballot except as and to the extent provided in the By-Laws of the
Corporation.
Section 4. Terms of Office. Each director shall serve for a term ending
on the date of the third annual meeting following the annual meeting at which
such director was elected; provided, however, that each initial director in
Class I shall serve for a term ending on the date of the Corporations's 1988
annual meeting; each initial director in Class II shall serve for a term ending
on the date of the Corporation's 1989 annual meeting; and each initial director
in Class III shall serve for a term ending on the date of the Corporation's 1990
annual meeting.
Section 5. Allocation of Directors Among Classes in the Event of Increases
or Decreases in the Number of Directors. In the event of any increase or
decrease in the authorized number of directors, (i) each director then serving
as such shall nevertheless continue as director of the class of which he is a
member until the expiration of his current term or his prior death, retirement
or resignation and (ii) the newly created or eliminated directorships resulting
from such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to ensure that no one class has more
than one director more than any other class. To the extent possible, consistent
with the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of office are to expire at the earliest dates
following such allocator, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum.
Section 6. Quorum; Action of Meeting. A majority of the directors at any
time in office shall constitute a quorum for the transaction of business and, if
at any meeting of the Board of Directors there shall be less than such a quorum,
a majority of those present may adjourn the meeting from time to time. Every
act or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the By-Laws of the
Corporation or by these Articles of Organization.
Section 7. Removal. Subject to the rights of the holders of any Preferred
Stock then outstanding, any director or the entire Board of Directors may be
removed from office, with or without cause, at any time by the affirmative vote
of the holders of at least eighty percent (80%) of the voting power of all the
shares of the Corporation entitled to vote generally in the election of
directors voting together as a single class.
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<PAGE>
Section 8. Tenure. Notwithstanding any provisions to the contrary
contained herein, each director shall serve until a successor is elected and
qualified or until his death, resignation or removal.
Section 9. Vacancies. Subject to the rights of the holders of any
Preferred Stock then outstanding, any vacancies in the Board of Directors
occurring for any reason and any newly created directorships resulting from any
increase in the number of directors may be filled only by the Board of Directors
acting by the affirmative vote of at least a majority of the directors then in
office, although less than a quorum. Each director so chosen shall hold office
until the next election of the class for which such director shall have been
chosen and until his successor shall be elected and qualified or until his
earlier death, resignation or removal.
Section 10. Stockholder Nominations and Introduction of Business, Etc.
Advance notice of stockholder nominations for election of directors and other
business to be brought by stockholders before a meeting of stockholders shall be
given in the manner provided in the By-Laws of the Corporation and the
appointment of judges of election shall be made in the manner provided in the
By-Laws of the Corporation.
Section 11. Amendments to Article. Notwithstanding any other provisions
of law, these Articles of Organization or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least eighty percent (80%) of the votes
which all the stockholders would be entitled to cast at any annual election of
directors or class of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article; provided that such eighty
percent (80%) vote shall not be required, and only the vote otherwise provided
by law, by the By-Laws of the Corporation or by these Articles of Organization
shall be required, for any amendment, repeal or adoption previously approved by
the Board of Directors and by each Disinterested Director (as defined in Article
6F).
6F. FAIR PRICE PROVISION
The stockholder vote required to approve Business Combinations (hereinafter
defined) shall be as set forth in this Article.
Section 1. Definition of "Business Combination." The term "Business
Combination" as used in this Article shall mean any of the following:
(a) Any merger or consolidation of the Corporation or any Subsidiary with
(i) any Interested Stockholder or (ii) any other corporation (whether
or not itself an Interested Stockholder) which is, or after such merger
or consolidation would be, an Affiliate or Associate of an Interested
Stockholder; or
(b) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one
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<PAGE>
transaction or a series of transactions) to or with any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder of all or a Substantial Part of the assets of the
Corporation or any Subsidiary thereof; or
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<PAGE>
(c) The issuance, exchange or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder in exchange for cash, securities or other consideration
(or a combination thereof) having an aggregate Fair Market Value of,
equal to or in excess of a Substantial Part of the assets of the
corporation; or
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(e) Any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder or any Affiliate or Associate of an
Interested Stockholder) which has the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(f) Any agreement, contract or other arrangement with an Interested
Stockholder or any Affiliate or Associate of an Interested Stockholder
(or in which the Interested Stockholder or any Affiliate or Associate
of an Interested Stockholder has an interest other than
proportionately as a stockholder) providing for any one or more of the
actions specified in subsections (a) to (e) of this Section 1.
Section 2. Vote for Certain Transactions. Except where a higher
vote may be required by law or these Articles of Organization, the
Corporation may, by vote of a majority of the stock outstanding and
entitled to vote thereon (or if there are two or more classes of stock
entitled to vote as separate classes, then by vote of a majority of
each such class of stock outstanding) (i) authorize the sale, lease or
exchange of all or substantially all of its property and assets,
including its goodwill, pursuant to Section 75 of Chapter 156B of the
Massachusetts General Laws (or any successor provision thereto), as
amended from time to time, (ii) approve an agreement of merger or
consolidation pursuant to Section 78 of Chapter 156B of the
Massachusetts General Laws (or any successor provision thereto), as
amended from time to time, and (iii) authorize the dissolution of the
Corporation pursuant to Section 100 of Chapter 156B of the
Massachusetts General Laws (or any successor provision thereto), as
amended from time to time.
Section 3. Higher Vote for Business Combinations. In addition
to any affirmative vote required by law, the By-Laws of the
Corporation or these Articles of Organization, and except as otherwise
expressly provided in Section 4 of this Article, any Business
Combination shall require the affirmative vote of the holders of at
least eighty percent (80%) of the votes which all
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<PAGE>
stockholders would be entitled to cast at any annual election of Directors or
class of Directors (the "Voting Stock"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required or that
a lesser percentage may be specified by law or in any agreement with
any securities exchange or otherwise.
Section 4. When Higher Vote Is Not Required. The provisions of
Section 3 of this Article shall not be applicable to any particular
Business Combination, and such Business Combination shall require only
such affirmative vote, if any, as is required by law and any other
provision of the Articles of Organization or the By-Laws of this
Corporation, if the conditions specified in either of the following
subsections (a) or (b) are met:
(a) Approval by Disinterested Directors. The Business Combination
shall have been approved by a majority of the Disinterested Directors.
(b) Price and Procedure Requirements. All of the following seven
conditions shall have been met:
(i) The transaction constituting the Business Combination shall
provide that the holders of Common Stock receive, in exchange for
their stock, per share consideration (consisting of the cash and
the Fair Market Value, as of the date of the consummation of the
Business Combination, of consideration other than cash) at least
equal to the highest of the following:
A. If applicable, the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for
any shares of Common Stock in connection with the direct or
indirect acquisition by the Interested Stockholder of shares
of Common Stock which were acquired (1) within the two-year
period immediately prior to the first public announcement of
the proposed Business Combination (the "Announcement Date") or
(2) in the transaction in which it became an Interested
Stockholder, whichever is higher;
B. The Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (the
"Determination Date"), whichever is higher; and
C. If applicable, the price per share equal to the Fair Market
Value per share of Common Stock determined pursuant to
paragraph B immediately preceding, multiplied by the ratio of
(1) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by or on behalf of the Interested Stockholder for any share of
Common Stock in connection with the direct or indirect
acquisition by the Interested Stockholder of shares of Common
Stock which were acquired within the two-year period
immediately prior to the Announcement Date to (2) the Fair
Market Value per share of Common Stock on the first date in
such two-year period on which the Interested Stockholder
beneficially owned any shares of Common Stock.
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All per share prices shall be adjusted to reflect any
intervening stock splits, stock dividends and reverse stock
splits.
(ii) If the transaction constituting the Business Combination shall
also provide that the holders of any class of outstanding Voting
Stock, other than Common Stock, if any, are to receive
consideration in exchange for their stock, the per share
consideration (consisting of the cash and the Fair Market Value,
as of the date of the consummation of the Business Combination, of
consideration other than cash) shall be at least equal to the
highest of the following (it being intended that the requirements
of this subsection (b)(ii) shall be required to be met with
respect to every class of outstanding Voting Stock, whether or not
the Interested Stockholder beneficially owns any shares of a
particular class of Voting Stock):
A. If applicable, the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for
any share of such class of Voting Stock in connection with the
direct or indirect acquisition by the Interested Stockholder
of beneficial ownership of such share which was acquired
(1) within the two-year period immediately prior to the
Announcement Date or (2) in the transaction in which it
became an Interested Stockholder, whichever is higher;
B. If applicable, the highest preferential amount per share to
which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
regardless of whether the Business Combination to be
consummated constitutes such an event;
C. The Fair Market Value per share of such class of Voting Stock
on the Announcement Date or on the Determination Date,
whichever is higher; and
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<PAGE>
D. If applicable, the price per share equal to the Fair Market
Value per share of such class of Voting Stock determined
pursuant to paragraph C immediately preceding, multiplied by
the ratio of (1) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the stockholder for any share of
such class of Voting Stock in connection with the direct or
indirect acquisition by the Interested Stockholder of
beneficial ownership of shares which were acquired within the
two-year period immediately prior to the Announcement Date to
(2) the Fair Market Value per share of such class of Voting
Stock on the first day in such two-year period on which the
Interested Stockholder beneficially owned any shares of such
class of Voting Stock.
All per share prices shall be adjusted for intervening stock
splits, stock dividends and reverse stock splits.
(iii) The consideration to be received by holders of a particular class
of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same form as was previously paid by or on behalf of
the Interested Stockholder in connection with its direct or
indirect acquisition of beneficial ownership of shares of such
class of Voting Stock. If the Interested Stockholder beneficially
owns shares of any class of Voting Stock which were acquired with
varying forms of consideration, the form of consideration to be
received by holders of such class of Voting Stock shall be either
cash or the form used to acquire the largest number of shares of
such class of Voting Stock beneficially owned by the Interested
Stockholder.
(iv) After the Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination (A) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding preferred
stock; (B) there shall have been (1) no reduction in the annual
rate of dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock) except as approved by
a majority of the Disinterested Directors, and (2) an increase in
such annual rate of dividends (as necessary to prevent any such
reduction) in the event of any reclassification (including any
reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the number
of outstanding shares of the Common Stock, unless the failure so
to increase such annual rate is approved by a majority of the
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Disinterested Directors; and (C) such Interested Stockholder shall
not have become the beneficial owner of any shares of Voting Stock
except as part of the transaction in which it became an Interested
Stockholder and except in a transaction which after giving effect
thereto, would not result in any increase in the Interested
Stockholder's percentage beneficial ownership of any class of
Voting Securities.
(v) After the Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, rules or
regulations) shall be mailed by the Interested Stockholder to all
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant
to such Act or subsequent provisions).
(vii) Such Interested Stockholder shall not have made any major change
in the Corporation's business or equity capital structure without
the approval of the majority of the Disinterested Directors.
Section 5. Certain Definitions. For the purposes of this Article:
(a) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprising any person and any
other person with whom such person or any Affiliate or Associate of
such person has any agreement, arrangement or understanding, directly
or indirectly, for the purpose of acquiring, holding, voting or
disposing of Voting Stock of the Corporation.
(b) The term "Interested Stockholder" shall mean any person (other
than the Corporation or any Subsidiary and other than any
profit-sharing, employee stock ownership or other employee benefit
plan of the Corporation or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such capacity)
who or which:
(i) Is at such time the beneficial owner, directly or indirectly, of
shares of the
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<PAGE>
Corporation having more than ten percent (10%) of the voting
power of the then outstanding Voting Stock; or
(ii) At any time within the two-year period immediately prior to such
time was the beneficial owner, directly or indirectly, of shares
of the Corporation having more than ten percent (10%) of the
voting power of the then outstanding Voting Stock; or
(iii) Is at any time an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock which were at
any time within the two-year period immediately prior to such
time beneficially owned by any Interested Stockholder if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any shares of Voting
Stock:
(i) Which are beneficially owned, directly or indirectly, by such
person or any of its Affiliates or Associates;
(ii) Which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether or not such right is exercisable
immediately) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) Which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any
shares of Voting Stock.
(d) For the purposes of determining whether a person is an Interested
Stockholder pursuant to subsection 4(b), the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed
beneficially owned by an Interested Stockholder through application of
subsection 5(c) but shall not include any other shares of Voting Stock
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise.
(e) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
June 19, 1987 (the term registrant in said
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<PAGE>
Rule 12b-2 meaning, in this case, the Corporation).
(f) "Beneficially owned" shall have the meaning ascribed to such term
in Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on June 19, 1987.
(g) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation.
(h) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with, and not a
representative of, an Interested Stockholder or any Affiliate or
Associate of an Interested Stockholder and was a member of the Board
of Directors on June 19, 1987 or prior to the time that the Interested
Stockholder or any Affiliate or Associate of an Interested Stockholder
became an Interested Stockholder, and any successor of a Disinterested
Director who is unaffiliated with, and not a representative of, the
Interested Stockholder or any Affiliate or Associate of an Interested
Stockholder and is recommended or elected to succeed a Disinterested
Director by a majority of the Disinterested Directors then on the
Board of Directors.
(i) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for
New York Stock Exchange Listed Stocks or, if such stock is not quoted
on the Composite Tape, on the New York Stock Exchange or, if such
stock is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of
1934 on which such stock is listed or, if such stock is not listed on
any such exchange, the highest closing sale price or the highest
closing bid quotation, respectively, with respect to a share of such
stock during the 30-day period preceding the date in question on the
National Market System or the National Association of Securities
Dealers, Inc. Automated Quotations System, as the case may be, or any
system then in use or, if no such quotations are available, the fair
market value on the date in question of a share of such stock as
determined by a majority of the Disinterested Directors in good faith;
and (ii) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
the Board of Directors in good faith.
(j) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash" as used in
subsection 4(b) of this Article shall include the shares of Common
Stock and/or the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
(k) "Substantial Part" of the Corporation shall mean more than ten
percent (10%) of
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<PAGE>
the fair market value of the total assets of the Corporation as of the
end of its most recent fiscal quarter ending prior to the time the
determination is made.
Section 6. Determinations by Disinterested Directors. The
Disinterested Directors shall have the power and duty to determine for
purposes of this Article, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance
with this Article, including, without limitation, (a) whether a person
is an Interested Stockholder, (b) the number of shares of Voting Stock
beneficially owned by any person, (c) whether a person is an Affiliate
or Associate of another, (d) whether the requirements of subsection
4(b) have been met with respect to any Business Combination and (e)
whether the assets which are the subject of any Business Combination
equal or exceed, or whether the consideration to be received from the
issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination equals or exceeds, a
Substantial Part of the assets of the Corporation. Any such
determination made in good faith shall be binding and conclusive on
all persons for all purposes.
Section 7. No Duty to Approve Business Contributions. Nothing
contained in this Article shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed by law.
Section 8. Minimum Consideration. Consideration for shares to
be paid to any stockholder pursuant to this Article shall be the
minimum consideration payable to the stockholder and shall not limit a
stockholder's right under any provision of law or otherwise to receive
greater consideration for any shares of the Corporation.
Section 9. Fiduciary Obligations. The fact that any Business
Combination complies with the provisions of section 4 of this Article
shall not be construed to impose any fiduciary duty, obligation or
responsibility on the Board of Directors, or any member thereof, to
approve such Business Combination or recommend its adoption or
approval to the stockholders of the Corporation, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the
Board of Directors or any member thereof with respect to evaluations
of or actions and responses taken with respect to such Business
Combination.
Section 10. Amendments to Article. Notwithstanding any other
provisions of law, these Articles of Organization or the By-Laws of
the Corporation, and notwithstanding the fact that a lesser percentage
may be specified by law, the affirmative vote of the holders of at
least eighty percent (80%) of the votes which all the stockholders
would be entitled to cast at any annual election of directors or class
of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article; provided that such eighty
percent (80%) vote shall not be required, and only the vote otherwise
provided by law, by the By-Laws of the Corporation or by these
Articles of Organization shall be required, for any amendment, repeal
or adoption previously approved by the Board of Directors and by each
Disinterested Director.
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<PAGE>
We further certify that the foregoing restated articles of
organization effect no amendments to the articles of organization of the
corporation amended, except amendments to the following articles
sixth
- -----
- ---------------------------------------------------------------------------
(""If there is no such amendment, state "None")
Briefly describe amendments in space below:
Article 6 is amended by the addition of Articles 6D, 6E and 6F.
Article 6D provides for the elimination of the personal liability of
directors for monetary damages, except under certain circumstances.
Article 6E provides for the classification of the Board of Directors
into three classes and amended procedures for changing the number of
directors, removing directors and filling vacancies on the Board of
Directors. Article 6F contains a "fair price" provision providing for
minimum price, form of consideration and procedural requirements, or
alternatively, the affirmative vote of 80% of the holders of the
outstanding stock entitled to vote in connection with certain business
combinations involving a 10% stockholder, or a vote of a majority of
the holders of the outstanding stock entitled to vote in connection
with corporate actions which satisfy or do not trigger the fair price
provision.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have
hereto signed our names this 18th day of September in this year 1987.
/s/ David A. Boucher
- ------------------------------------------------------------ President/
David A. Boucher
/s/ J. John Brennan
- ------------------------------------------------------------ Clerk/
J. John Brennan
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<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within
restated articles of organization
and, the filing fee in the amount
of 225.00 having been paid, said
articles are deemed to have been
filed with me this 22nd day of
September , 1987.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo Copy of Restated Articles Of
Organization To Be Sent To:
Ellen Chiniara, Esquire
---------------------------------
Hale and Dorr
---------------------------------
60 State Street
---------------------------------
Boston, MA 02109
---------------------------------
Telephone: (617)742-9100
-----------------------
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<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State Federal Identification
ONE ASHBURTON PLACE, BOSTON, MA 02108 No. 04-2729042
----------
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
----
We, David A. Boucher , President, and
J. John Brennan , Clerk of
Interleaf, Inc.
(Name of Corporation)
located at Ten Canal Park, Cambridge, MA 02141
do hereby certify that at a meeting of the directors of the
corporation held on July 11, 1988 , the following vote
establishing and designating a series of a class of stock and
determining the relative rights and preferences thereof was duly
adopted:
VOTED: That, pursuant to the authority conferred in the Board
of Directors of the Corporation in accordance with the provisions of its
Articles of Organization, a series of Preferred Stock, $.10 par value (the
"Preferred Stock"), of the Corporation be, and it hereby is established, and
that the designation and number of shares, and relative rights, preferences
and limitations thereof are fixed as follows:
(See Attachment A)
Note: Votes for which the space provided above is not sufficient
should be set out on continuation sheets to be
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<PAGE>
numbered 2A, 2B, etc. Continuation sheets must have a left-hand margin of 1
inch wide for binding and shall be 8 1/2 x 11. Only one side should be used.
ATTACHMENT A
to
CERTIFICATE OF VOTE OF DIRECTORS
ESTABLISHING A SERIES OF A CLASS OF STOCK
of
INTERLEAF, INC.
To be designated
Series A Junior Participating Preferred Stock
----------------------------------------
Interleaf, Inc., a Massachusetts corporation (the "Corporation"),
pursuant to the authority conferred in the Board of Directors of the
Corporation in accordance with the provisions of the Article of
Organization, certifies that the Board of Directors of the
Corporation, at a meeting duly called and held on July 11, 1988, duly
voted to establish a series of Preferred Stock, $.10 par value (the
"Preferred Stock"), of the Corporation and that the designation and
number of shares, and relative rights, preferences and limitations
thereof are fixed as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock"
(the "Series A Preferred Stock") and the number of shares constituting
the Series A Preferred Stock shall be 200,000. Such number of shares
may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series
A Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends,
the holders of shares of Series A
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<PAGE>
Preferred Stock, in preference to the holders of Common Stock, par value
$.0l per share (the "Common Stock"), of the Corporation, and of any
other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds of the Corporation legally
available for the payment of dividends, quarterly dividends payable in
cash on March 31, June 30, September 30 and December 31 in each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all
cash dividends, and 100 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions, other than
a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock) and the Corporation shall pay such dividend or distribution on
the Series A Preferred Stock before the dividend or distribution
declared on the Common Stock is paid or set apart; provided that, in
the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1 per share on the Series A Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date
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<PAGE>
next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the Articles of
Organization or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock shall vote together as
one class on all matters submitted to a vote of stockholders of the
Corporation.
(C) (i) If any time dividends on any Series A Preferred Stock
shall be in arrears in an amount equal to six quarterly dividends
thereon, the holders of the Series A Preferred Stock, voting as a
separate series from all other series
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<PAGE>
of Preferred Stock and classes of capital stock, shall be entitled to
elect two members of the Board of Directors in addition to any Directors
elected by any other series, class or classes of securities and the
authorized number of Directors will automatically be increased by two.
Promptly thereafter, the Board of Directors of this Corporation shall,
as soon as may be practicable, call a special meeting of holders of
Series A Preferred Stock for the purpose of electing such members of the
Board of Directors. Said special meeting shall in any event be held
within 45 days of the occurrence of such arrearage.
(ii) During any period when the holders of Series A Preferred
Stock, voting as a separate series, shall be entitled and shall have
exercised their right to elect two Directors, then and during such
time as such right continues (a) the then authorized number of
Directors shall be increased by two, and the holders of Series A
Preferred Stock, voting as a separate series, shall be entitled to
elect the additional Director so provided for, and (b) each such
additional Director shall not be a member of any existing class of the
Board of Directors, but shall serve until the next annual meeting of
stockholders for the election of Directors, or until his successor
shall be elected and shall qualify, or until his right to hold such
office terminates pursuant to the provisions of this Section 3(C).
(iii) A Director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series A Preferred
Stock entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of
Series A Preferred Stock shall be entitled to elect two Directors,
there is no such Director in office by reason of resignation, death or
removal, then, promptly thereafter, the Board of Directors shall cause
a special meeting of the holders of Series A Preferred Stock for the
purpose of filling such vacancy and such vacancy shall be filled at
such special meeting. Such special meeting shall in any event be held
within 45 days of the occurrence of such vacancy.
(v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series A Preferred
Stock outstanding are paid, and, in addition thereto, at least one
regular dividend has been paid subsequent to curing such arrearage,
the term of office of any Director elected pursuant to this Section
3(C), or his successor, shall automatically terminate, and the
authorized number of Directors shall automatically decrease by two,
the rights of the holders of the shares of the Series A Preferred
Stock to vote as provided in this Section 3(C) shall cease, subject to
renewal from time to time upon the same terms and
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<PAGE>
conditions, and the holders of shares of the Series A Preferred Stock
shall have only the limited voting rights elsewhere herein set forth.
(D) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
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<PAGE>
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled
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<PAGE>
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may
be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the
Articles of Organization, or in any other Certificates of Vote of
Directors Establishing a Series of a Class of Stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, provided that
the holders of shares of Series A Preferred Stock shall be entitled to
receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per share to holders of shares of Common
Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, except distributions made
ratably on the Series A Preferred Stock and all such parity stock in
proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
(B) Neither the consolidation, merger or other business
combination of the Corporation with or into any other corporation nor
the sale, lease, exchange or conveyance of all or any part of the
property, assets or business of the Corporation shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 6.
(C) In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such
case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under
the proviso in clause (1) of paragraph (A) of this Section 6 shall be
adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. Notwithstanding anything
to the contrary contained herein, in case the Corporation shall enter
into any consolidation, merger,
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<PAGE>
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any
other property, then in any such case each share of Series A Preferred Stock
shall at the same time be similarly exchanged or changed into an amount per
share, subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all
series of any other class of the Preferred Stock issued either before or
after the issuance of the Series A Preferred Stock, unless the terms of any
such series shall provide otherwise.
Section 10. Amendment. The Articles of Organization of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock,
voting together as a single class.
Section 11. Fractional Shares. Series A Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of
holders of Series A Preferred Stock.
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IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this 25th day of July in this year 1988.
z
/s/ David A. Boucher President/
- -----------------------------------
David A. Boucher
/s/ J. John Brennan Clerk/
- -----------------------------------
J. John Brennan
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<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Certificate of Vote of Directors Establishing
A Series of a Class of Stock
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and,
the filing fee in the amount of $ having
been paid, said certificate is hereby filed this
day of , 19
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF CERTIFICATE TO BE SENT
TO: Christopher P. Holsing, Esq.
------------------------------------
Hale and Dorr
------------------------------------
60 State Street
------------------------------------
Boston, Massachusetts 02109
------------------------------------
Telephone: (617)742-9100 Ext. 2514
------------------------------------
Copy Mailed
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<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State Federal Identification
ONE ASHBURTON PLACE, BOSTON, MA 02108 No. 04-2729042
----------
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
----------
We, David A. Boucher , President, and
John K. Hyvnar , Clerk of
Interleaf, Inc.
(Name of Corporation)
located at Ten Canal Park, Cambridge, MA 02141
do hereby certify that at a meeting of the directors of the
corporation held on September 22, 1989, the following vote
establishing and designating a series of a class of stock and
determining the relative rights and preferences thereof was duly
adopted:
VOTED: That pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of its Articles of
Organization, as amended, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof shall be as set forth on Exhibit A
attached hereto.
(See Attachment A)
Note: Votes for which the space provided above is not sufficient
should be set out on continuation sheets to be numbered 2A, 2B, etc.
Continuation sheets must have a left-hand margin of 1 inch wide for
binding and shall be 8 1/2 x 11. Only one side should be used.
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EXHIBIT A
Section 1. Designation and Amount. The shares of this series of
preferred stock of Interleaf, Inc. (the "Company") shall be designated
as "Senior Series B Convertible Preferred Stock" ("Series B Preferred
Stock") and the number of shares constituting such series shall be
2,142,857 with a par value per share of $.l0.
Section 2. Dividends. No dividends shall be declared, set aside
or paid upon outstanding shares of any class of Common Stock of the
Company, other than a dividend to which the provisions of Section 5(d)
apply, unless a dividend shall be declared, set aside or paid, as the
case may be, upon the Series B Preferred Stock, such that the holder
of each share of Series B Preferred Stock shall be entitled to that
amount as would be declared, set aside or paid, as the case may be, on
the number of shares of Common Stock into which each such share of
Series B Preferred Stock could be converted pursuant to the provisions
of Section 5 hereof, such number determined as of the record date for
the determination of holders of Common Stock entitled to receive such
dividend.
Section 3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the following shall apply:
(i) First, holders of outstanding shares of Series B Preferred
Stock shall be entitled to be paid out of the assets of the Company
available for distribution to stockholders, whether such assets are
capital, surplus, or earnings, an amount equal to $7.00 per share
(adjusted appropriately for stock splits, stock dividends and the
like), before any payment shall be made to the holders of any class of
Common Stock or of any other stock ranking on liquidation junior to
the Series B Preferred Stock. If, upon any liquidation, dissolution
or winding up of the Company, the amounts payable with respect to the
Series B Preferred Stock and any other stock ranking as to any such
distribution on a parity with the Series B Preferred Stock are not
paid in full, the holders of the Series B Preferred Stock and such
other stock shall share ratably in any distribution of assets in
proportion to the full respective preferential amounts to which they
are entitled.
(ii) Second, provided the holders of the outstanding shares of
Series B Preferred Stock have received all of the amounts specified in
clause (i) of this subsection (a), and subject to the rights of
holders of any other class or series of capital stock of the Company
ranking as to liquidation preference senior to the Common Stock and
junior to or on a parity with the Series B Preferred Stock, the
holders of outstanding shares of Common Stock shall be entitled to be
paid out of the assets of the Company available for distribution to
stockholders, whether such assets are capital, surplus or earnings, an
amount per share of such Common
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<PAGE>
Stock equal to a fraction, the numerator of which is the aggregate
amount paid to the holders of the outstanding shares of Series B
Preferred Stock pursuant to clause (i) of this subsection (a) and the
denominator of which is equal to the number of shares of Common Stock
issuable upon the conversion of the outstanding shares of Series B
Preferred Stock immediately prior to any such liquidation,
dissolution or winding up of the Company.
(iii) Third, provided that the holders of the outstanding shares
of Series B Preferred Stock have received all of the amounts specified
in clause (i) of this subsection (a), and provided, further, that the
holders of the outstanding shares of Common Stock have received all of
the amounts specified in clause (ii) of this subsection (a), the
holders of the outstanding shares of Series B Preferred Stock shall
share ratably with the holders of the outstanding shares of Common
Stock in the distribution of the assets of the Company remaining for
distribution to stockholders, whether such assets are capital, surplus
or earnings (the "Residual Assets"), as if each share of Series B
Preferred Stock had been converted into the number of shares of Common
Stock issuable upon the conversion of a share of Series B Preferred
Stock immediately prior to any such liquidation, dissolution or
winding up of the Company (taking into account the rights of holders
of any other class or series of capital stock of the Company entitled
to share in such distribution of the Residual Assets).
(b) A consolidation or merger of the Company or a sale of all or
substantially all of the assets of the Company or other similar transaction
shall be regarded as a liquidation, dissolution or winding up of the affairs
of the Company within the meaning of this Section 3; provided, however, that
each holder of Series B Preferred Stock shall have the right to elect the
benefits of the provisions of Section 5(g) hereof in lieu of receiving
payment in liquidation, dissolution or winding up of the Company pursuant to
this Section 3.
(c) In the event of a liquidation, dissolution or winding up of the
Company resulting in the availability of assets other than cash for
distribution to the holders of the Series B Preferred Stock, the holders of
the Series B Preferred Stock shall be entitled to a distribution of cash
and/or assets equal in value to the liquidation preference and other
distribution rights stated in Section 3(a). In the event that such
distribution to the holders of the Series B Preferred Stock shall include any
assets other than cash, the following provisions shall govern. The Board of
Directors shall first determine the value of such assets for such purpose,
and shall notify all holders of shares of Series B Preferred Stock of such
determination. The value of such assets for purposes of the distribution
under this paragraph 3(c) shall be the value as determined by the Board of
Directors in good faith and with due care, unless the holders of a majority
of the outstanding shares of Series B Preferred Stock shall object thereto in
writing within 15 days after the date of such notice. In the event of such
objection, the valuation of such assets for purposes of such distribution
shall be determined by an arbitrator selected by the objecting stockholders
and the Board of Directors, or in the event a single arbitrator cannot be
agreed upon within 10
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<PAGE>
days after the written objection sent by the objecting stockholders in
accordance with the previous sentence, the valuation of such assets shall be
determined by arbitration in which (i) the objecting stockholders shall name
in their notice of objection one arbitrator, (ii) the Board of Directors
shall name a second arbitrator within 15 days from the receipt of such
notice, (iii) the two arbitrators thus selected shall select a third
arbitrator, and (iv) the three arbitrators thus selected shall determine the
valuation of such assets for purposes of such distribution by majority vote.
The costs of such arbitration shall be borne by the Company and by the
holders of the Series B Preferred Stock (on a pro rata basis out of the
assets otherwise distributable to them) as follows: (i) if the valuation as
determined by the arbitrators is greater than 90% of the valuation as
determined by the Board of Directors, the holders of the Series B Preferred
Stock shall pay the costs of the arbitration, and (ii) otherwise, the Company
shall bear the costs of the arbitration.
Section 4. Voting Rights.
(a) Except as otherwise expressly provided herein (including without
limitation the provisions of Sections 4(b) and 4(c) below) or as required by
law, the holders of shares of the Series B Preferred Stock shall be entitled
to vote on all matters submitted to a vote of the holders of Common Stock,
voting together with the holders of Common Stock as a single class. Each
share of Series B Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Series
B Preferred Stock could be converted pursuant to the provisions of Section 5
hereof on the record date for determining the stockholders entitled to vote,
rounded to the nearest one-tenth of a vote..
(b) So long as any shares of Series B Preferred Stock are outstanding, the
consent of the holders of at least a majority of the outstanding shares of
Series B Preferred Stock, given in person or by proxy, either in writing (if
permitted by law) or at a special meeting called for that purpose, at which
the holders of Series B Preferred Stock shall vote separately as a class,
shall be necessary for effecting, validating or authorizing any one or more
of the following:
(i) the amendment, alteration or repeal of any of the provisions
of the Articles of Organization, as amended, of the Company, or any
amendment thereto or any other certificate filed pursuant to law
(including any such amendment, alteration or repeal effected by any
merger or consolidation to which the Company is a party), which would
adversely affect any of the rights, powers, privileges or preferences
of outstanding shares of Series B Preferred Stock;
(ii) the authorization or issuance of any additional class of stock
or equity security ranking prior to or on a parity with the Series B
Preferred Stock as to liquidation preference or dividend rights or
prior to the Series B Preferred Stock as to voting rights, or any
increase in the authorized amount of any class of stock ranking prior
to or on a parity with the Series B Preferred Stock as to liquidation
preference or dividend rights (including any such authorization or
increase effected by a merger or consolidation to which the Company is
a party and including any increase in the authorized amount of
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<PAGE>
Series B Preferred Stock); provided, however, that this restriction
shall not apply to any such authorization or issuance of Common stock
or the Company's Series A Junior Participating Preferred Stock (the
"Series A Preferred Stock") issued upon exercise of Rights issued
pursuant to the Rights Agreement (as defined below);
(iii) for a period of two years commencing on the date of the
filing of this vote, the purchase, redemption or acquisition (or
payment into or setting aside for a sinking fund for any such purpose)
of any of the Common stock of any class or any other capital stock or
equity security of the Company (other than the Series B Preferred
Stock in accordance with the terms hereof); provided, however, that
this restriction shall not apply to the repurchase of shares of Common
Stock issued pursuant to the Company's employee benefit or option
plan; and, provided, further, that this restriction shall not apply
to redemptions of Common Stock of the Company in any 6 month period
not in excess of $100,000; or
(iv) the approval of a merger, consolidation, liquidation or sale
of all or substantially all of the assets of the Company or other
similar transaction that would result in a holder of Series B
Preferred Stock receiving an amount less than (A) $14.00 per then
outstanding share of Series B Preferred Stock (adjusted appropriately
for stock splits, stock dividends and the like) through March 31, 1991
or (B) $18.00 per then outstanding share of Series B Preferred Stock
(adjusted appropriately for stock splits, stock dividends and the like)
commencing on April 1, 1991 and thereafter, in the case of (A) or (B)
above, on a converted basis or otherwise.
(c) So long as at least a majority of the authorized shares of the Series
B Preferred Stock shall remain outstanding, the holders of the Series B
Preferred Stock shall be entitled to vote as a class separately from all
other classes of stock of the Company to elect one member of the Company's
Board of Directors.
Section 5. Conversion.
(a) Subject to and in compliance with the provisions of this Section 5,
shares of the Series B Preferred Stock may, at the option of the holder
thereof, be converted at any time or from time to time into fully-paid and
non-assessable shares of Common Stock. The number of shares of Common Stock
to which a holder of the Series B Preferred Stock shall be entitled upon
conversion shall be the product obtained by multiplying the Conversion Rate
(determined as provided in paragraph 5(b)) by the number of shares of Series
B Preferred Stock being converted.
(b) The conversion rate in effect at any time with respect to the Series B
Preferred Stock (the "Conversion Rate") shall equal (i) the quotient obtained
by dividing the Initial Value (as hereinafter defined) by the Conversion
Value, calculated as hereinafter provided or (ii) that amount calculated as
set forth in Section 5(m)(ii) or 5(m)(iii), if applicable.
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<PAGE>
(c) The Initial Value with respect to the Series B Preferred Stock is
$7.00. The Conversion Value in effect initially, and until first adjusted in
accordance with Sections 5(d) or 5(m) hereof, shall be $7.00.
(d)Upon the happening of an Extraordinary Common Stock Event (as define d
below), the Conversion Value, simultaneously with the happening of such
Extraordinary common Stock Event, shall be adjusted by dividing the then
effective Conversion Value by a fraction, the numerator of which shall be the
number of shares of Common Stock of all classes outstanding immediately after
such Extraordinary Common Stock Event and the denominator of which shall be
the number of shares of Common stock of all classes outstanding immediately
prior to such Extraordinary Common Stock Event, and the quotient so obtained
shall thereafter be the Conversion Value. The Conversion Value as so
adjusted, shall be re-adjusted in the same manner upon the happening of any
subsequent Extraordinary Common Stock Event or Events.
(e) In the event the Company 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 Company other than shares
of Common Stock, then and in each such event lawful and adequate provision
shall be made so that the holders of Series B Preferred Stock shall receive
the number of securities of the Company which they would have received had
their Series B Preferred Stock been converted into Common Stock pursuant to
the provisions of this Section 5 on the date of such event.
(f) If the Common Stock issuable upon the conversion of the Series B
Preferred Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by 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 elsewhere in this Section 5), then and in each
such event the holder of each share of Series B 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 shares of
Common Stock into which such shares of Series B Preferred Stock might have
been converted immediately prior to such reorganization, reclassification or
change, all subject to further adjustment as provided herein.
(g) If at any time or from time to time there shall be a reclassification
of the Common Stock (other than a subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section 5) or a merger
or consolidation of the Company with or into another corporation or the sale
of all or substantially all of the Company's properties and assets to any
other person, or other similar transaction, then, as a part of and as a
condition to the effectiveness of such reorganization, merger, consolidation
or sale, lawful and adequate provision shall be made so that each holder of
Series B Preferred Stock shall thereafter be entitled to receive upon
conversion of such holder's shares of Series B Preferred Stock the number of
shares of stock, or the amount of other securities or property of the Company
or of the successor corporation resulting from such merger or consolidation
or sale, to which a holder of Common Stock deliverable upon conversion of
such shares of Series B Preferred Stock would have been entitled
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<PAGE>
on such capital reorganization, merger, consolidation, or sale. In any such
case, appropriate provisions shall be made with respect to the rights of the
holders of the Series B Preferred Stock after the reorganization, merger,
consolidation or sale such that the provisions of this Section 5 (including
without limitation provisions for adjustment of the Conversion Value and the
number of shares issuable upon conversion of the Series B Preferred Stock)
shall thereafter be applicable, as near-ly as may be possible, with respect
to any shares of stock, securities or assets to be deliverable thereafter
upon the conversion of the Series B Preferred Stock of such series.
Each holder of Series B Preferred Stock, upon the occurrence of a capital
reorganization, merger or consolidation of the Company or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 5(g), shall have the option of
electing treatment of his outstanding shares of Series B Preferred Stock
under either this Section 5(g) or Section 3(b) hereof, notice of which
election shall be submitted in writing to the Company at its principal office
no later than 10 days before the effective date of such event, provided that,
notwithstanding the foregoing, any such notice shall be effective if given
not later than 15 days after the date of the Company's notice, pursuant to
Section 8, with respect to such event.
(h) In each case of an adjustment or readjustment of the Conversion Rate,
the Company will furnish each holder of Series B Preferred Stock with a
certificate, prepared by the principal financial officer of the Company,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
(i) To exercise his conversion privilege, a holder of Series B Preferred
Stock shall surrender the certificate or certificates representing the shares
being converted to the Company at its principal office, and shall give
written notice to the Company at that office that such holder elects to
convert such shares. Such notice shall also state the name or names (with
address or addresses) in which the certificate or certificates for shares of
Common Stock issuable upon such conversion shall be issued. The certificate
or certificates for shares of Series B Preferred Stock surrendered for
conversion shall be accompanied by proper assignment thereof to the Company
or endorsed in blank. The date when such written notice is received by the
Company together with the certificate or certificates representing the shares
of Series B Preferred Stock being converted, shall be the "Conversion Date."
As promptly as practicable after the Conversion Date, the Company shall issue
and deliver to the holder of the shares of Series B Preferred Stock being
converted, or on his written order, such certificate or certificates as he
may request for the number of full shares of Common Stock issuable upon the
conversion of such shares of Series B Preferred Stock in accordance with the
provisions of-this Section 5 and cash as provided in Section 5(j), in respect
of any fraction of a share of Common Stock issuable upon such conversion.
Such conversion shall be deemed to have been effected immediately prior to
the close of business on the Conversion Date, and at such time the rights of
the holder as holder of the converted shares of Series B Preferred Stock
shall cease and the person or persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such
conversion shall thereupon be deemed to have become the holder or holders of
record of
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shares of Common Stock represented thereby.
(j) No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of Series B Preferred Stock. Instead
of any fractional shares of Common Stock which would otherwise be issuable
upon conversion of Series B Preferred Stock, the Company shall pay to the
holder of the shares of Series B Preferred Stock which were converted a cash
adjustment in respect of such fraction in an amount equal to the same
fraction of the market price per share of the Common Stock (as determined in
a manner prescribed by the Board of Directors) at the close of business on
the Conversion Date.
(k) The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series B Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series B Preferred
Stock, and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, the Company shall take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(l) "Extraordinary Common Stock Event" shall mean (i) the issuance of
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) the subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) the
combination of outstanding shares of the Common Stock of any class into a
smaller number of shares of the Common Stock.
(m) (i) If, for the period commencing on the first business day following
the public announcement or disclosure of the Company's earnings
with respect to the Company's fiscal year ending March 31, 1990
and ending on the loth business day thereafter, the average
Closing Price (as defined below) of the Company's Common Stock
per share (the "FY90 Average Close") is less than the then
effective Conversion Value, the FY90 Average Close shall become
the new Conversion Value;
(ii) (A) If, for the period commencing on the first business day
following the public announcement or disclosure of the Company's
earnings with respect to the Company's fiscal year ending
March 31, 1992 and ending on the loth business day
thereafter, the average Closing Price of the Company's Common Stock
per share (the "FY92 Average Close") is less than the fraction the
numerator of which is $14.00 and the denominator of which is the
then effective Conversion Rate, (a) the Conversion Rate in effect
immediately after any adjustment required by this Section
5(m)(ii)(A) shall equal the sum of the then effective Conversion
Rate plus K (as
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defined below), and (b) the Conversion Value in effect immediately
after any adjustment required by this Section 6(m)(ii)(A) shall
equal the fraction the numerator of which is the Initial Value
and the denominator of which is the Conversion Rate in effect
immediately after any adjustment required by this Section
5(m)(ii)(A);
For the purposes of this Section 5(m)(ii)(A), K shall prior to
any adjustment pursuant to this sentence equal .25 and shall be
adjusted simultaneously with the happening of an Extraordinary
Common Stock Event, by multiplying the then effective K by a
fraction, the numerator of which shall be the number of shares
of Common Stock of all classes outstanding immediately after
such Extraordinary Common Stock Event and the denominator of
which shall be the number of shares of Common Stock of all
classes outstanding immediately prior to such Extraordinary
Common Stock Event, and the product so obtained shall
thereafter be K. K, as so adjusted, shall be readjusted in the
same manner upon the happening of any subsequent Extraordinary
Common Stock Event or Events.
(B) If the FY92 Average Close is (l) less than the fraction the
numerator of which is $18.00 and the denominator of which is
the then effective Conversion Rate and (2) greater than the
fraction the numerator of which is $14.00 and the
denominator of which is the then effective Conversion
Rate, (a) the Conversion Rate in effect immediately after
any adjustment required by this Section 5(m)(ii)(B) shall
equal the sum of (1) the then effective Conversion Rate,
plus (2) the product of (I) the then effective Conversion
Rate divided by 16, and (II) the difference of (i) 18
divided by the then effective Conversion Rate less
(ii) the FY92 Average Close and (b) the Conversion Value
in effect immediately after any adjustment required by
this Section 5(m)(ii)(B) shall equal the fraction the
numerator of which is the Initial Value and the
denominator of which is the Conversion Rate in effect
immediately after any adjustment required by this Section
5(m)(ii)(B);
(iii) If, for the period commencing on the first business day
following the public announcement or disclosure of the
Company's earnings with respect to the Company's fiscal
year ending March 31, 1993 and ending on the 20th business
day thereafter, the average Closing Price of the Company's
Common Stock per share (the "FY93 Average Close") is less
than Conversion Value in effect as of the date of issuance
of the Series B Preferred Stock (adjusted for any
Extraordinary Common Stock Events), and the Series B
Effective
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Price (as defined below) is greater than the FY93 Average
Close, (a) the Conversion Rate then in effect shall be
adjusted such that the Conversion Rate in effect
immediately after any adjustment required by this Section
5(m)(iii) shall equal the fraction the numerator of which
is the product of the (1) Conversion Value in effect as of
the date of issuance of the Series B Preferred Stock,
(adjusted for any Extraordinary Common Stock Events) and
(2) 2, and the denominator of which is the sum of (1) the
Series B Effective Price and (2) the lesser of (x) the
Series B Effective Price and (y) the product of the FY93
Average Close times 1.1 and (b) the Conversion Value in
effect immediately after any adjustment required by this
Section 5(m)(iii) shall equal the fraction the numerator
of which is the Initial Value and the denominator of which
is the Conversion Rate in effect immediately after any
adjustment required by this Section 5(m)(iii).
For the purposes of this Section 5(m)(iii), Series B
Effective Price shall equal the fraction the numerator of
which is the Conversion Value in effect as of the date of
issuance of the Series B Preferred Stock, (adjusted for any
Extraordinary Common Stock Events), and the denominator of
which is the Conversion Rate then in effect immediately
prior to any adjustment required by this Section 5(m)(iii).
For the purposes of this Section 5(m), the Closing Price for any day
shall mean, for each day while such stock is listed on a national securities
exchange or quoted on the National Association Securities Dealers National
Market System, the last reported sale price or, in case there is no such
reported sale on any day, the mean between the reported closing bid and asked
prices on such day. If the Common Stock is not so listed or quoted, the
Closing Price for each day shall mean the mean between the closing bid and
asked prices in the over-the-counter market in which the Common Stock is
traded.
(n) Whenever the Company shall issue shares of Common Stock upon
conversion of shares of Series B Preferred Stock as contemplated by this
Section 5, the Company shall issue together with each such share of Common
Stock, one right to purchase one one-hundredth of a share of Series A
Preferred Stock of the Company (or other securities in lieu thereof) pursuant
to the Rights Agreement dated as of July 15, 1988 (the "Rights Agreement"),
between the Company and The First National Bank of Boston as Rights Agent, as
such Rights Agreement may from time to time be amended, or any rights issued
to holders of Common Stock of the Company in addition thereto or in
replacement therefor, whether or not such rights shall be exercisable at such
time, but only if such rights are issued and outstanding and held by other
holders of Common Stock of the Company at such time and have not expired.
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Section 6. Redemption at the Option of the Company.
(a) Subject to the rights of each holder of Series B Preferred Stock to
exercise his conversion rights as set forth in Section 5 and elsewhere in
this Vote, the Company shall have the option at any time and from time to
time to redeem not less than 20% of the then outstanding shares of the Series
B Preferred Stock, out of funds legally available therefor, pro rata from
each holder of Series B Preferred Stock at a purchase price per share of
Series B Preferred Stock of $21.00 (adjusted appropriately for stock splits,
stock dividends and the like with respect to the Series B Preferred Stock)
(the "Redemption Price").
(b) Unless otherwise required by law, notice of redemption will be sent
to the holders of Series B Preferred Stock at the address shown on the books
of the Company or the transfer agent for the Series B Preferred Stock by
first-class mail, postage prepaid, mailed not less than 20 nor more than 60
days prior to the redemption date. Each such notice shall state: (i) the
redemption date; (ii) the redemption price; (iii) the place or places where
certificates for such shares are to be surrendered for payment of the
redemption price; and (iv) the conversion rights of the shares to be
redeemed, the period within which conversion rights may be exercised, and the
Conversion Rate and number of shares of Common Stock issuable upon conversion
of a share of Series B Preferred Stock on the date such notice is sent. From
and after the redemption date, so long as the holders of Series B Preferred
Stock shall have received the amounts set forth in Section 6(a) or provision
for the payment of such amounts has been made in a manner reasonably
satisfactory to such holders, all rights of the holders of the Series B
Preferred Stock with respect to those shares of Series B Preferred Stock
designated for redemption in the notice (except the right to receive the
Redemption Price, if not previously paid, upon surrender of the certificates
for such shares so called for redemption and not previously converted
(properly endorsed or assigned for transfer, if the Board of Directors of the
Company shall so require and the notice shall so state)), shall cease and
such shares shall not thereafter be transferred on the books of the Company
or be deemed to be outstanding for any purpose whatsoever.
(c) Notwithstanding anything contained in this Section 6 to the contrary,
each holder of Series B Preferred Stock shall up to and including the day
immediately preceding the date fixed for redemption in the redemption notice
described in Section 6(b) above, have the right to convert all or any part of
the shares of Series B Preferred Stock held by such holder into Common Stock
in accordance with Section 5 hereof.
Section 7. No Reissuance of Preferred Stock. No share or shares of the
Series B Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares
shall be canceled, retired, and eliminated from the shares which the Company
shall be authorized to issue. The Company may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized
number of shares of the Series B Preferred Stock accordingly.
Section 8. Notices of Record Date. In the event (i) the company
establishes a record date
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to determine the holders of any class of securities who are entitled to
receive any dividend or other distribution, or (ii) there occurs any capital
reorganization of the Company, any reclassification or recapitalization of
the capital stock of the Company, any merger or consolidation of the Company,
and any transfer of all or substantially all of the assets of the Company to
any other corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Company, the
Company shall mail to each holder of Series B Preferred Stock at least 20
days prior to the record date specified therein, a notice specifying (a) the
date of such record date for the purpose of such dividend or distribution and
a description of such dividend or distribution, (b) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and
(c) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up.
Section 9. Other Rights. Except as otherwise provided in this Vote,
shares of Series B Preferred Stock and shares of Common Stock shall be
identical in all respects (each share of Series B Preferred Stock having
equivalent rights to the number of shares of Common Stock into which it is
then convertible), shall have the same powers, preferences and rights,
without preference of any such class or share over any other such class or
share, and shall be treated as a single class of stock for all purposes.
Section 10. Ranking.
The Series B Preferred Stock shall rank senior to the Common Stock and to
the Series A Preferred Stock as to the distribution of assets on liquidation,
dissolution and winding up of the Company.
Section 11. Miscellaneous.
(a) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of delivery
thereof by hand delivery, by courier, or by standard form of
telecommunication or three (3) business days after the mailing thereof if
sent registered mail (unless first-class mail shall be specifically permitted
for such notice under the terms hereof) with postage prepaid, addressed: (i)
if to the Company, to its office at Ten Canal Park, Cambridge, Massachusetts
02141 (Attention: Clerk) and to the transfer agent, if any, for the Series B
Preferred Stock or other agent of the Company designated as permitted hereby
or (ii) if to any holder of the Series B Preferred Stock or Common Stock, as
the case may be, to such holder at the address of t such holder as listed in
the stock record books of the Company (which may include the records of any
transfer agent for the Series B Preferred Stock or Common Stock, as the case
may be) or (iii) to such other address as the Company or any such holder, as
the case may be, shall have designated by notice similarly given.
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<PAGE>
(b) The term "Common Stock" as used in this Vote means the Company's
Common Stock, $.0l par value, as the same exists at the date of filing of a
Certificate of vote of Directors Establishing a Series of a Class of Stock
relating to Series B Preferred Stock or any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value. In the event that, at any time as a result of an
adjustment made pursuant to Section 5 hereof, the holder of any shares of the
Series B Preferred Stock upon thereafter surrendering such shares for
conversion shall become entitled to receive any shares or other securities of
the Company other than shares of Common Stock, the Conversion Rate in respect
of such other shares or securities so receivable upon conversion of shares of
Series B Preferred Stock shall thereafter be adjusted, and shall be subject
to further adjustment from time to time, in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock
contained in Section 5 hereof, and the remaining provisions of this Vote with
respect to the Common Stock shall apply on like or similar terms to any such
other shares or securities.
(c) The Company shall pay any and fall stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of
shares of Series B Preferred Stock or shares of Common Stock or other
securities issued on account of Series B Preferred Stock pursuant hereto or
certificates representing such shares or securities. The Company shall not,
however, be required to pay any such tax which may be payable in respect of
any transfer involved in the issuance or delivery of shares of Series B
Preferred Stock or Common Stock or other securities in a name other than that
in which the shares of Series B Preferred Stock with respect to which such
shares or other securities are issued or delivered were registered, or in
respect of any payment to any person with respect to any such shares or
securities other than a payment to the registered holder thereof, and shall
not be required to make any such issuance delivery or payment unless and
until the person otherwise entitled to such issuance, delivery or payment has
paid to the Company the amount of any such tax or has established, to the
satisfaction of the Company, that such tax has been paid or is not payable.
(d) In the event that a holder of shares of Series B Preferred Stock shall
not by written notice designate the name in which shares of Common Stock to
be issued upon conversion of such shares should be registered or to whom
payment upon redemption of shares of Series B Preferred or the address to
which the certificate or representing such shares, or such payment, Company
shall be entitled to register such payment, in the name of the holder of
Preferred Stock as shown on the records of Stock should be made certificates
should be sent, the shares, and make such Series B the Company and to send
the certificate or certificates representing such shares, or such payment, to
the address of such holder listed in the stock record books of the Company
(which may include the records of any transfer agent for the Series B
Preferred Stock or Common Stock, as the case may be).
(e) The Company may appoint, and from time to time discharge and change, a
transfer agent of the Series B Preferred Stock. Upon any such appointment or
discharge of a
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<PAGE>
transfer agent, the Company shall send notice thereof by hand delivery, by
courier, by standard form of telecommunication or by first class mail
(postage prepaid), to each holder of record of Series B Preferred Stock.
(f) Series B Preferred Stock may be issued, converted and redeemed in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions, exercise conversion rights and to have the
benefit of all other rights of holders of Series B Preferred Stock.
Fractions of a share of Series B Preferred Stock so redeemed shall be
redeemed at the appropriate percentage of the per share price otherwise
determined in accordance with the terms hereof.
IN WITNESS WHEREOF AND UNDER TH E PENALTIES OF PERJURY, we have hereto
signed. our names this 28th day of September in the year 1989
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<PAGE>
/s/ David A. Boucher , President/
- ------------------------------------------
/s/ John K. Hyvnar , Clerk/
- ------------------------------------------
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<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Certificate of Vote of Directors Establishing
A Series of a Class of Stock
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and, the filing fee in
the amount of $ having been paid, said certificate
is hereby filed this day of September, 1989.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF CERTIFICATE TO BE SENT
TO:
Christopher P. Holsing, Esq.
----------------------------------------
Hale and Dorr
----------------------------------------
60 State Street
----------------------------------------
Boston, MA 02109
----------------------------------------
Telephone: (617)742-9100 Ext. 2514
----------------------------
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<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State Federal Identification
ONE ASHBURTON PLACE, BOSTON, MA 02108 No. 04-2729042
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
We, Mark K. Ruport , President, and
John K. Hyvnar , Clerk of
Interleaf, Inc.
(Name of Corporation)
located at Prospect Place, 9 Hillside Avenue, Waltham, MA 02154
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles
Numbered: 3 of the Articles of Organization were duly adopted at a meeting held
on August 5, 1993, by vote of:
9,401,786 shares of Common Stock out of 13,254,902 shares outstanding,
1,928,572 shares of Senior Series B Convertible out of 13,1,928,572 shares
outstanding, and
shares of Preferred Stock out of shares outstanding,
CROSS OUT
INAPPLICABLE
CLAUSE voting together as a single class pursuant to Section 8(b) of
M.G.L. c.156B, being at least a majority of such class
outstanding and entitled to vote thereon. Each share of
Common Stock carries 1 vote, and each share of Senior
Series B Convertible Preferred Stock carries 1.34375 votes.
Accordingly, these Articles of Amendment were approved by
vote of 11,993,304 votes, out of a possible total of
15,846,420 votes.
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
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<PAGE>
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions
to more than one Amendment may be continued on a single sheet so long as each
article requiring each such addition is clearly indicated.
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<PAGE>
To CHANGE the number of shares and the par value (if any) of any type, class
or series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ----------------------------------- ------------------------------------
TYPE Number of Shares TYPE Number of
Shares Par Value
- ----------------------------------- ------------------------------------
Common Common 20,000,000 $.01
- ----------------------------------- ------------------------------------
Preferred Preferred: 50,000,000 $.10
Series A
Junior
Participating 200,000 $.10
- ----------------------------------- ------------------------------------
Series B
Senior
Convertible 2,142,857 $.10
------------------------------------
Change the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ----------------------------------- ------------------------------------
TYPE Number of Shares TYPE Number of
Shares Par Value
- ----------------------------------- ------------------------------------
Common Common 30,000,000 $.01
- ----------------------------------- ------------------------------------
Preferred Preferred: 5,000,000 $.10
Series A
Junior
Participating 200,000 $.10
- ----------------------------------- ------------------------------------
Series B
Senior
Convertible 2,142,857 $.10
------------------------------------
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The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such
filing, in which event the amendment will become effective on such later
date.
EFFECTIVE DATE:________________________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto
signed our names this day of in the year
1993.
Mark K. Ruport President/
- ------------------------------------------------------------------
John K. Hyvnar Clerk/
- ------------------------------------------------------------------
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<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
I hereby approve the within articles of amendment
and, the filing fee in the amount of $
having been paid, said articles are deemed to have been
filed with me this day of ,
1993.
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO:
John K. Hyvnar, General Counsel
---------------------------------
Interleaf, Inc.
---------------------------------
Prospect Place, 9 Hillside Avenue
---------------------------------
Waltham, MA 02154
---------------------------------
Telephone: (617)290-0710
---------------------------------
<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.
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
(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 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
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<PAGE>
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.
(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
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<PAGE>
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 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
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<PAGE>
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:
(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.
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<PAGE>
(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 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,
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<PAGE>
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 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
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<PAGE>
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
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
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<PAGE>
(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, 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
-10-
<PAGE>
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
(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.
-11-
<PAGE>
(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.
(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
-12-
<PAGE>
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.
(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;
-13-
<PAGE>
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
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
-14-
<PAGE>
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 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
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<PAGE>
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 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,
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<PAGE>
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 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.
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<PAGE>
Exhibit 10(r)
November 11, 1996
Mr. Robert M. Stoddard
18 Lanark Road
Wellesley, MA 02181
Dear Bob:
This letter will confirm your employment agreement with Interleaf, Inc.
("Company"). You will commence employment with the Company effective November
11, 1996. Upon the resignation of the Company's current Chief Financial Officer,
you are elected and appointed the Company's Vice President of Finance and
Administration, and Chief Financial Officer on an interim basis. From the date
your employment commences, you will receive bi-weekly compensation of $12,000
per period. In addition, you will participate at 40% in the Officer Retention
Bonus Plan ("ORBP") except that the portion of the ORBP pertaining to achieving
revenue will not apply to you. If the ORBP is in any way materially changed or
modified to your detriment, we will, in good faith, negotiate an alternative
compensation opportunity.
You will directly report to the Operating Committee, and to the Board of
Directors. You will inform the Board of resources required to discharge your
duties, and the Board will reasonably provide you with such resources.
It is currently the mutual intent that you are to provide your services under
this agreement until the earlier of one month after a "Change of Control" or
6/1/97. However, you agree that you may be terminated at any time for any
reason, and that you shall receive 30 days prior written notice of such
termination, except if terminated for cause for which no notice need be
provided. You will participate in the Officer Severance Plan dated March 13,
1989, which will supersede the above notice provision if applicable.
You will be covered by the Company's Agreement to Defend and Indemnify, and
receive health, medical, 401(k) and other fringe benefits normally provided to
Interleaf employees.
Very truly yours,
/s/Clinton P. Harris
- --------------------
Clinton P. Harris
Chairman, Compensation Committee
Agreed:
/s/Robert M. Stoddard
- ----------------------
Robert M. Stoddard 11/11 /96
<PAGE>
Exhibit 10(s)
November 15, 1996
Mr. Rory Cowan
281 Fairhaven Road
Concord, MA 01742
Dear Rory:
This letter will confirm your employment agreement with Interleaf, Inc.
("Company"). You have been elected and appointed the Company's President and
Chief Executive Officer on an interim basis. From the date your appointment
commences, November 15, 1996, you will receive bi-weekly compensation of
$4,615.00 per period. It is agreed that you will work at least 2 days a week for
the Company, and that it is our current mutual intent that your appointment
continue for a period of at least two months. Should greater time and effort be
required of you, your compensation will be adjusted on a pro-rata basis. You are
also awarded an option to purchase 50,000 shares at an exercise price of $2.05
per share, with a vesting period of two months, all granted under the Company's
1993 Stock Option Plan. Once your option has vested, you shall have eighteen
(18) months to exercise it from the date you terminate your employment with the
Company. You also agree that you will not be covered by the Company's Officer
Severance Benefit Plan.
You will directly report to the Board of Directors.
The Company will also provide you with administrative support, at your
election.
You shall receive no Company provided benefits.
Very truly yours,
/s/Clinton Harris
- ---------------------
Clinton P. Harris
Chairman, Compensation Committee
Agreed:
/s/ Rory Cowan
- -----------------------
Rory Cowan 11/15/96
<PAGE>
Exhibit 10(t)
November 15, 1996
Mr. Mark H. Cieplik
Interleaf, Inc.
62 Fourth Avenue
Waltham, MA 02154
Dear Mark:
The Board of Directors has elected you to the Office of the President. You shall
report directly to the Company's interim President, Rory Cowan. Your annual
compensation shall continue as currently constructed, but you shall receive six
months of your base salary, along with your standard benefits, if you are
terminated by the Company, except for cause. This severance provision will
commence April 19, 1997.
This severance package will not apply if you are terminated and severance
benefits are provided to you under the Company's Officer Severance Benefit Plan.
You shall also receive a bonus of $50,000 if the Company achieves its revenue
target of $16.7 million for the quarter ending December 30, 1996, and a bonus
of $50,000 for the quarter ending March 30, 1997, if the Company achieves its
revenue target of $16.3 million for such quarter.
In addition, you shall receive a bonus of $150,000, payable in four equal
quarterly installments, commencing October 1, 1997, if you remain with the
Company until June 30, 1997. If you voluntarily leave prior to that date, you
shall receive no bonus. If you are terminated by the Company for any reason but
cause prior to June 30, 1997, you shall immediately receive an amount equal to
$20,000 per month for each full month you have been employed by the Company,
starting December 1, 1996. For the month of November 1996, you shall receive
$10,000.
Very truly yours,
/s/Rory Cowan
- -------------
Rory Cowan
President and Chief Executive Officer
<PAGE>
Exhibit 10(u)
November 15, 1996
Mr. Michael L. Shanker
Interleaf, Inc.
62 Fourth Avenue
Waltham, MA 02154
Dear Mike:
The Board of Directors has elected you to the Office of the President. You shall
report directly to the Company's interim President, Rory Cowan. Your annual
compensation shall continue as currently constructed, but you shall receive six
months of your base salary, along with your standard benefits, if you are
terminated by the Company, except for cause.
This severance package will not apply if you are terminated and severance
benefits are provided to you under the Company's Officer Severance Benefit Plan.
You shall also receive a bonus of $50,000 if the Company achieves its revenue
target of $16.7 million for the quarter ending December 30, 1996, and a bonus
of $50,000 for the quarter ending March 30, 1997, if the Company achieves its
revenue target of $16.3 million for such quarter.
In addition, you shall receive a bonus of $150,000, payable in four equal
quarterly installments, commencing October 1, 1997, if you remain with the
Company until June 30, 1997. If you voluntarily leave prior to that date, you
shall receive no bonus. If you are terminated by the Company for any reason but
cause prior to June 30, 1997, you shall immediately receive an amount equal to
$20,000 per month for each full month you have been employed by the Company,
starting December 1, 1996. For the month of November 1996, you shall receive
$10,000.
Very truly yours,
/s/ Rory Cowan
________________
Rory Cowan
President and Chief Executive Officer
<PAGE>
Exhibit 10(v)
November 15, 1996
Mr. Stephen J. Hill
Interleaf, Inc.
62 Fourth Avenue
Waltham, MA 02154
Dear Stephen:
The Board of Directors has elected you to the Office of the President. You shall
report directly to the Company's interim President, Rory Cowan. Your annual
compensation shall continue as currently constructed, but you shall receive six
months of your base salary, along with your standard benefits, if you are
terminated by the Company, except for cause.
This severance package will not apply if you are terminated and severance
benefits are provided to you under the Company's Officer Severance Benefit Plan.
You shall also receive a bonus of $50,000 if the Company achieves its revenue
target of $16.7 million for the quarter ending December 30, 1996, and a bonus
of $50,000 for the quarter ending March 30, 1997, if the Company achieves its
revenue target of $16.3 million for such quarter.
In addition, you shall receive a bonus of $150,000, payable in four equal
quarterly installments, commencing October 1, 1997, if you remain with the
Company until June 30, 1997. If you voluntarily leave prior to that date, you
shall receive no bonus. If you are terminated by the Company for any reason but
cause prior to June 30, 1997, you shall immediately receive an amount equal to
$20,000 per month for each full month you have been employed by the Company,
starting December 1, 1996. For the month of November 1996, you shall receive
$10,000.
Very truly yours,
/s/Rory Cowan
- -------------
Rory Cowan
President and Chief Executive Officer
<PAGE>
Exhibit 10(w)
November 15, 1996
Mr. Ed Koepfler
130 Braymore Court
Barrington, IL 60010
RE: Resignation Agreement and Release
Dear Ed:
This letter contains the terms of your resignation from Interleaf effective
November 15, 1996 ("Resignation Date") as Interleaf's President and Chief
Executive Officer and officer of various Interleaf subsidiaries. If you sign the
release contained below, return it to me within forty-five (45) days of your
receipt of this letter, and do not revoke it within seven (7) days of signing
it, the Company's Employment Agreement with you will be effective as of November
15, 1996.
In addition, your health, dental, life and disability insurance coverage will
continue while you are an employee, pursuant to the Employment Agreement.
Thereafter, you have the option of continuing your present coverage under the
COBRA provision through Interleaf's group plan at your own expense for up to 18
months, or until you have the option of obtaining coverage through other
employment, whichever comes first. You have sixty (60) days from receipt of your
last payment under your Employment Agreement to elect this coverage, at
Interleaf's then current COBRA rates.
To exercise your continuation option, you must pay retroactively to your last
day of coverage. Subsequent payments require the monthly amount to be paid,
prior to the first day of the month for which coverage is to be purchased.
Failure to make a payment on time will result in automatic removal from the
Interleaf Insurance Plan.
You will be notified by EBPA of your option to continue coverage. EBPA will also
provide the necessary forms to complete in order to elect continued coverage.
Please keep in mind that the continuation option refers only to your health and
dental benefits.
You have been granted three options to purchase a total of 500,000 shares of
Interleaf common stock. At November 15, 1996, you are currently vested in
options covering 168,750 shares; the remainder vest over the next 2-4 years. The
Compensation Committee has decided to accelerate some of your other options so
that you will be vested in 300,000 shares at an exercise price of $2.56, the
September 12, 1996 repricing. You forfeit all rights to your options covering
the remaining 200,000 shares, effective November 15, 1996.
<PAGE>
Please notify, in writing, the Human Resources Department of any change of
address through 1996 and 1997. Your W-2 form and any further correspondence will
be sent to the most recent address on file.
Please review the following information, sign and return to me within 45 days.
Sincerely yours,
/s/ Clinton P. Harris
______________________
Clinton P. Harris
Chairman, Compensation Committee
cc: David Boucher
Fred Bamber
Rory Cowan
_______________________________________________________________________________
Release
In consideration of receiving compensation and benefits hereunder, I hereby
forever release Interleaf, Inc., its directors, officers, and employees
("Interleaf") from any and all demands, claims and causes of actions which I
have or may have against Interleaf arising out of or in any way related to my
employment with Interleaf, including but not limited to, Federal, State or local
discrimination laws, regulations, executive orders or other requirements
including any actions related to age (including any claims related to ADEA),
sex, sexual orientation, race or handicap discrimination, except for payments
and benefits I am to receive under the Employment Agreement, dated November 15,
1996.
I agree that I have read the foregoing, have been given the opportunity to have
it reviewed by an attorney of my choice and agree to the conditions and
obligations as set forth. I understand that I have 7 days from the date of
execution to revoke this agreement.
/s/ Ed Koepfler
_________________
Ed Koepfler Date: 11/15/96
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of this 15th day of November,
1996 by and between Ed Koepfler (the "Employee"), and Interleaf, Inc., a
Massachusetts corporation with its principal place of business in Waltham,
Massachusetts (the "Company").
WITNESSETH
WHEREAS, the Employee has been a senior officer and employee of the Company;
WHEREAS, the Employee has resigned as a senior officer of the Company effective
November 15, 1996;
WHEREAS, the Company deems it necessary and appropriate to continue to employ
the Employee as an employee, and to perform the service provided herein,
NOW, THEREFORE, in consideration of the promises and undertakings of the parties
more particularly set forth hereinafter, and for other good and valuable
consideration, the parties agree as follows:
3. Duties. During the Term, as defined in paragraph 4 below, the
Company hereby employs the Employee to render such management advice in
connection with the operation of the business of the Company as the Company may
from time to time request, with reasonable notice. The Employee hereby accepts
such employment.
4. Non-Competition.
(a) Definitions
(i) Non-Competition Period means the continuous period of
twelve (12) months from the date hereof.
(ii) Participation or Participate means any direct or
indirect involvement as owner, part-owner, partner, director, officer,
employee, trustee, agent or consultant, or in any other capacity, except as
a passive minority stockholder, partner or beneficial owner.
(b) During the Non-Competition Period, unless otherwise
extended below, Employee will not, either directly or indirectly, do any of the
following:
(i) Participate with Adobe Software, Documentum, Inso, or
PC Docs whose activities, software products, and services are agreed to be
in direct or indirect competition with the Company's business;
(ii) Impair or attempt to impair the relationship,
contractual or otherwise, between the Company and any person who is a
supplier, customer or client of the Company; and
(iii) Solicit or request any current employee of the Company
to leave the Company for new employment in which the Employee shall
Participate.
<PAGE>
(b) Following the end of the Non-Competitive Period, the
Employee may compete with the Company provided that he does not intentionally
interfere with the Company's advantageous relations with its customers or
otherwise unfairly compete with the Company in violation of law.
(c) The foregoing restrictions shall apply in the United
States, Europe and Japan.
(d) Employee represents that the foregoing covenants will not
preclude him from earning a livelihood.
5. Employee's Compensation.
(a) As compensation to the Employee, the Company agrees to pay
the Employee biweekly the amount of $11,538 for a period of 12 months, totalling
$300,000, commencing on the date hereof, along with such health, dental, life,
and disability insurance, and 401(k) as are normally provided to Interleaf
senior executives. Vacation time shall not accrue. Thereafter, the Employee's
employment shall terminate. Employee agrees that this Employment Agreement is in
lieu of any payments Employee may receive under the Company's Employee Change in
Control Severance Benefit Plan or Officer Severance Benefit Plan. Provided the
Employee complies with the terms of this Agreement, he shall have the right to
obtain other employment and compensation provided hereunder shall not be reduced
by the Company. The Company may provide additional compensation if it deems
Employee's services necessary to its business.
(b) The Company promises to make all payments and provide all
benefits hereunder, and the Employee accepts such payments in full consideration
for, the discharge by the Employee of his duties and obligations hereunder, and
fulfill and comply with his obligations under the attached agreements.
(c) In lieu of compensation for any vacation time Employee
accrued as a senior officer, the Company shall forgive its $15,000 advance.
6. Term. The obligations of the Employee under paragraph 1 shall
commence on November 15, 1996, and continue through November 14, 1997.
7. Employee's Responsibility. The Employee, in the performance of
his duties and obligations under this Agreement, shall be responsible to the
President and Chief Executive Officer of the Company, and the Board of
Directors. The Employee agrees to render advisory and management services to the
Company and to diligently discharge such projects as may from time to time be
prescribed by the Company. Employee shall be reimbursed for his reasonable and
necessary expenses incurred in the performance of his duties hereunder. This
paragraph shall be subject to the provisions of paragraph 1 of this Agreement.
8. Confidentiality. Employee shall keep in strict confidence and not
disclose to any party any proprietary or confidential information of the Company
which he has currently or may obtain during the Term for a period of three (3)
years from the date hereof, unless such information becomes publicly available
without the disclosure of Employee.
<PAGE>
9. Severability; Separate Agreements.
(a) The Employee and the Company agree that the provisions
contained in Section 2 are reasonable in time, geographic area and scope and
that it is the intent of both the Employee and the Company that each of all of
the provisions thereof shall be valid, enforceable and enforced as specifically
set forth herein.
(b) If any particular provision or portion of this Agreement
shall be adjudicated to be invalid or unenforceable, this Agreement shall be
deemed amended to delete therefrom such provision or portion adjudicated to be
invalid or unenforceable, such amendment to apply only with respect to the
operation of this paragraph in the particular jurisdiction in which such
adjudication is made.
10. Entire Contract. This Agreement, along with the Employee's letter
of resignation to the Company, attached hereto, and Resignation Agreement and
Release, also attached hereto, contains the entire understanding of the parties
and supersedes all other prior written and oral agreements.
11. Controlling Law. The validity, interpretation and performance of
this Agreement shall be construed under the laws of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Employee Agreement as
of the date first written above.
Interleaf, Inc. "Employee"
/s/ Clinton P. Harris /s/ Ed Koepfler
________________________ ____________________
By: Clinton P. Harris By: Ed Koepfler
Chairman, Compensation Committee
<PAGE>
Exhibit 10(w1)
November 12, 1996
Mr. G. Gordon M. Large
19 Hundreds Circle
Wellesley, MA 02181
RE: Resignation Agreement and Release
Dear Gordon:
This letter contains the terms of your resignation from Interleaf effective
November 12, 1996 ("Resignation Date") as Executive Vice President,
Treasurer, Chief Financial Officer, Principal Financial Officer, Principal
Accounting Officer and officer of various Interleaf subsidiaries. If you sign
the release contained below, return it to me within forty-five (45) days of
your receipt of this letter, and do not revoke it within seven (7) days of
signing it, the Company's Employment Agreement with you will be effective as
of November 12, 1996.
In addition, your health, dental, life and disability insurance coverage will
continue while you are an employee, pursuant to the Employment Agreement.
Thereafter, you have the option of continuing your present coverage under the
COBRA provision through Interleaf's group plan at your own expense for up to
18 months, or until you have the option of obtaining coverage through other
employment, whichever comes first. You have sixty (60) days from receipt of
your last payment under your Employment Agreement to elect this coverage, at
Interleaf's then current COBRA rates.
To exercise your continuation option, you must pay retroactively to your last
day of coverage. Subsequent payments require the monthly amount to be paid,
prior to the first day of the month for which coverage is to be purchased.
Failure to make a payment on time will result in automatic removal from the
Interleaf Insurance Plan.
You will be notified by EBPA of your option to continue coverage. EBPA will
also provide the necessary forms to complete in order to elect continued
coverage. Please keep in mind that the continuation option refers only to
your health and dental benefits.
You will have three months from your Resignation Date within which to
exercise your vested stock options or forfeit all rights to them. Any options
not vested as of your Resignation Date, will be cancelled. (See below.)
Number Shares Vested Shares
Grant Date Grant Price of Shares Vesting Period Exercised Available
6/5/95 $6.00 225,000 4 years -0- 56,250
9/12/96 $2.56 75,000 4 years -0- -0-
Please notify, in writing, the Human Resources Department of any change of
address through 1996 and 1997. Your W-2 form and any further correspondence
will be sent to the most recent address on file.
The Company acknowledges that its Agreement to Defend and Indemnify with you
is valid and binding.
<PAGE>
Please review the following information, sign and return to me within 45 days.
Sincerely yours,
/s/ Rory Cowan
___________________
Rory Cowan
Chairman, Operating Committee
_______________________________________________________________________________
Release
In consideration of receiving compensation and benefits hereunder, I hereby
forever release Interleaf, Inc., its directors, officers, and employees
("Interleaf") from any and all demands, claims and causes of actions which I
have or may have against Interleaf arising out of or in any way related to my
employment with Interleaf, including but not limited to, Federal, State or
local discrimination laws, regulations, executive orders or other
requirements including any actions related to age (including any claims
related to ADEA), sex, sexual orientation, race or handicap discrimination,
except for payments and benefits I am to receive under the Employment
Agreement, dated November 12, 1996.
I agree that I have read the foregoing, have been given the opportunity to
have it reviewed by an attorney of my choice and agree to the conditions and
obligations as set forth. I understand that I have 7 days from the date of
execution to revoke this agreement.
/s/ G. Gordon M. Large
______________________
G. Gordon M. Large Date: 11/12/96
29
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of this 12th day of
November, 1996 by and between G. Gordon M. Large (the "Employee"), and
Interleaf, Inc., a Massachusetts corporation with its principal place of
business in Waltham, Massachusetts (the "Company").
WITNESSETH
WHEREAS, the Employee has been a senior officer and employee of the Company;
WHEREAS, the Employee has resigned as a senior officer of the Company
effective November 12, 1996;
WHEREAS, the Company deems it necessary and appropriate to continue to employ
the Employee as an employee, and to perform the service provided herein,
NOW, THEREFORE, in consideration of the promises and undertakings of the
parties more particularly set forth hereinafter, and for other good and
valuable consideration, the parties agree as follows:
12. Duties. During the Term, as defined in paragraph 4 below, the
Company hereby employs the Employee to render such financial and management
advice in connection with the operation of the business of the Company as the
Company may from time to time request. The Employee hereby accepts such
employment.
13. Non-Competition.
(a) Definitions
(i) Non-Competition Period means the continuous period of
twelve (12) months from the date hereof.
(ii) Participation or Participate means any direct or indirect
involvement as owner, part-owner, partner, director, officer, employee,
trustee, agent or consultant, or in any other capacity, except as a passive
minority stockholder, partner or beneficial owner.
(b) During the Non-Competition Period, unless otherwise extended
below, Employee will not, either directly or indirectly, do any of the
following:
(i) Participate with Adobe Software, Documentum, or PC Docs
whose activities, software products, and services are agreed to be in
direct or indirect competition with the Company's business;
(ii) Impair or attempt to impair the relationship, contractual
or otherwise, between the Company and any person who is a supplier, customer
or client of the Company; and
(iii) Solicit or request any current employee of the Company
to leave the Company for new employment in which the Employee shall
Participate.
<PAGE>
(b) Following the end of the Non-Competitive Period, the
Employee may compete with the Company provided that he does not intentionally
interfere with the Company's advantageous relations with its customers or
otherwise unfairly compete with the Company in violation of law.
(c) The foregoing restrictions shall apply in the United States,
Europe and Japan.
(d) Employee represents that the foregoing covenants will not
preclude him from earning a livelihood.
14. Employee's Compensation.
(a) As compensation to the Employee, the Company agrees to pay
the Employee biweekly the amount of $12,769.23 for a period of 12 months,
totalling $332,000, commencing on the date hereof, along with such health,
dental, life, and disability insurance, and 401(k) as are normally provided
to Interleaf senior executives. Thereafter, the Employee's employment shall
terminate.
(b) The Company promises to make all payments and provide all
benefits hereunder, and the Employee accepts such payments in full
consideration for, the discharge by the Employee of his duties and
obligations hereunder, and fulfill and comply with his obligations under the
attached agreements.
15. Term. The obligations of the Employee under paragraph 1 shall
commence on November 12, 1996, and continue through November 11, 1997.
16. Employee's Responsibility. The Employee, in the performance of his
duties and obligations under this Agreement, shall be responsible solely to
the Chief Financial Officer of the Company. The Employee agrees to render
advisory and management services to the Company and to diligently discharge
such projects as may from time to time be prescribed by the Company. This
paragraph shall be subject to the provisions of paragraph 1 of this Agreement.
17. Confidentiality. Employee shall keep in strict confidence and not
disclose to any party any proprietary or confidential information of the
Company which he has currently or may obtain during the Term for a period of
three (3) years from the date hereof, unless such information becomes
publicly available without the disclosure of Employee.
18. Severability; Separate Agreements.
(a) The Employee and the Company agree that the provisions
contained in Section 2 are reasonable in time, geographic area and scope and
that it is the intent of both the Employee and the Company that each of all
of the provisions thereof shall be valid, enforceable and enforced as
specifically set forth herein.
<PAGE>
(b) If any particular provision or portion of this
Agreement shall be adjudicated to be invalid or unenforceable, this Agreement
shall be deemed amended to delete therefrom such provision or portion
adjudicated to be invalid or unenforceable, such amendment to apply only with
respect to the operation of this paragraph in the particular jurisdiction in
which such adjudication is made.
19. Entire Contract. This Agreement, along with the Employee's letter
of resignation to the Company, attached hereto, and Resignation Agreement and
Release, also attached hereto, contains the entire understanding of the
parties and supersedes all other prior written and oral agreements.
20. Controlling Law. The validity, interpretation and performance of
this Agreement shall be construed under the laws of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Employee Agreement
as of the date first written above.
Interleaf, Inc. "Employee"
/s/ Rory Cowan /s/ G. Gordon M. Large
______________ ______________________
By: Rory Cowan By: G. Gordon M. Large
Chairman, Operating Committee
<PAGE>
Exhibit 10(x)
November 15, 1996
Mr. Stan Douglas
205 General Miller Road
Peterborough, NH 03458
RE: Resignation Agreement and Release
Dear Stan:
This letter contains the terms of your resignation from Interleaf effective
November 15, 1996 ("Resignation Date") as Interleaf's Vice President,
Engineering Operations. If you sign the release contained below, return it
to me within forty five (45) days of your receipt of this letter, and do not
revoke it within seven (7) days of signing it, the Company's Employment
Agreement with you will be effective as of November 15, 1996.
In addition, your health, dental, life and disability insurance coverage will
continue while you are an employee, pursuant to the Employment Agreement.
Thereafter, you have the option of continuing your present coverage under the
COBRA provision through Interleaf's group plan at your own expense for up to
18 months, or until you have the option of obtaining coverage through other
employment, whichever comes first. You have sixty (60) days from receipt of
your last payment under your Employment Agreement to elect this coverage, at
Interleaf's then current COBRA rates.
To exercise your continuation option, you must pay retroactively to your last
day of coverage. Subsequent payments require the monthly amount to be paid,
prior to the first day of the month for which coverage is to be purchased.
Failure to make a payment on time will result in automatic removal from the
Interleaf Insurance Plan.
You will be notified by EBPA of your option to continue coverage. EBPA will
also provide the necessary forms to complete in order to elect continued
coverage. Please keep in mind that the continuation option refers only to
your health and dental benefits.
You will have three months from your Resignation Date within which to
exercise your vested stock options or forfeit all rights to them. Any options
not vested as of your Resignation Date, will be cancelled. (See below.)
Number Shares Vested Shares
Grant Date Grant Price of Shares Vesting Period Exercised Available
2/6/96 $7.37 100,000 4 years -0- -0-
Please notify, in writing, the Human Resources Department of any change of
address through 1996 and 1997. Your W 2 form and any further correspondence
will be sent to the most recent address on file.
<PAGE>
Please review the following information, sign and return to me within 45
days.
Sincerely yours,
/s/ Rory Cowan
___________________
Rory Cowan
President and Chief Executive Officer
_______________________________________________________________________________
Release
In consideration of receiving compensation and benefits hereunder, I hereby
forever release Interleaf, Inc., its directors, officers, and employees
("Interleaf") from any and all demands, claims and causes of actions which
I have or may have against Interleaf arising out of or in any way related to
my employment with Interleaf, including but not limited to, Federal, State
or local discrimination laws, regulations, executive orders or other
requirements including any actions related to age (including any claims
related to ADEA), sex, sexual orientation, race or handicap discrimination,
except for payments and benefits I am to receive under the Employment
Agreement, dated November 15, 1996.
I agree that I have read the foregoing, have been given the opportunity to
have it reviewed by an attorney of my choice and agree to the conditions and
obligations as set forth. I understand that I have 7 days from the date of
execution to revoke this agreement.
/s/ Stan Douglas
______________________
Stan Douglas Date: 11/15/96
29
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of this 15th day of November,
1996 by and between Stan Douglas (the "Employee"), and Interleaf, Inc., a
Massachusetts corporation with its principal place of business in Waltham,
Massachusetts (the "Company").
WITNESSETH
WHEREAS, the Employee has been a senior officer and employee of the Company;
WHEREAS, the Employee has resigned as a senior officer of the Company effective
November 15, 1996;
WHEREAS, the Company deems it necessary and appropriate to continue to employ
the Employee as an employee, and to perform the service provided herein,
NOW, THEREFORE, in consideration of the promises and undertakings of the parties
more particularly set forth hereinafter, and for other good and valuable
consideration, the parties agree as follows:
12. Duties. During the Term, as defined in paragraph 4 below, the Company
hereby employs the Employee to render such engineering advice in connection with
the operation of the business of the Company as the Company may from time to
time request. The Employee hereby accepts such employment.
13. Non-Competition.
(a) Definitions
(i) Non-Competition Period means the continuous period of six
(6) months from the date hereof.
(ii) Participation or Participate means any direct or indirect
involvement as owner, part-owner, partner, director, officer, employee,
trustee, agent or consultant, or in any other capacity, except as a passive
minority stockholder, partner or beneficial owner.
(b) During the Non-Competition Period, unless otherwise extended
below, Employee will not, either directly or indirectly, do any of the
following:
(i) Participate with Adobe Software, Documentum, Inso, or PC
Docs whose activities, software products, and services are agreed to be in
direct or indirect competition with the Company's business;
(ii) Impair or attempt to impair the relationship, contractual
or otherwise, between the Company and any person who is a supplier, customer
or client of the Company; and
(iii) Solicit or request any current employee of the Company
to leave the Company for new employment in which the Employee shall
Participate.
<PAGE>
(b) Following the end of the Non-Competitive Period, the Employee
may compete with the Company provided that he does not intentionally interfere
with the Company's advantageous relations with its customers or otherwise
unfairly compete with the Company in violation of law.
(c) The foregoing restrictions shall apply in the United States,
Europe and Japan.
(d) Employee represents that the foregoing covenants will not
preclude him from earning a livelihood.
14. Employee's Compensation.
(a) As compensation to the Employee, the Company agrees to pay
the Employee biweekly the amount of $5,769.23 for a period of 6 months,
totalling $75,000, commencing on the date hereof, along with such health,
dental, life, and disability insurance, and 401(k) as are normally provided
to Interleaf senior executives. No vacation time shall accrue. Thereafter,
the Employee's employment shall terminate. Employee agrees that this
Employment Agreement is in lieu of any payments Employee may receive under
the Company's Employee Change in Control Severance Benefit Plan or Officer
Severance Benefit Plan. Employee shall have the right to use his lap-top for
a period of one month; thereafter he shall return it to the Company. Employee
shall also have voice-mail and e-mail for a period of one month.
(b) The Company promises to make all payments and provide all
benefits hereunder, and the Employee accepts such payments in full
consideration for, the discharge by the Employee of his duties and
obligations hereunder, and fulfill and comply with his obligations under the
attached agreements.
15. Term. The obligations of the Employee under paragraph 1 shall
commence on November 15, 1996, and continue through May 14, 1997.
16. Employee's Responsibility. The Employee, in the performance of his
duties and obligations under this Agreement, shall be responsible solely to
the President and Chief Executive Officer of the Company. The Employee agrees
to render advisory and management services to the Company and to diligently
discharge such projects as may from time to time be prescribed by the
Company. This paragraph shall be subject to the provisions of paragraph 1 of
this Agreement.
17. Confidentiality. Employee shall keep in strict confidence and not
disclose to any party any proprietary or confidential information of the
Company which he has currently or may obtain during the Term for a period of
three (3) years from the date hereof, unless such information becomes
publicly available without the disclosure of Employee.
18. Severability; Separate Agreements.
(a) The Employee and the Company agree that the provisions
contained in Section 2 are reasonable in time, geographic area and scope and
that it is the intent of both the Employee and the Company that each of all
of the provisions thereof shall be valid, enforceable and enforced as
specifically set forth herein.
31
<PAGE>
(b) If any particular provision or portion of this
Agreement shall be adjudicated to be invalid or unenforceable, this Agreement
shall be deemed amended to delete therefrom such provision or portion
adjudicated to be invalid or unenforceable, such amendment to apply only with
respect to the operation of this paragraph in the particular jurisdiction in
which such adjudication is made.
19. Entire Contract. This Agreement, along with the Employee's letter
of resignation to the Company, attached hereto, and Resignation Agreement and
Release, also attached hereto, contains the entire understanding of the
parties and supersedes all other prior written and oral agreements.
20. Controlling Law. The validity, interpretation and performance of
this Agreement shall be construed under the laws of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Employee Agreement
as of the date first written above.
Interleaf, Inc. "Employee"
/s/ Rory Cowan /s/ Stan Douglas
________________ _________________
By: Rory Cowan By: Stan Douglas
President and Chief Executive Officer
32
<PAGE>
Exhibit 10(y)
Robert R. Langer
Terms of Engagement
Cash Compensation: Base: $4,000 per week
Bonus: Pro-rated participation in the Office of the
President Pool
Options: 50,000 - Option to purchase common shares at price on
date this agreement is approved by the Board in accordance
with Interleaf's option plans. Vesting 25,000, share
options to vest 90 days after commencement of employment
with remaining 25,000 share options to vest upon
termination or six months, whichever is sooner.
Title: Vice President, Finance and Administration and Chief
Financial Officer and Treasurer
Review: Continuation of service and terms thereof to be reviewed
by new CEO upon his/her employment.
State Date: January 1, 1997
Benefits: Standard Benefits Package
Change in Ownership: Standard Executive Benefit
/s/Robert R. Langer /s/ Rory Cowan
- ------------------- --------------
Robert R. Langer Rory Cowan
Acting CEO
12/30/96 12/30/96
- -------- --------
Date Date
<PAGE>
Exhibit 10(z)
January 9, 1997
Mr. Jamie W. Ellertson
2270 Silver Sands Court
Vero Beach, FL 32963
RE: Offer Letter
Dear Jamie:
We are delighted to welcome you to Interleaf, beginning January 27, 1997.
You will be joining the Company as President and Chief Executive Officer. You
will also be nominated to be a member of the Company's Board of Directors. You
will receive a base annual salary of $300,000, payable bi-weekly. You will also
be eligible to receive an additional $75,000 upon the Company achieving certain
revenue and cash objectives consistent with the Company's executive bonus
program. Your first annual "on target earnings" ("OTE") shall therefore be
$375,000. You will be eligible to receive all other benefits (medical, dental,
401(k), and life insurance) that are provided to Interleaf executives.
As an additional inducement, you will be awarded, pursuant to the Company's
Stock Option Plan, options to purchase 725,000 shares, vesting equally over a 4
year period of time, priced at the Company's closing price on Friday, January
10, 1997. In the event, however, that the Company's Board accepts a definitive
agreement that results in the Company being acquired, the following vesting
schedule shall apply, from the date of this agreement:
0 - 3 months 25% vesting
4 - 12 months 50% vesting
13- 24 months 75% vesting
24+ months 100%
Your compensation package, including option grants, shall be reviewed annually
as part of our standard practice.
If you are terminated "not for cause," you will receive one (1) year's base
salary, paid bi-weekly.
We will provide you with relocation assistance up to $40,000.
By signing below, you agree to the terms contained in this letter and agree to
join us on January 27, 1997.
Once again, welcome to Interleaf.
Very truly yours,
/s/Clinton P. Harris
- --------------------
Clinton P. Harris
Chairman, Compensation Committee
Accepted:
/s/ Jaime W. Ellertson
- ----------------------
Jamie W. Ellertson 1/9/97
<PAGE>
Interleaf, Inc.
EXHIBIT 11-COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31 December 31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
In thousands, except for per share (unaudited) (unaudited)
amounts
Primary
Weighted average shares outstanding
of Common Stock 17,459 16,102 17,306 15,186
Dilutive Senior Series B
Convertible Preferred Stock - 1,467 - 1,929
Dilutive Series C Convertible
Preferred Stock - - - -
Dilutive stock options - 1,121 - 1,094
Dilutive stock purchase warrants - 109 - 130
Dilutive stock purchase plan rights - 75 - 43
------- ------- -------- -------
Total - 18,874 - 18,382
------- ------- -------- -------
------- ------- -------- -------
Net income (loss) $(9,509) $ 429 $(23,636) $ 1,823
------- ------- -------- -------
------- ------- -------- -------
Net income (loss) per share $ (0.54) $ 0.02 $ (1.37) $ 0.10
------- ------- -------- -------
------- ------- -------- -------
Fully Diluted
Weighted average shares outstanding
of Common Stock 17,459 16,102 17,306 15,186
Dilutive Senior Series B Convertible
Preferred Stock - 1,467 - 1,929
Dilutive Series C Convertible
Preferred Stock - - - -
Dilutive stock options - 1,121 - 1,293
Dilutive stock purchase warrants - 129 - 249
Dilutive stock purchase plan rights - 75 - 45
------- ------- -------- -------
Total - 18,894 - 18,702
------- ------- -------- -------
------- ------- -------- -------
Net income (loss) $(9,509) $ 429 $(23,636) $ 1,823
------- ------- -------- -------
------- ------- -------- -------
Net income (loss) per share $ (0.54) $ .02 $ (1.37) $ .10
------- ------- -------- -------
------- ------- -------- -------
</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 December
31, 1996, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 13,738
<SECURITIES> 0
<RECEIVABLES> 19,355
<ALLOWANCES> 1,538
<INVENTORY> 279
<CURRENT-ASSETS> 33,212
<PP&E> 50,266
<DEPRECIATION> 43,587
<TOTAL-ASSETS> 45,120
<CURRENT-LIABILITIES> 39,748
<BONDS> 0
0
187
<COMMON> 175
<OTHER-SE> 4,823
<TOTAL-LIABILITY-AND-EQUITY> 45,120
<SALES> 15,955
<TOTAL-REVENUES> 50,987
<CGS> 4,569
<TOTAL-COSTS> 20,820
<OTHER-EXPENSES> 53,458<F1>
<LOSS-PROVISION> 380
<INTEREST-EXPENSE> 141
<INCOME-PRETAX> (23,636)<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,636)<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,636)<F1>
<EPS-PRIMARY> (1.37)
<EPS-DILUTED> (1.37)
<FN>
<F1>Includes a $8.5 million charge for restructuring of the Company's worldwide
operations.
</FN>
</TABLE>
