SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1996
Commission file number 333-05112-C
XOX CORPORATION
(Name of small business issuer as specified in its charter)
Delaware 93-0898539
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1450 Energy Park Drive, Suite 120, Saint Paul, Minnesota 55108
(612) 645-9000
(Address and telephone number of principal executive offices and
principal place of business)
Securities registered pursuant to Section 12(g) of the Act:
(1) Units, each unit consisting of one share of Common Stock, $.025 par value,
and one Redeemable Common Stock Purchase Warrant.
(2) Common Stock, $.025 par value, underlying Redeemable Common Stock Purchase
Warrants.
(3) Underwriter's Warrant to purchase shares of Common Stock, $.025 par value.
(4) Common Stock, $.025 par value, issuable upon exercise of the Underwriter's
Warrant.
Check whether the Issuer (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 Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes __X__ No ____
Check if disclosure of delinquent filers in response to item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. __X__
The Issuer's revenues for its most recent fiscal year were $806,506.
On March 19, 1997, the Issuer had 2,930,401 shares of common stock, $.025 par
value, outstanding, and the aggregate market value of the common stock as of
that date (based on the average of the closing bid and asked prices as of that
date as reported by the Nasdaq SmallCap Market ), excluding outstanding shares
beneficially owned by directors and officers, was approximately $9,286,000.
DOCUMENTS INCORPORATED BY REFERENCE: The issuer's final prospectus filed
pursuant to rule 424(b) dated as of September 11, 1996; SEC File No. 333-05112-C
Transitional Small Business Disclosure Format (check one): Yes ____; No __X__
PART I
This Form 10-KSB contains certain forward-looking statements. For this
purpose, any statement contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," believe," "anticipate," or
"continue" or the negative or other variation thereof or comparable terminology
are intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially depending on a variety of factors, not limited to, but
including the risk factors set forth in the "Risk Factors" section of the
Company's Registration Statement on Form SB-2 (File No. 333-05112-C).
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
XOX Corporation (the "Company" or "XOX" [pronounced zocks] ) designs,
develops and markets proprietary software for geometric computing which
encompasses as much of the entire body of geometry as the Company believes to be
possible into a computer system. SHAPES(R), currently the principal product
offering of the Company, adds physical characterization to visual data, allowing
computer models to be "felt" in addition to being seen. This ability to "feel"
the item modeled also differentiates the Company's product from Computer Aided
Design ("CAD") solid modelers, as does the capability to include bodies of
different dimensions in a single complex model of intersecting surfaces and
solids, such as three dimensional ("3D") earth models or models of the human
body. The completeness of the Company's product allows it to model or simulate
real world geometry problems where much more information is needed when compared
to graphics or visualization needs, or where the models are much more complex
than can be simulated with solid modeling geometry alone.
Uses of geometric computing software include, but are not limited to,
Geophysical software (such as oil-field modeling), Computer Aided Design
("CAD"), Computer Aided Engineering ("CAE"), Geographical Information Systems
("GIS"), Medical Image Processing, Industrial and Graphics Arts Design,
Animation as well as Scientific Visualization and Analysis.
The Company was incorporated under the laws of the state of Delaware on
September 16, 1985.
For the past three years, the Company has focused a significant portion of
its development and marketing resources in the Geosciences and CAE industries.
The Company believes that these market areas offer good opportunities for
customer revenues in the next two years and beyond.
On September 11, 1996, the Company completed its initial public offering of
its Units, each Unit consisting of one share of Common Stock and one Redeemable
Common Stock Purchase Warrant. The offering, including a partial exercise of the
underwriter's over-allotment option, resulted in the sale of 870,000 Units and
provided the Company with net proceeds of approximately $4,997,000. These net
proceeds have given the Company the financial resources to pay down some debt
and to continue to pursue its business strategy.
(b) BUSINESS OF THE COMPANY
PRODUCTS
The Company's principal product, the SHAPES(R) Geometric Computing System
("SHAPES"), is sold and licensed to software developers to be embedded in their
application software. The Company's primary near term business strategy is to
generate royalty revenues from these application software developers. Additional
near term revenues are expected to be received from a CAD cleanup product
("GDX") and a product (SHAPES - SURFER(R)) from Shell Oil Company which XOX
recently agreed to market.
SHAPES not only adds speed and clarity of "feel" to any visual model, but
also handles much more complex modeling requirements when compared to the solid
modeling geometry that exists in CAD systems. These solid modelers are prevalent
in the products marketed by the large CAD vendors, including Autodesk, Inc.,
Parametric Technologies, Inc., SDRC, EDS Unigraphics, Matra Division, and others
as well as the ACIS product marketed as an independent geometry product by
Spatial Technologies. These modelers were developed in the 1970's and 1980's
using a subset of geometry (called B-splines or NURBs) specifically for the
purpose of designing manufactured solid objects, like automobile parts, airplane
parts, etc. Based on feedback received from its customers, the Company maintains
that these modelers are limited in four important areas where the Company
believes its product excels in contrast to competing products:
(1) Retention of material properties, like the porosity and density of the parts
of the human body for medical applications, or the retention of similar
measurements for the elements of an earth model, such as distinguishing oil,
water, gas, shale and rock.
(2) Precise and robust intersections, the functions directly covered by the
Company's patents. SHAPES has excelled in modeling complex intersections like
those that occur with earth layers intersecting faults and salt domes.
(3) N-dimensional and mixed-dimensional modeling. This is a unique capability of
SHAPES, used for example to intersect one-dimensional struts to a
three-dimensional platform for the CAD-like design of an offshore oil rig. This
capability is extended to the modeling of boreholes inserted into a 3D earth
model or a surgical instrument intrusion into the 3D model of the human body.
(4) The ability to model ill-formed data. CT scans in the Medical field and
Seismic data in Geosciences create fuzzy data. Using industry supplied methods
for identifying points of interest, the Company's product easily converts this
data into accurate and robust models, allowing users to look at and feel areas
of interest in great detail, and to simulate the impact of change.
The advantages of SHAPES over solid modelers are now leading the Company to
develop its first end-user product (as compared to the set of software libraries
which the Company normally sells to its application software customers). This
product is being developed to "clean up" data produced by CAD solid modelers so
the designs can be used for Advanced CAD applications like Finite Element
Analysis (e.g. stress testing, heat testing, etc.), Rapid Prototyping and
manufacturing or machining. It is estimated that more than 25% of the CAD
designs are inadequate for these next steps, meaning that parts don't intersect
properly, have tears, gaps or holes or are otherwise incoherent. The Company's
product (called GDX-Geometric Data Exchange) will automatically or interactively
correct these deficiencies. GDX was originally scheduled to be released for sale
late in the year of 1996. Delays in the development schedule make third quarter
1997 a more probable release date of this new end-user product.
Through its focus in the Geosciences industry, the Company has become more
involved in specific uses of its technology to aid in oil and gas exploration
and production. Through the Company's efforts with Shell Oil Company, Shell has
begun to deploy SHAPES - based applications in its exploration activities. As a
result of this deployment, Shell envisions that some of its usages of SHAPES may
be marketable to the rest of the Geoscences industry. Accordingly, the Company
has entered into an agreement with Shell to market these software "applet"
usages of SHAPES. The Company expects revenues from these efforts by the third
quarter of 1997.
CUSTOMERS
Some of the licensees for development and remarketing of the Company's
software now include:
Customer Application Area Comments
-------- ---------------- --------
SAS IP, Inc. / ANSYS, Inc. Finite-Element Analysis Released
Technosoft, Inc. CAM Released
Schlumberger Corporation Geophysical Modeling Released
Landmark Graphics, Inc. Geophysical Modeling In development
SAPEX CAD / CAM In development
CogniSeis Development, Inc. Geophysical In development
Evans and Sutherland Corporation Simulation Software Released
Seismic Micro-Technology, Inc. Geophysical Modeling and In development
Visualization
SHAPES has been licensed as an enabling component technology to over 20
software developers. Five of these developers have released products which
include SHAPES and which have begun to generate royalty revenues for the
Company. Over 20,000 copies of SHAPES have been shipped as component software by
these developers. Some of the end-user customers employing the Company's
technology include Shell Oil, Mobil Oil, Stanford University, the Mayo Clinic,
Siemens Corporate Research, Inc., Purdue University, Ford Motor Company, E.I. Du
Pont de Nemours and Company, and Harris Corporation.
For the fiscal year ended December 31, 1996, revenues from Schlumberger
were approximately $213,000 and Landmark Graphics provided approximately
$175,000 of revenues, representing approximately 26% and 22% of total Company
revenues, respectively. The Company anticipates that Schlumberger could account
for over 20% of its annual revenue in 1997 and beyond.
MARKETS AND APPLICATIONS
Initially, the Company focused its marketing efforts principally on
software developers in the CAD market, achieving modest acceptance. In the last
two years, the Company has begun to explore market areas other than CAD,
including Geophysical software, Geographical Information Systems ("GIS"),
Medical Imaging, Animation, Consumer Games and Entertainment, Scientific
Visualization and Analysis software, Computer Aided Manufacturing ("CAM"), and
CAE. Because the full breadth of the Company's product is well suited for 3D
Earth Modeling and because this industry is actively pursuing new technology,
the Geosciences industry currently represents the Company's strongest niche
market.
GEOSCIENCES
The Geosciences industry represents the largest number (ten) of active
developers of SHAPES-based products, including Shell Oil and Schlumberger
Corporation ("Schlumberger"). The end-users of these products, principally oil
exploration and oil producing companies, invest heavily in computer technology
to aid in locating new oil fields and enhancing the production and extraction of
existing oil fields. The Company has been working closely with Schlumberger, the
world's largest oil services company, to refine and adapt SHAPES as a geometric
modeler for use in the geophysical industry.
The precision of SHAPES geometry in creating 3D earth models enables users
to build more accurate models than previously possible. Oil companies have
substantial interest in models which accurately direct their exploration and
production activities. The Company is extending SHAPES capabilities in this
industry to allow simulation of more complex earth models. The Company also
believes that the need for interactive manipulation of such models by reservoir
engineers makes this industry a prime target for the speed enhancements
projected with a hardware implementation of SHAPES.
GEOGRAPHICAL INFORMATION SYSTEMS (GIS)
The Geographical Information Systems (GIS) market, primarily concerned with
world mapping needs, is a very large software market primarily oriented toward
two dimensional (2D) mapping. There is sizable three dimensional (3D) mapping
potential in GIS, especially in usages within the world's defense industries,
where 3D precision is a definite requirement and in usages by municipalities,
where underground mapping is desirable. Although the Company has participated in
this industry on a very limited basis (e.g. products under development by Evans
and Sutherland), the broad acceptance of 3D mapping has been slow, primarily due
to the inability to assimilate large amounts of data.
Recently, however, the Company has had a more active interest in 3D GIS
through an affiliation with Imetrix Ltd., a startup Israeli company with
promising complementary technology. XOX has entered into a joint development and
marketing agreement with Imetrix Ltd. to integrate its leading edge data capture
technology for aerial and satellite data capture. XOX hopes that successful
integration of XOX's technology with such data capture capabilities will allow
it to create a presence in this very large industry.
ADVANCED COMPUTER AIDED DESIGN AND ANALYSIS
The Company was formed in 1985 to develop 3D geometric modeling software
for use in conjunction with CAD applications. CAD had emerged in the late
1970's, with a principal focus on simulating and studying model surface areas,
such as testing potential wind resistance over the surface of an airplane wing
or automobile. Generally, software developed for CAD applications uses a limited
portion of Euclidian geometry (the geometry of B-splines) to simulate surface
areas through a process commonly referred to as solid modeling. Some inherent
limitations to solid modeling technology are its inability to accurately depict
areas of intersection or to identify characteristics beneath the surface of a
model. In contrast, the concept of SHAPES was to incorporate the full body of
Euclidian geometry into a geometric computing software system. This enables
SHAPES-based products to generate more sophisticated models of complex surfaces,
models of internal structures (such as faults, salt domes and layers of
different materials in Geoscience applications), and models that incorporate
non-geometric information such as properties of materials.
Although CAD systems have done well with less sophisticated geometry
systems, some advanced usages are emerging which exceed the capabilities of
standard CAD systems. After CAD designs are created, they are used for various
purposes, including computer-based analysis of how a designed product might
perform under various stresses, pressures and heat treatment. An industry called
Finite Element Analysis ("FEA") exists to test such designs. A leader in the FEA
industry, ANSYS, Inc. (the parent of SAS IP, Inc.) ("ANSYS"), was one of the
earliest adopters of SHAPES technology. ANSYS has been shipping SHAPES-embedded
products since 1992. In working with ANSYS, the Company has confirmed that the
designs produced by CAD systems are often inadequate for these "advanced" needs
because the geometry is not complete; the designs do not intersect and have
"tears" and "holes," along with other inadequacies. The Company's GDX product
offering, scheduled to be released in the third quarter of 1997, addresses this
need and offers a solution to the problem.
ANIMATION
The animation industry is one of the leading-edge users of high-technology
3D graphics (visualization) hardware and software. However, the Company believes
that there is significant potential for adding 3D geometry (modeling)
capabilities to some of the computer systems used in this industry. Although the
Company has not conducted market research, the Company believes its technology
has capabilities desired by both the consumer games industry and the
entertainment industry (for special effects and film production); in addition,
the Company believes if it is successful in developing its hardware accelerator,
new opportunities will exist in this industry.
MEDICAL IMAGING AND ANALYSIS
Similar to the Geosciences industry, the Medical Imaging and Analysis
market involves the modeling of complex surfaces and differing material
properties. The Company believes its technology could have broad application
within this market, including the use of information from CT (Computed
Tomography) and MRI (Magnetic Resonance Imaging) scans to develop sophisticated
models of portions of the human body for radiation therapy planning, orthopedic
fittings, development of surgical strategies, and assistance in robotic surgery.
The ability to look at parts of the human body under different stress conditions
has significance in the medical industry. As an example, using SHAPES-based
products from two of the Company's customers, researchers at Stanford University
created computer models of a series of real blood vessels and arteries. They
then modeled, not just visualized, the effect of moderate exercise on a
clinically observed plaque deposit within an artery. They were able to conclude
that the flow through the artery was clearly less impeded with the accelerated
flow resulting from moderate exercise. Although the use of SHAPES in this
industry is less mature than in some of the other industries described, the
Company intends to market its enabling technology to medical application
developers because of the unique capabilities of SHAPES.
OTHER POTENTIAL MARKETS
There are many other industries where the Company believes its technology
has future potential. These include: (i) molecular modeling; (ii) architectural
modeling; and (iii) other earth sciences (including oceanography, ground water
pollution and air pollution modeling). The Company intends to target those
industries where the need is the most immediate, the returns are likely to be
the greatest, and where it will have the opportunity to deliver potentially
dominant technology.
STRATEGY
The Company's primary product strategy is to position itself as the
provider of next generation geometric modeling component software. As the demand
for and uses of geometric computing capabilities increase in the coming years,
the Company will seek to position its product to become the standard geometric
co-processor, much like the math co-processor currently existing in virtually
all computers. However, the Company anticipates that it will gain the majority
of its near-term ( through 1998) revenues through the receipt of royalties from
software developers who embed SHAPES as a software component into their
products, and from related applets. In addition, the Company has recently placed
greater emphasis on licensing SHAPES directly to selected end-users. By
expanding its products to include end-user versions like GDX, and applets like
SHAPES-SURFER(R), the Company hopes to become less dependent on longer-term
Original Equipment Manufacturers ("OEM") sales for its total revenues.
The Company believes this end-user marketing approach is important in the
near term. Based on the Company's past experience in the marketplace, the
licensing of a software component often takes developers as long as 18 to 24
months from initial contact to royalty generation. However, once royalties are
generated, the ongoing expenses associated with a license will be limited.
Conversely, end-user licensing involves much shorter cycles, with decisions
typically made in a 90-day time frame. Selling and support costs are higher than
in the software component portion of the business. The Company believes that it
will be able to generate short-term revenue from the sale of its end-user
products.
Existing and prospective customers of the Company have expressed their
belief that the Company's ability to develop performance accelerators, as
geometric computing becomes more complex and demanding, could foster the
Company's future growth. The current intent is for these performance
accelerators to include hardware implementations and ports to commercially
available workstation multi-processor systems. Given that the Company's product
is being adapted to the more complex needs of geometric modeling, a hardware
accelerator is desirable because of the speed that the Company believes such an
implementation would enable. Ultimately, the Company hopes to integrate its
geometry software into the general purpose instruction set of a processor,
creating a "geometry co-processor," much in the same way that graphics and
floating point computations are increasingly integrated with a general purpose
processor to form a math co-processor in today's PCs and workstations.
MARKETING AND SALES
The Company markets its products in North America, Europe and Asia through
its direct sales force and distributors, both strongly supported by a technical
sales support staff. The Company also sells its products pursuant to an
agreement with IIS Infotech, Ltd. ("IIS"), its partner in the Indian Joint
Venture organization.
Currently the Company's sales force in North America consists of seven
employees, one of whom directly markets and sells the Company's products and
services. The six sales support people are responsible for helping the customers
to perform an in-depth technical evaluation of SHAPES before it can be
considered as a core technology for the customer's software. The Company's sales
support staff will often build an initial prototype of a potential application
during this phase.
In Europe, the Company has engaged distributors located in Berlin and
Paris, managed by a European General Manager located in London. Because of the
technical nature of the required sales process, these distributors are required
to have strong direct sales and support capabilities. The Company intends to
expand its distributorships to include Asia and Australia in 1997 and also
market its products in Asia through its Indian Joint Venture organization.
LICENSE AND DISTRIBUTOR AGREEMENTS
The Company has entered into license agreements with the entities listed in
the section entitled "Customers." Other than its agreement with Schlumberger
Corporation, which could account for over 20% of its annual revenue in 1997 and
beyond, no other license agreement is anticipated to account for more than 10%
of the Company's future revenue. These license agreements provide that each
customer is entitled to utilize the Company's proprietary technology in the
development of the customer's product. With the exception of the agreement with
Unitechnic SA, which provides exclusivity in France, the license agreements are
non-exclusive and provide that each licensee is required to make royalty
payments to the Company based on the number of customer products sold. Each of
the license agreements provide that the licensee may cancel the agreement at any
time upon written notice and further provide the licensee with the right to use
source code in certain prescribed events. In such event, however, the licensee
must continue to pay royalties described in the agreement. Although the
existence of this term may diminish the value of the Company's assets, the
Company believes that the licensee's obligation to continue to make royalty
payments would minimize the impact.
The royalty obligation and joint ownership provisions of the agreement with
Fairfield Imaging-VoluMetrix were terminated with the Company's purchase of the
rights to a volume visualization software product from VoluMetrix.
The Company's distribution agreements with TechSoft GmbH and Unitechnic SA
grant the entities the right to distribute the Company's products. These
agreements provide that any license generated as a result of a distributor's
efforts will be directly between the Company and the licensee. The agreements
provide that the distributor will invoice the licensee and pay a portion of such
fees and royalties to the Company. The distribution agreement with TechSoft
originally provided that it had exclusive distribution rights to the Company's
SHAPES product in Europe and the independent republics formerly part of the
Soviet Union and Israel. However, this agreement has been modified as a result
of TechSoft's failure to meet the performance measures mandated in the
agreement. This failure is perceived by the Company to be attributable to
TechSoft's limited sales and support capabilities outside of Germany. As a
result, the agreement with TechSoft is now a non-exclusive distribution right.
The Company's agreement with Unitechnic grants it the sole distribution right in
France for the Company's SHAPES products.
COMPETITION
In the geophysical market, The GoCad Research Program is the Company's
primary competitor. GoCad is a consortium based at the University of Nancy in
France which includes several large petroleum companies and a large French
geophysical software company. The consortium's GoCad software product is
designed specifically for geophysical modeling and has significant technical
strengths in the area of surface or boundary representations which exist in
geophysical modeling.
The ACIS Geometric Modeler, a solid modeling product developed by Spatial
Technology Inc., ("Spatial") is the primary competitive product in the CAD and
CAM marketplace. In the CAD/CAM market, Spatial has attempted to position ACIS
as a geometry standard. Spatial has had some success in the scientific
visualization and CAM markets but has not yet achieved success in penetrating
the geophysical niche. The Company also faces known competition from a variety
of other competitors in the CAD/CAM market including ParaSolids, developed by
EDS Unigraphics and CAS.Cade, developed by Matra Datavision.
As with all rapidly evolving technological environments, the Company will
likely face competition from other competitors which are not currently known. In
addition, internal development is a strong alternative in the market segments
pursued by the Company. For many CAD software developers geometry is considered
to be integral to their development process and architecture. Also, the payment
of royalties may be considered to be high in comparison to the cost of
maintaining an internal geometry staff.
Finally, if the Company ultimately develops a hardware accelerator, its
competition is anticipated to come from current workstation vendors such as
Silicon Graphics, SUN Microsystems, IBM and Hewlett Packard, as well as board
manufacturers, such as Evans and Sutherland Corporation or Alacron. These
companies produce high speed graphic chips, boards, and workstations.
Accordingly, they continue to focus on the 3D visual presentation of computer
data. The Company's high speed 3D geometry would further enhance high speed
graphics and, thus, be viewed as competition. However, one or more of these
companies may want to add high speed geometry to their graphics systems and
could, therefore, be potential partners in incorporating the SHAPES technology
in their high speed graphics products.
Many of the Company's competitors have more experience, greater
specialization and greater financial and other resources than the Company. The
Company believes that the technical abilities, functionality and design make its
product superior to those of its competitors. The Company also believes that the
financial resources provided by its recent public offering will enhance its
competitive position, in part, because the Company will be able to hire
additional qualified individuals and thereby increase its competitive position.
Since the completion of the Company's initial public offering, seven additional
employees have been hired, which brings the total employment for XOX's operation
in the United States to twenty five full-time employees. Six of the recent new
hires were software engineers or customer support representatives with strong
software engineering backgrounds.
RESEARCH AND DEVELOPMENT
The Company plans to focus on research and development which will allow it
to more fully exploit its technology in the Geophysical software, CAD/CAM/CAE,
GIS, Medical Imaging, and Animation markets. Currently the Company is working on
development of: (i) a graphical user interface product to simplify the use of
its technology; (ii) speed and performance improvements for handling large
models; and (iii) its GDX product, which is intended to provide for the input of
CAD data in various formats (IGES, VDA, STEP, SAT), filling of inadequacies
contained is such data and exclusion of extraneous data used in advanced CAE
applications. The Company believes that the technical capabilities and
experience of its employees, coupled with the net proceeds from its recent
public offering, will allow it to complete the projects described above.
As the use of SHAPES in applications matures and the complexity of geometry
computing increases, the Company foresees an increasing need to move
applications-specific geometry tools from software to hardware. The Company is
currently in the early stages of investigating the feasibility of a hardware
accelerator for its software. It is the belief of the management of the Company
that such an accelerator would be extremely beneficial for applications which
are currently limited because of the size and complexities of the tasks to be
accomplished. It is anticipated that a hardware accelerator would add value to
applications and allow faster integration of SHAPES into customer products.
The Company spent $525,000 in 1995 and $926,000 in 1996 on research and
development, all of which expenses were borne by XOX. The increased spending in
1996 when compared to the previous year is a direct result of the growth in
Company employment levels and activity levels with the Indian Joint Venture
described below.
JOINT VENTURE EFFORT
In December 1995, the Company entered into a joint venture agreement with
IIS Infotech Ltd. ("IIS"), a major software services company located in New
Delhi, India thereby beginning the organization of IIS-XOX Asia Pacific Pvt.
Ltd. ("IIS-XOX"). IIS has been ISO certified for approximately six years. IIS
employs over 500 people in the software services business and is better staffed
than the Company to provide low cost, high quality application development
service to the Company and its customers. Through this effort, the Company
intends to accomplish an accelerated integration of SHAPES into its customers'
end-user products. Based upon the foregoing information, the Company expects
that IIS-XOX will be able to service the application development needs of the
customers of the Company for much less than it would cost the Company to provide
equivalent services. Because IIS-XOX is able to respond to a larger number of
customers in a more timely manner, the Company believes that this relationship
will benefit both the Company and its customers. Recent work with a XOX
customer, Seismic Micro-Technology, Inc. of Houston, Texas, is a good example of
this beneficial relationship.
OTHER
The joint venture agreement provides that IIS-XOX will be incorporated for
the purpose of providing geometry related products, services, sales and
marketing support for SHAPES. IIS-XOX is to have 500,000 total authorized
shares, 300,000 of which will initially be outstanding. The Company and IIS will
each hold 142,500 shares representing 47.5% of the outstanding shares of
IIS-XOX. Neither party can dispose of its shares in the venture for a period of
five years, without the consent of the other party, nor can it assign its rights
under the agreement to another party unless it is a successor entity. The
remaining 15,000 shares representing 5% of the outstanding shares of IIS-XOX are
to be held by Dr. Indranil Chakravarty. Each of the founders is responsible for
contributing proportionate capital amounts to form IIS-XOX. During calendar year
1996 XOX paid the compensation and employee benefits of Dr. Chakravarty and in
December 1996, made a payment to the joint venture of $41,000 for XOX's equity
participation. Each party has preemptive rights to acquire shares to be sold by
one of the other parties to the agreement. Additionally, the joint venture
agreement sets forth the makeup of the four-person Board of Directors of
IIS-XOX, which will include two members (including Dr. Chakravarty) designated
by the Company. The Company has currently designated Lawrence W. McGraw as the
second of its director designees. Finally, the agreement contains customary
confidentiality, non-competition, and other provisions relating to maintenance
and ownership of intellectual property rights.
The formal organization of IIS-XOX, under Indian law as well as obtaining
the appropriate banking and export licenses was essentially complete at December
31, 1996. Dr. Indranil Chakravarty, a Vice President of XOX, has been named
Managing Director of this joint venture effort and now resides in New Delhi,
India.
Dr. T.K. Srikanth, a co-founder of XOX and the former Vice President of
Software Development, has recently returned to India to establish a satellite
operation for XOX in Bangalore, India.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company relies on patents, patent applications, trademark, copyright
and trade secret laws, employee and third party non-disclosure agreements and
other methods to protect its proprietary rights. The Company currently holds two
patents relating to intersection algorithms and one patent approved for issuance
relating to the microtopology module in the United States. There can be no
assurance any future patent applications will be granted or that any current or
future patent, regardless of whether the Company is an owner or a licensee of
such patent, will not be challenged, invalidated or circumvented or that the
rights granted thereunder or under licensing agreements will provide competitive
advantages to the Company. Management of the Company believes that the Company's
technology is further protected by the knowledge, experience, and creativity of
the Company's research and development staff, which enables them to rapidly
develop new technologies in an industry characterized by rapid technological
change. However, there can be no assurance that competitors could not
successfully duplicate the Company's proprietary software by their own research
efforts or that the Company will be able to retain (or replace) personnel
important to its research and development efforts.
The Company's success is dependent on protecting its proprietary software
and intellectual property rights, especially the computer algorithms that allow
the Company's products to process geometric data with the generality, speed,
reliability, and efficiency required in the computer marketplace, are of
critical importance to the Company. Thus, it is the Company's policy, whenever
possible, to file for patents, copyrights, and trademarks and to aggressively
pursue perceived infringements of its technology.
OTHER
The Company is not a manufacturer, and as such, there are no raw materials
or principal suppliers to be concerned with. The use of magnetic media, tapes,
diskettes, "chips" or transmitting the software via telecommunications is common
with all software companies. There are no governmental approvals or regulations
currently affecting the marketing of existing or future software products. There
are no current environmental laws germane to the Company's business.
EMPLOYEES
As of the date of this Form 10-KSB, the company employs 25 employees, six
in customer support, one in sales and marketing, five in general and
administrative, and thirteen in research and development, all of whom are full
time employees. No employee of the Company is represented by a labor union or is
subject to a collective bargaining agreement. All employees of the Company are
covered by agreements containing confidentiality and non-compete provisions.
The Company believes it maintains good relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently subleases approximately 5,384 square feet of
commercial office space at 1450 Energy Park Drive, Saint Paul, Minnesota 55108.
The annual rental payment on these premises is approximately $17,610 in 1996;
$71,787 in 1997; and $61,692 in 1998 prior to termination of the lease on
October 31, 1998. The Company anticipates that business growth will require
additional commercial office space be made available, possibly as soon as the
fourth quarter of 1997.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any pending or, to its knowledge, threatened
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since September 11, 1996 (the date of the Company's initial public offering
of its Units, each Unit consisting of one share of Common Stock, $.025 par
value, and one Redeemable Common Stock Purchase Warrant) and for the period
which followed, the Company's Units have traded in the over-the-counter market
and have been quoted on the Nasdaq SmallCap Market under the symbol XOXCU. The
following table sets forth, for the calendar quarters indicated, the high and
low bid prices for the Company's Units as reported by Nasdaq. Such quotations
represent interdealer prices, without retail markup, markdown or commission, and
do not necessarily represent actual transactions. On or about March 11, 1997,
the Common Stock and Redeemable Warrants will detach and become separately
tradeable. The Company's Common Stock and Redeemable Warrants have been approved
for listing on the Nasdaq SmallCap Market under the symbols XOXC and XOXCW,
respectively.
HIGH LOW
1996
Third Quarter (from September 11, 1996) $ 7.75 $ 6.62
Fourth Quarter $ 7.50 $ 5.00
1997
First Quarter (through March 11, 1997) $ 5.62 $ 4.75
As of March 24, 1997, there were (a) 2,930,401 shares of Common Stock
outstanding, held of record by approximately 260 persons, (b) outstanding
options to purchase an aggregate of 1,010,434 shares of Common Stock, and (c)
outstanding warrants to purchase an aggregate of 1,488,748 shares of Common
Stock. The Company has not declared or paid any cash dividends on its Common
Stock since its inception and does not intend to pay any dividends for the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net revenues for fiscal year 1996 were $806,506, an increase of 91% from
the net revenues of $421,113 experienced in fiscal year 1995. Approximately
$597,000 and $308,000, representing 74% and 73% of the net revenues were earned
from customers in the Geosciences industry in fiscal 1996 and 1995,
respectively. In both years two customers represented the two largest revenue
sources for XOX in the Geoscience industry. Additional information on these two
customers can be found in this Form 10-KSB on page 4 under the section titled
"Customers." The Company anticipates that the Geosciences will continue in
fiscal year 1997 to represent the strongest niche market for providing revenues
to XOX.
In the fourth quarter of 1996, $155,000 of prepaid royalties, representing
cash received from customers in prior periods, met revenue recognition
guidelines and were included as earned revenues in the statement of operations.
Research and development expenses were $926,000 in 1996, an increase of 76%
over the 1995 expenses of $525,000. During 1996 the Company hired five
additional software engineers to work on improvements in and expansion of the
product offering within SHAPES(R). The Company also hired a lead hardware
engineer to start work on investigating the feasibility and development of a
hardware accelerator for its software products. These employment additions
during the year of 1996 are the primary reason for the expense increase.
Selling, general and administrative expenses were $1,400,000 in 1996, an
increase of 15% over the 1995 expenses of $1,218,000. During 1996 the Company
hired three new employees in these functional areas. In January a Director of
North American Sales joined XOX, followed by the addition of a Chief Financial
Officer in July and a Business Manager in November. These three new employees
accounted for approximately $181,000 of additional expenses in 1996.
Interest income in 1996 of approximately $48,000 is a direct result of
investing the surplus cash that resulted from the Company's initial public
offering in September 1996 in money market accounts and short-term commercial
paper. During the year of 1995 the Company had much smaller levels of surplus
cash, and this resulted in a much smaller level of interest income of $9,000.
In May of 1996, the convertible debentures, with a carrying value of
$1,508,000, and accrued interest of $184,000 were converted into 564,086 shares
of Common Stock. During September 1996, the Company used proceeds from its
initial public offering to pay down $812,000 of various debt, and in December
1996 repaid an additional amount of $100,000 of debt. These debt conversions and
repayments during 1996 resulted in an interest expense in 1996 of $196,000
compared to interest expense of $287,000 in 1995.
For the next several quarters, the Company believes that operating results
could vary substantially from quarter to quarter. At its current stage of
operations, the Company's quarterly revenues and results of operations may be
materially affected by the timing of the development, introduction and market
acceptance of the Company's and its licensees' products.
LIQUIDITY AND CAPITAL RESOURCES
The completion of the Company's initial public offering of its Units in
September 1996, and a partial exercise of the underwriter's over-allotment
option in November, provided the Company with net proceeds of approximately
$4,997,000. This financing transaction gave the Company the necessary cash
infusion to pay down some debt and to continue to pursue its business strategy.
Cash and cash equivalents were $2,720,551 at December 31, 1996, compared to
$29,918 at December 31, 1995. The Company's working capital was $2,730,734 at
December 31, 1996 compared to a working capital deficit of $1,752,091 at
December 31, 1995.
With operating expenses continuing to far exceed revenues during 1996, the
Company used approximately $1,765,000 of cash for its operating activities. The
comparable amount of cash used in operating activities for 1995 was $1,452,000.
Investing activities during 1996 used $204,000 of cash. The purchase of
equipment (principally computers) and furniture and work cubicles used $78,000
of cash. The company spent an additional $85,000 of cash for the purchase of
software license agreements for resale to its customers, and an equity
investment in the joint venture in India used another $41,000 of cash.
The sales of equity securities by the Company and various debt financing
and repayments provided a net amount of cash of $4,660,000 from 1996 financing
transactions, with the initial public offering in September clearly the major
financing transaction for the Company in 1996. The private placement of
$1,366,000 of convertible debentures was the principal financing transaction for
the Company in 1995.
Since February 1993, the Company has had variable repayment debentures (the
VRDs or promissory notes) with past and present employees in the amount of
approximately $559,000 on its balance sheet in the section of long-term debt.
These promissory notes were issued to employees for past wage and salary
concessions. Approximately $282,000 of these notes bear interest at the prime
rate plus 2% (10.25% at December 31, 1996). The balance of the employee debt of
approximately $277,000 bear no interest, but have a conversion feature allowing
the note holder to convert the unpaid principal balance into Common Stock at a
conversion rate of $2.50 per share.
At a regularly scheduled meeting of the Company's Board of Directors on
November 15, 1996, by a unanimous vote, the Board authorized a repayment
schedule for the next three years on the interest bearing employee debt. Over
the next three years, up to one-third of an employees' interest-bearing debt
will be repaid annually, if the employee agrees to convert an equal or greater
amount of his/her non-interest bearing debt into Common Stock at the conversion
rate of $2.50 per share. Eleven individuals have chosen to accept the Board's
proposal. The Company will be repaying approximately $53,000 of interest-bearing
notes and converting an equivalent amount of non-interest bearing notes into
Common Stock in each of the next three years, with the 1997 installment expected
to be completed during the first quarter of 1997.
XOX has entered into a joint development and marketing agreement with an
Israeli company which owns leading edge data capture technology for aerial and
satellite data capture. The Company hopes that successful integration of XOX's
technology with such data capture technology will allow the Company to create a
presence in the very large Geographic Information Systems (GIS) industry.
The Board of Directors of the Company has authorized working capital
advances to be made to the Israeli Company in the form of a convertible bridge
loan up to $200,000. As part of this bridge financing, XOX has made working
capital advances to the Israeli company of $12,000 in October 1996, $49,000 in
January 1997, $15,000 in February 1997 and $50,000 in March 1997.
The Company estimates that it will make capital expenditures in 1997 of
approximately $140,000 for computer equipment, office furniture and work
cubicles, and leasehold improvements.
The Company also estimates that its current cash balance and the cash
generated from customer revenues, will be sufficient to fund its operations and
capital needs through the first quarter of 1998.
ITEM 7. FINANCIAL STATEMENTS
The following Financial Statements and Independent Auditor's Report thereon
are included herein (page numbers refer to pages in this Report on Form 10-KSB):
Page
----
Independent Auditors' Report............................................ 27
Balance Sheets as of December 31, 1996 and 1995 ........................ 28 - 29
Statements of Operations for the years ended December 31, 1996 and 1995. 30
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1996 and 1995............................................ 31
Statements of Cash Flows for the years ended December 31, 1996 and 1995. 32
Notes to Financial Statements........................................... 33 - 42
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) DIRECTORS, EXECUTIVE OFFICERS AND OTHER MANAGEMENT
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- -----
<S> <C> <C> <C>
Robert S. Mars, Jr. 70 Chairman of the Board 1990
Lawrence W. McGraw 56 President, Chief Executive Officer and Director 1993
Dr. Pradeep Sinha 38 Vice President of Research, Chief Technical Officer 1987
and Director
William J. Birmingham 55 Chief Financial Officer ----
Thomas J. Lucas 45 Director 1995
Dr. John A. Swanson 56 Director 1991
Dr. Indranil Chakravarty 43 Vice President High Performance Computing and ----
Managing Director of Joint Venture in India
Turhan F. Rahman 45 Vice President of Strategic Planning ----
Dr. T.K. Srikanth 38 Vice President of Software Development ----
John C. Finnell 39 Director of North American Sales ----
</TABLE>
ROBERT S. MARS, JR. is Chairman of the Board. Mr. Mars currently serves as
Chairman of the Board of W.P. & R.S. Mars Company, an industrial distributor in
Duluth, Minnesota, and Conveyor Belt Service, Inc. Mr. Mars also previously
served as director of Minnesota Power. Mr. Mars is an alumnus of Carleton
College in Minnesota and Babson College in Massachusetts.
LAWRENCE W. MCGRAW has been President, Chief Executive Officer and a
director of the Company since September 1993. From March 1992 to September 1993,
he was a partner of the Hanna Group in Palo Alto, California, where he worked
with small technology companies in the areas of strategy and sales development.
From September 1990 to March 1992, Mr. McGraw was Executive Vice President of
Sales and Marketing of Bimillennium Corporation, a California-based startup
software company, which developed specialized software products for the
engineering and scientific niches. Prior to this time, Mr. McGraw had extensive
sales and marketing and sales management experience with IBM and Tandem
Computers, Inc., including serving as Tandem's Vice President of North American
Sales. Mr. McGraw received a Bachelor's degree in Aeronautical Engineering from
the University of Notre Dame and a J.D. degree from the University of Denver Law
School.
DR. PRADEEP SINHA is a co-founder of the Company, a director and the Vice
President of Research and Chief Technical Officer. Dr. Sinha's research provided
the basis upon which the Company's software products were developed. Dr. Sinha
received his Doctorate from Cornell University in Mechanical Engineering.
WILLIAM J. BIRMINGHAM joined the Company in July 1996 as Chief Financial
Officer. From January 1995 to March 1996, he served as Chief Financial Officer
for B-Tree Verification Systems, Inc., a Minneapolis-based company that provides
test stations that validate the software in devices containing embedded
microprocessors. From December 1992 through December 1994, he was Chief
Financial Officer of Waters Instruments, Inc., Rochester, Minnesota, a company
that manufactures electro-mechanical devices for the medical, computer,
communications and agriculture markets. Prior to this time, Mr. Birmingham was
Chief Financial Officer of a startup medical device company in Minneapolis
(f/k/a Cherne Medical) and had an extended career with 3M Company, Saint Paul,
Minnesota involving financial and marketing management positions. Mr. Birmingham
received both a Masters and Bachelors degree from the University of Wisconsin,
Madison and is a Certified Public Accountant.
THOMAS J. LUCAS is a director of the Company. Mr. Lucas has been employed
by Flint Ink Corporation, located in Detroit, Michigan since June 1990. Mr.
Lucas has been the Group Vice President since October 1992, and prior to that
time was Vice President of Sales and Marketing. Mr. Lucas holds a J.D. degree
from William Mitchell College of Law in Saint Paul, Minnesota and an A.B. from
the University of Notre Dame.
DR. JOHN A. SWANSON is a director of the Company. Since March 1993, Dr.
Swanson has been the Chief Technologist at ANSYS , Inc. From 1970 to March 1993,
Dr. Swanson was President of Swanson Analysis Systems, Inc. ( now ANSYS). Dr.
Swanson founded ANSYS, Inc. in 1970 to develop a finite element program that is
now used worldwide in many industries for product design and simulation. Dr.
Swanson received his Masters degree from Cornell University in Mechanical
Engineering and his Doctorate degree from the University of Pittsburgh in
Applied Mechanics.
DR. INDRANIL CHAKRAVARTY joined the Company in July 1995 as Vice President
of High Performance Computing. Dr Chakravarty is also the Managing Director of
IIS-XOX Asia Pacific Pvt., Ltd., a joint venture of the Company and IIS
Infotech, Ltd., and currently resides in New Delhi, India. From June 1993 to
June 1995, Dr. Chakravarty was Program Manager at Siemens Corporate Research,
Inc. From April 1981 to May 1993, Dr. Chakravarty was Program Manager at
Schlumberger, Ltd. Dr. Chakravarty holds a Bachelors degree in Electrical
Engineering from New York University and received his Masters and Doctorate
degrees from Rensselaer Polytechnic Institute in Computer and Systems
Engineering.
TURHAN F. RAHMAN is a co-founder of the Company and Vice President of
Strategic Planning. Mr. Rahman has been investigating hardware implementation
strategies for the Company's products. Mr. Rahman has served as a faculty member
in computer science at the University of Minnesota and has held engineering
positions with General Electric and the Cornell Laboratory of Nuclear Studies.
Mr. Rahman received a Bachelors degree in Computer Science and Electrical
Engineering from the University of Minnesota.
DR. T.K. SRIKANTH is a co-founder of the Company and the former Vice
President of Software Development. Dr. Srikanth was responsible for leading the
Company's development and release team and ensuring that product release
schedules and quality assurance levels were met. He also managed the Company's
cooperative development contracts with other organizations. Dr. Srikanth
received his Doctorate from Cornell University in Computer Science. Dr. Srikanth
resigned his executive position with the Company on February 20, 1997 and has
recently returned to India to establish a satellite operation for XOX in
Bangalore, India. Dr. Srikanth continues as an employee of XOX as an advanced
development specialist.
JOHN C. FINNELL joined the Company in January 1996 as Director of North
American Sales. From 1987 to December 1995, Mr. Finnell was North American Sales
and Marketing Manager for LMS International, a Belgium-based company that
develops and markets software products for the Computer Aided Engineering (CAE)
industry. From 1983 to 1987 Mr. Finnell held sales and support positions with
EG&G Structural Kinetics. From 1982 to 1983 Mr. Finnell was employed as a
technical service engineer in the Oil and Gas Drilling industry with Reed Rock
Bit, a division of Baker-Hughes. Mr. Finnell holds a Bachelors degree in
Mechnical Engineering from the University of Michigan.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has a compensation Committee, composed of Messrs. McGraw
(Chairman), Mars and Lucas, that makes recommendations concerning executive
compensation and incentive compensation for employees of the Company, subject to
ratification by the Board. The Board also has an Audit Committee comprised of
Messrs. Mars (Chairman), Lucas and Dr. Swanson. The Audit Committee reviews the
results and scope of the audit and other services provided by the Company's
independent auditors, as well as the Company's accounting principles and its
system of internal controls, and reports the results of its review to the Board.
The members who serve on the Audit Committee also administer the Company's 1996
Omnibus Stock Plan.
CLASSIFIED BOARD
The Company's Amended and Restated Certificate of Incorporation provides
for the classification of members of the Board of Directors. It also provides
that the number of directors constituting the entire Board shall be not less
than three, no more than seven, as affixed from time to time by vote of the
majority of the entire Board, provided further, that the number of directors
constituting the entire Board shall be five unless otherwise fixed by a majority
of the entire Board of Directors. Each director shall also be the record owner
of one or more shares of Common Stock of the Company. The Company's Board of
Directors is classified into three classes and provides for staggered terms. One
class of directors will be elected each year and the members of such class will
hold office for a three-year term or until their successors are duly elected and
qualified until their death, resignation or removal from office. Such
classification makes it more difficult to change the members of the Board of
Directors or to effect a take-over of the Company. Any director or the entire
Board of Directors of the Company may be removed at any time, but only for cause
and only by the affirmative vote of holders of seventy-five percent of the
outstanding shares of capital stock of the Company entitled to vote generally in
the election of Directors cast in the meeting of stockholders called for that
purpose.
UNDERWRITER'S NOMINEE
The Underwriting Agreement between the Company and the Underwriter provides
that, for a period of three (3) years from the date of the Prospectus (September
11, 1996), the Underwriter shall have the right to designate a nominee for the
election to the Company's Board of Directors and that the Company shall use its
best efforts to secure the election of such nominee to its Board of Directors.
As of the date of this Form 10-KSB, no nominee has been identified by the
Underwriter.
(b) SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and all persons who beneficially
own more than 10% of the outstanding shares of the Company's Common Stock to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of the Company's Common Stock. Executive
officers, directors and greater than 10% beneficial owners are also required to
furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based upon a review of the copies of such reports furnished
to the Company and written representations that no other reports were required,
during the year ended December 31, 1996, none of the Company's directors or
officers or beneficial owners of greater than 10% of the Company's Stock failed
to file on a timely basis the forms required by Section 16 of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table provides certain summary information for the past three
years ended December 31 concerning executive compensation paid or accrued by the
Company to the Company's Chief Executive Officer whose salary and bonus
compensation for 1996 exceeded $100,000 (the "Named Executive Officer").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------- ------------ -------------------
FISCAL SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
- --------------------------- ----- -------- ------- -------------------
<S> <C> <C> <C> <C>
Lawrence W. McGraw 1996 $172,500 $21,000 50,000
(Chief Executive Officer) 1995 171,255 30,000 None
1994 165,025 --- 50,000
</TABLE>
STOCK OPTION GRANTS DURING FISCAL YEAR 1996
The following table provides information regarding stock options granted
during fiscal year 1996 to the Named Executive Officer in the Summary
Compensation Table.
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
OPTIONS GRANTED IN FISCAL EXERCISE PRICE PER
NAME GRANTED YEAR SHARE EXPIRATION DATE
<S> <C> <C> <C> <C>
Lawrence W. McGraw 50,000 (1) 19.9% $4.75 5 years from vesting
date
</TABLE>
(1) The date of grant of the stock options was March 15, 1996. 20% of the stock
options vest on the date of grant, with the remaining options vesting 20% per
year on the anniversary date of the grant.
OPTION EXERCISES DURING FISCAL YEAR 1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
Number of Unexercised Value (1) of Unexercised
Number of Options at December 31, 1996 Options at December 31, 1996
Shares ---------------------------- ----------------------------
Acquired Value(1)
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence W. McGraw 24,000 $72,000 64,000 72,000 $114,500 $74,000
</TABLE>
(1) Value is the difference between the exercise price of the option and the
closing price of the Units on December 31, 1996 of $5.00, less $.50 assigned to
the warrant component of the Unit.
EMPLOYMENT AGREEMENT
The Company has an employment agreement with Lawrence W. McGraw. Mr.
McGraw's employment agreement remains in effect until December 31, 1997 or until
such agreement is terminated by Mr. McGraw upon 30 days' written notice, subject
to the Company's right to terminate the agreement immediately for cause or upon
Mr. McGraw's continuing disability. The Company also may terminate Mr. McGraw at
any time for any other reason, subject to the obligation of the Company to pay
Mr. McGraw an amount equal to Mr. McGraw's base salary for a period of six
months. After December 31, 1997 the employment agreement may, upon giving
appropriate notice, be terminated by either party without further obligation.
Mr. McGraw's current annual base salary is $172,500 and is subject to review by
the Compensation Committee. Mr. McGraw also is eligible to receive certain other
cash bonuses and stock option grants under the 1996 Omnibus Stock Plan, as
determined by the Board. The Company is the beneficiary of a term life insurance
policy on the life of Mr. McGraw for which the Company pays the annual premium.
During the term of his employment, Mr. McGraw is prohibited from competing with
the Company. Mr. McGraw also is prohibited from indirectly or directly competing
with the Company for a period of 12 months after termination, whether for his
own account or the account of a third party.
DIRECTOR COMPENSATION
Members of the Board receive no cash compensation for serving on the Board,
except for reimbursement for expenses incurred in attending meetings. From 1989
to 1995, the Company granted its non-employee, non-contractual directors
("Outside Directors") options to purchase an aggregate of 42,434 shares of
Common Stock of the Company, at per share exercise prices which varied from
$1.50 to $15.00. Pursuant to the Company's 1996 Omnibus Stock Plan, beginning
with the 1997 annual meeting of stockholders and at each subsequent annual
meeting, Outside Directors will receive nonstatutory stock options to purchase
5,000 shares of Common Stock.
1996 OMNIBUS STOCK PLAN
The Board of Directors of the Company adopted and the Company's
stockholders approved, the Company's 1996 Omnibus Stock Plan effective June 14,
1996 (the "Plan"). The Plan supersedes both the 1987 Incentive Stock Option Plan
and the 1987 Non-Qualified Stock Option Plan of the Company, and no new options
will be granted under either of the superseded plans. The purpose of the Plan is
to promote the interests of the Company and its stockholders by providing
personnel of the Company with an opportunity to acquire a proprietary interest
in the Company and thereby develop a stronger incentive to put forth maximum
effort for the continued success and growth of the Company and to aid the
Company in attracting and retaining personnel of outstanding ability. The
Company reserved a total of 500,000 shares of Common Stock for issuance under
the Plan and has granted 132,500 options under the Plan.
The Plan is administered by a committee of three or more non-employee
directors of the Company (the "Committee") appointed by the Board. The Committee
has responsibility to interpret the Plan and all determinations made by it shall
be final and conclusive, subject in all cases to the provisions of the Plan and
the applicable provisions of the Inetrnal Revenue Code of 1986, as amended (the
"Code"). The Committee has complete discretion to select the participants and to
establish the terms and conditions of each award, provided, however, that the
Committee has no discretion with respect to the granting of options to Outside
Directors.
Outside Directors are eligible to receive only nonstatutory stock options
under the Plan. Beginning with the 1997 Annual Meeting of Stockholders and at
the conclusion of each subsequent annual meeting, each Outside Director will
receive an option to purchase 5,000 shares of Common Stock. Options granted to
Outside Directors will vest immediately upon the date of grant.
Employees of the Company are eligible to receive incentive stock options
(as that term is defined in Section 422 of the Code), nonqualified stock
options, reload options, stock appreciation rights and restricted stock under
the Plan. Other key individuals who are not employees, may also be granted
nonqualified options under the Plan. Common Stock of the Company granted to
recipients may be unrestricted or may contain such restrictions, including
provisions requiring forfeiture and imposing restrictions upon stock transfer.
Unless forfeited, the recipient of restricted Common Stock will have all other
rights of a stockholder, including without limitation, voting and dividend
rights. The value of a stock appreciation right granted to a recipient is
determined by the appreciation in Common Stock of the Company, subject to any
limitations upon the amount or percentage of total appreciation that the
Committee may determine at the time the right is granted. Concurrent with the
award of any options, the Committee also may authorize reload options to
purchase for cash or shares a number of shares of Common Stock.
The Plan requires that the option price of incentive stock options granted
under the Plan shall be not less than 100% of the fair market value of the
Company's Common Stock as of the date the option is granted and that the term of
an incentive stock option may not exceed ten years. The Plan provides that
nonqualified stock options shall have an option price not less than 85% of the
fair market value of the Company's Common Stock on the date of grant. The
exercise price of any incentive stock option granted to an employee who owns
capital stock representing more than 10% of the voting rights of the Company's
outstanding capital stock on the date of grant must be equal to at least 110% of
the fair market value on the date of grant and shall expire five years from the
date of grant. The Committee sets the term during which any nonqualified options
may be exercised and determines whether such options are exercisable
immediately, in stages, or otherwise. All options granted under the Plan are
nontransferable and are subject to various other conditions and restrictions.
Shares of Common Stock subject to canceled options are available for
subsequently granted options under the Plan.
1987 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLANS
The 1987 Incentive and Non-Qualified Stock Option Plans (the "1987 Plans")
reserved for issuance 600,000 and 200,000 shares of Common Stock, respectively.
The Plans were administered by the Board which had responsibility to interpret
the Plans. Employees of the Company were eligible to receive incentive stock
options under the 1987 Incentive Stock Option Plan and non employees and
employees could receive nonqualified options under the 1987 Non-Qualified Stock
Option Plan. The 1987 Plans provide that the option price of stock options
granted thereunder must be at least 100% of fair market value of the Company's
Common Stock as of the date of the option grant and that the term of any
incentive stock option may not exceed ten years. All options quoted under the
1987 Plans are nontransferable and are subject to various other conditions and
restrictions.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the date of this Form 10-KSB, the
number of shares of the Company's Common Stock beneficially owned by (i) each
director of the Company; (ii) each of the Named Executive Officers; (iii) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock; and (iv) all executive officers and directors as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE OF
NAME BENEFICIALLY OWNED(1) OUTSTANDING SHARES
- ---- --------------------- ------------------
<S> <C> <C>
SAS IP, Inc................................ 377,749 (3) 12.9%
201 Johnson Road
Houston, Pennsylvania 15342
Minnesota Technology, Inc.................. 185,194 (4) 6.3%
111 Third Avenue South, Suite 400
Minneapolis, Minnesota 55401
Dr. Pradeep Sinha (2)...................... 160,643 (5) 5.5%
Thomas J. Lucas............................ 121,310 (6) 4.1%
6725 Colby Lane
Bloomfield Hills, Michigan 48239
Lawrence W. McGraw (2)..................... 98,000 (7) 3.3%
Dr. John A. Swanson........................ 80,950 (8) 2.8%
Box 224
Houston, Pennsylvania 15342
Robert S. Mars, Jr......................... 20,192 (9) *
4414 London Road
Duluth, Minnesota 55804
William J. Birmingham (2).................. 6,000 (10) *
Dr. Indranil Chakravarty (2)............... 24,000 (11) *
Turhan F. Rahman (2)....................... 97,710 (12) 3.3%
Total Executive Officers and Directors
as a group (eight persons)............... 608,805 20.8%
</TABLE>
- -----------------------------
* Less than 1%
(1) Shares of Common Stock subject to options, warrants, or convertible debt
securities currently exercisable or exercisable within 60 days after the date of
this Form 10-KSB are deemed to be outstanding for purposes of computing the
percentage of shares beneficially owned by the person holding such options,
warrants, or convertible debt securities but are not deemed to be outstanding
for purposes of computing such percentage for any other person. Except as
indicated by footnote, each person or group identified has sole voting and
investment powers with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) The address of Messrs. McGraw, Birmingham and Rahman and Drs. Sinha and
Chakravarty is 1450 Energy Park Drive, Suite 120, Saint Paul, Minnesota 55108.
(3) Includes 90,230 shares subject to currently exercisable options and 166,487
shares issuable upon exercise of warrants.
(4) Includes 30,401 shares issuable upon exercise of warrants.
(5) Includes 20,651 shares issuable upon exercise of warrants and conversion
privileges and 57,088 shares subject to currently exercisable options.
(6) Includes 1,344 shares subject to currently exercisable options and 25,050
shares issuable upon exercise of warrants.
(7) Includes 74,000 shares subject to currently exercisable options.
(8) Includes 11,470 shares issuable upon exercise of warrants. Does not include
shares owned by SAS IP, Inc., a wholly owned subsidiary of ANSYS, Inc. Dr.
Swanson is a founder and shareholder of ANSYS, Inc.
(9) Includes 5,376 shares issuable upon exercise of warrants and conversion
privileges and 8,000 shares subject to currently exercisable options. Does not
include 80,622 shares and 13,167 shares issuable upon exercise of warrants owned
of record by Mr. Mars' children who do not reside in the same household with
him.
(10) Includes 6,000 shares subject to options currently exercisable.
(11) Includes 24,000 shares subject to options currently exercisable.
(12) Includes 14,776 shares issuable upon exercise of warrants and conversion
privileges and 13,182 shares subject to currently exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As noted in the chart following the descriptions below, each of the
following transactions involved parties related to the Company.
In February 1993, the Company issued a series of variable repayment
debentures (the"VRDs") as part of an exchange of its then current debt. These
VRDs include: Collateralized VRDs in the aggregate principal amount of $150,351;
Convertible VRDs in the aggregate principal amount of $69,848; Directors VRDs in
the aggregate principal amount of $27,767; Employee Interest-Bearing Notes in
the aggregate principal amount of $282,266; Employee Non-Interest Bearing Notes
in the aggregate principal amount of $276,866; and the SAS IP VRD in the
principal amount of $279,657. In connection with a Subordination and Deferral
Agreement, the holders of the VRDs hold warrants to purchase 15,302 shares of
Common Stock at a purchase price of $1.50 per share. Of these warrants, 9,031
are held by officers and major stockholders of the Company.
With the exception of the Employee Non-Interest Bearing Notes, which bear
no interest, the VRDs bear interest at a rate equal to the prime rate plus two
percent (2%). Interest is payable on a quarterly basis, and principal is payable
out of "adjusted after tax profits" as defined in the instruments evidencing the
debt. The Employee Non-Interest Bearing Notes are convertible into Common Stock
at a conversion rate of $2.50 per share at the option of the note holder and are
payable in eight (8) quarterly installments beginning 90 days after all of the
VRDs have been repaid.
The collateralized VRDs originated out of two loan transactions in 1989.
The holders of the Collateralized VRDs have the right to convert unpaid interest
into Common Stock at the rate of $15.00 per share. Holders of the Collateralized
VRDs have warrants to purchase 26,000 shares of Common Stock at $15.00 per
share. Certain officers and directors of the Company hold an aggregate of
$23,773 of the Collateralized VRDs and have warrants to purchase 1,500 shares of
Common Stock.
The Convertible VRDs originated out of a loan transaction in 1991. The
holders of the Convertible VRDs have the right to convert the Convertible VRDs
into Common Stock at a conversion rate of either $5.00 per share, or in the
event that the Company completes an equity offering greater than $500,000, the
conversion rate is 1/2 of the offering price. On June 18, 1996, the Company
received waivers of conversion rights from the holders of the Convertible VRDs
and, in exchange, $46,914 of the Convertible VRDs held by Dr. John A. Swanson, a
director of the Company, was repaid from proceeds of the initial public offering
in September 1996. An aggregate of $22,933 of Convertible VRDs and accrued
interest of $3,625 were converted into 8,169 shares of Common Stock in June
1996.
The Employee Interest-Bearing Notes and Employee Non-Interest Bearing Notes
originated from wage deferrals by the Company's employees from 1988 through
1991. Officers of the Company hold $123,377 and $121,016 of the Employee
Interest-Bearing Notes and Employee Non-Interest Bearing Notes, respectively. In
November 1996, at a regularly scheduled meeting of the Company's Board of
Directors, the Board authorized a repayment schedule for the next three years on
the Employee Interest-Bearing Notes. Over the next three years, up to one-third
of an employees' interest-bearing debt will be repaid annually, if the employee
agrees to convert an equal or greater amount of his/her non-interest bearing
debt into Common Stock at the conversion rate of $2.50 per share. Two of the
Company's officers holding $83,918 of employee interest-bearing debt have
elected this repayment and conversion option. The 1997 repayment installment is
expected to be completed by March 31, 1997.
The Directors VRDs originated out of a loan transaction in 1988 with the
Company's then current directors. The holders of the Directors VRDs have the
right to convert the principal and unpaid interest accrued thereon into Common
Stock at the then current market price or the price paid by any third party. No
current officers, directors or major stockholders of the Company hold any
Directors VRDs.
The SAS IP VRD originated out of a loan transaction in 1991. In connection
with the original loan, and after the effect of certain anti-dilution
provisions, the holder of the SAS IP VRD has (i) an option to purchase 90,230
shares of Common Stock for $294,578, and (ii) warrants to purchase 161,204
shares of Common Stock at the rate of $5.68 per share. Both of the foregoing
expire two years after the final repayment of the SAS IP VRD. In September 1996
the SAS IP VRD was repaid out of proceeds from the Company's initial public
offering. SAS IP is a major stockholder of the Company.
In February 1993, the Company issued a license to ANSYS, Inc. that is now
held by SAS IP. This license does not require the payment of future royalties.
The Company issued a significant number of prepaid sub-licenses to Concentra,
Inc. ("Concentra") (formerly Wisdom Systems, Inc./ICAD), such that it is
unlikely that Concentra will pay royalties to the Company in the foreseeable
future. In addition, the SAS IP VRD granted SAS IP certain rights with regard to
the Company's software should the Company default on any of its obligations
thereunder. In particular, SAS IP could have received a nonexclusive,
royalty-free license to use a majority of the Company's intellectual property,
including using such intellectual property to compete with the Company, in the
event of a default.
Beginning in January 1994, the Company obtained bridge loans (the "1994
Bridge Loans") to finance the Company prior to the completion of a private
offering of shares of Common Stock. The 1994 Bridge Loans were evidenced by
demand promissory notes, the outstanding principal and accrued interest of which
became due and payable upon the demand of the holder thereof. The 1994 Bridge
Loans bore interest at the rate of ten percent (10%) per year, compounded
annually. The $56,000 of the aggregate principal amount of the 1994 Bridge Loans
that was still outstanding at the time of the Company's initial public offering,
was repaid in September 1996, shortly after receipt of the proceeds of the
offering.
From June through November 1994, the Company offered and sold 114,707
shares of Common Stock at a price per share of $3.00 ("PPM 6"). From November
through December 1995, the Company offered and sold 96,805 shares of Common
Stock at a price per share of $4.50 ("PPM 7").
Beginning in December 1994, the Company offered a series of 10% convertible
debentures (the "Debentures"). On May 31, 1996, all of the Debentures converted
into 564,086 shares of Common Stock at a price per share of $3.00.
From April through May 1996, the Company obtained bridge loans (the "1996
Bridge Loans") to finance the Company prior to completion of its initial public
offering. The 1996 Bridge Loans were evidenced by promissory notes, on which the
principal balance became due and payable on November 15, 1996 or out of proceeds
of the initial public offering, whichever occurred first. The 1996 Bridge Loans
bore interest at the rate of ten percent (10%) per year, compounded annually. In
connection with these loans, the Company issued warrants to purchase 12,500
shares of Common Stock to the holders of the Bridge Loans. The 1996 Bridge Loans
were repaid in September 1996, shortly after receipt of proceeds of the initial
public offering.
On August 29, 1996 an officer of the Company made a bridge loan of $25,000.
This loan was evidenced by a promissory note and bore interest at the rate of
10.75%, compounded annually. There were no warrants to purchase Common Stock
issued in this bridge loan transaction. The loan and accrued interest was repaid
on September 17, 1996 out of proceeds from the initial public offering.
The following directors, officers and major stockholders of the Company
participated in the foregoing transactions as follows:
<TABLE>
<CAPTION>
Debt ($)
-------------------------------------------------------------------------------------------------
Employee
Employee Non- Debentures
Collater- Convert- Interest- Interest (Before
alized ible Bearing Bearing SAS IP 1994 Conver- 1996
VRDs VRDs Notes Notes VRD Bridge sion) Bridge
---- ----- ------ ------ ---- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Lucas..... --- --- --- --- --- --- 238,000(2) 25,000
Turhan F. Rahman ... 3,088 --- 34,816 34,150 --- --- --- ---
Robert S. Mars, Jr.. 12,192 4,395 --- --- --- 61,000(1) --- 25,000
Minnesota
Technology, Inc... --- --- --- --- --- 150,000 54,000 ---
SAS IP, Inc......... --- --- --- --- 279,657 --- --- ---
Pradeep Sinha....... 3,088 --- 49,102 48,163 --- --- --- ---
TK Srinkanth........ 5,404 --- 39,458 38,704 --- --- --- ---
John A. Swanson..... --- 46,914 --- --- --- 56,000 --- 25,000
William J.
Birmingham........ --- --- --- --- --- --- --- 25,000
Totals 23,773 51,310 123,377 121,016 279,657 267,000 292,000 100,000
</TABLE>
Equity (Shares of Common Stock)
--------------------------------------------
Debentures
(After
PPM 6 PPM 7 Conversion)
----- ----- -----------
Robert S. Mars, Jr............. 17,789(1)(3) 2,250(1) ---
John A. Swanson................ 16,667 --- ---
Thomas J. Lucas................ --- 5,555(4) 89,371(2)
Minnesota Technology........... 34,293 --- 20,500
- -----------------------
(1) Of this amount, Mr. Mars converted $51,000 (plus accrued interest) into
17,789 shares of Common Stock in PPM 6 and the other $10,000 (plus accrued
interest) converted into 2,250 shares of Common Stock in PPM 7.
(2) In addition, Roger C. Lucas, the brother of Thomas J. Lucas, purchased
$25,000 of Debentures which converted into 9,118 shares of Common Stock.
(3) Between December 1995 to February 1996, Mr. Mars gifted the 17,789 shares of
Common Stock to his seven children and their spouses.
(4) In addition, Cornelius Lucas, the father of Thomas J. Lucas, purchased
10,000 shares of Common Stock.
Minnesota Technology, Inc. ("MTI"), had the right under an agreement with
the Company to purchase its pro rata share of certain types of securities issued
by the Company, including Shares, at the same price and on the same terms as
others participating in the offering. The Company notified MTI of the initial
public offering and MTI waived those rights.
Dr. Indranil Chakravarty owns five percent (5%) of IIS-XIX Asia Pacific
Pvt. Ltd. pursuant to the joint venture agreement between the Company, IIS
Infotech Ltd. and Dr. Chakravarty.
The Company intends that all ongoing and future transactions between the
Company and its directors, officers, principal stockholders and affiliates of
any such persons will be on terms no less favorable to the Company than those
that are generally available from unaffiliated third parties, and will be
ratified by a majority of the independent outside members of the Company's Board
of Directors who do not have an interest in the transaction.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. See Exhibit index at pages 44 and 45, which is incorporated herein
by reference.
(b) REPORTS ON FORM 8-K. The Company filed no reports on Form 8-K during the
fourth quarter of fiscal 1996.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
XOX Corporation
We have audited the accompanying balance sheets of XOX Corporation as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether these financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of XOX Corporation at December 31,
1996 and 1995, and the results of its operations and cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
February 20, 1997
XOX CORPORATION
BALANCE SHEETS
ASSETS
December 31
------------------------
1996 1995
---------- ----------
Current assets:
Cash and cash equivalents $2,720,551 $ 29,918
Accounts receivable 193,976 38,108
Prepaid expenses 90,957 1,405
Other 12,000 0
---------- ----------
Total current assets 3,017,484 69,431
Property and equipment:
Furniture and fixtures 67,613 46,890
Computer equipment 342,448 289,760
Leasehold improvements 68,766 64,300
---------- ----------
478,827 400,950
Less accumulated depreciation 345,190 311,514
---------- ----------
Net property and equipment 133,637 89,436
License agreements, net of amortization of $4,792 110,208 0
Investment in joint venture 41,020 0
---------- ----------
Total assets $3,302,349 $ 158,867
========== ==========
<TABLE>
<CAPTION>
XOX CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (-DEFICIT)
December 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 209,395 $ 81,714
Accrued expenses 77,355 14,733
Bridge financing 0 56,000
Notes payable 0 60,116
Accrued interest 0 126,079
Convertible debenture 0 1,482,880
----------- -----------
Total current liabilities 286,750 1,821,522
Deferred revenue 65,667 90,001
Long-term liabilities:
Long-term debt - related parties 734,451 1,086,755
Accrued interest - related parties 0 132,345
Accrued payroll taxes 34,163 34,163
Other accrued liabilities 78,624 58,765
----------- -----------
Total long-term liabilities 847,238 1,312,028
Stockholders' equity (- deficit):
Undesignated shares - 10,000,000
Preferred Stock, $.025 par value:
Authorized shares - 5,000,000
Outstanding shares - 160,000 at December 31, 1995 0 4,000
Common Stock, $.025 par value:
Authorized shares - 5,000,000
Issued and outstanding shares:
December 31, 1995 - 1,243,884
December 31, 1996 - 2,930,401 73,260 31,097
Additional paid-in capital 12,236,142 5,439,528
Accumulated deficit -10,206,708 -8,539,309
----------- -----------
Total stockholders' equity (-deficit) 2,102,694 -3,064,684
----------- -----------
Total liabilities and stockholders' equity (-deficit) $ 3,302,349 $ 158,867
=========== ===========
SEE ACCOMPANYING NOTES.
</TABLE>
XOX CORPORATION
STATEMENTS OF OPERATIONS
Year ended December 31
------------------------
1996 1995
---------- ----------
Net revenues:
Customer support and consulting $ 367,567 $ 255,180
Product revenue 289,248 144,207
Royalties 149,691 21,726
---------- ----------
806,506 421,113
Operating expenses:
Research and development 926,115 525,292
Selling, general and administrative 1,399,567 1,218,373
---------- ----------
2,325,682 1,743,665
---------- ----------
Loss from operations -1,519,176 -1,322,552
Interest income 47,838 8,849
Interest expense -196,061 -287,242
---------- ----------
Net loss -$1,667,399 -$1,600,945
========== ==========
Net loss per share:
Primary -$0.88 -$1.21
Fully diluted -$0.81 -$1.08
Supplementary -$0.77 -$1.02
Weighted average shares outstanding:
Primary 1,900,316 1,322,781
Fully diluted 2,060,316 1,482,781
Supplementary 2,114,887 1,537,352
SEE ACCOMPANYING NOTES.
<TABLE>
<CAPTION>
XOX CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (-DEFICIT)
Preferred Stock Common Stock
-------------------- ---------------------- Additional Total
Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity (-Deficit)
-------------------- ---------------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 160,000 $4,000 1,147,079 $28,677 $ 4,984,575 -$6,938,364 -$1,921,112
Value of warrants issued in
connection with Convertible
Debentures...................... 74,300 74,300
Sale of Common Stock, net of
offering costs.................. 94,555 2,364 370,584 372,948
Conversion of debt into
Common Stock................... 2,250 56 10,069 10,125
Net loss.......................... -1,600,945 -1,600,945
-------------------- ---------------------- ----------- ------------ ------------
Balance December 31, 1995 160,000 4,000 1,243,884 31,097 5,439,528 -8,539,309 -3,064,684
Sale of Units at $7.00 per Unit,
net of offering costs........... 870,000 21,750 4,975,555 4,997,305
Conversion of Preferred Stock
into Common Stock............... -160,000 -4,000 160,000 4,000
Exercise of stock options 68,702 1,718 43,037 44,755
Sale of Common Stock at $4.50 15,000 375 67,125 67,500
Conversion of convertible
debentures and accrued interest
into Common Stock............... 564,086 14,102 1,678,156 1,692,258
Value of warrants issued in
connection with bridge loans 5,000 5,000
Conversion of long-term debt
and accrued interest into
Common Stock.................... 8,729 218 27,741 27,959
Net loss.......................... -1,667,399 -1,667,399
-------------------- ---------------------- ----------- ------------ -----------
Balance December 31, 1996 0 0 2,930,401 $73,260 $12,236,142 -$10,206,708 $ 2,102,694
==================== ====================== =========== ============ ===========
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
XOX CORPORATION
STATEMENTS OF CASH FLOWS
Year ended December 31
------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss -$1,667,399 -$1,600,945
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 32,934 22,919
Amortization 4,792 0
Noncash interest expense related to warrants 25,120 49,180
Changes in other operating assets and liabilities:
Accounts receivable -155,868 -38,018
Prepaid expenses -89,552 6,471
Accounts payable 127,681 -40,142
Accrued interest -64,947 131,052
Accrued liabilities 58,248 8,541
Deferred revenue -24,334 8,948
Other receivables -12,000 0
---------- ----------
Net cash used in operating activities -1,765,325 -1,451,994
INVESTING ACTIVITIES
Purchase of property and equipment -77,877 -84,135
License agreements -85,000 0
Investment in joint venture -41,020 0
---------- ----------
Net cash used in investing activities -203,897 -84,135
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 5,102,541 372,948
Proceeds from bridge loans 475,000 0
Payments on bridge loans -531,000 -292,375
Proceeds from notes payable 0 62,650
Proceeds from convertible debentures 0 1,366,000
Payments on notes payable -386,686 -2,534
---------- ----------
Net cash provided by financing activities 4,659,855 1,506,689
---------- ----------
Net increase (-decrease) in cash and cash equivalentts 2,690,633 -29,440
Cash and cash equivalents at beginning of year 29,918 59,358
---------- ----------
Cash and cash equivalents at end of year $2,720,551 $ 29,918
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Conversion of bridge loan into common stock $ -- $ 10,125
Conversion of bridge loan and notes payable into
convertible debentures $ -- $ 142,000
Conversion of accrued interest and convertible debentures
into Common Stock $1,692,258
Conversion of accrued interest and long-term debt
into Common Stock $ 27,959
SEE ACCOMPANYING NOTES
</TABLE>
XOX CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS ACTIVITY
XOX Corporation ("the Company" or "XOX" [pronounced zocks] ) develops and
sells computer software products used in geometric computing. The Company was
incorporated in September, 1985.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on a
straight-line method over five years, the estimated useful life of the assets.
Leasehold improvements are amortized using the straight-line method over three
to five years, representing the shorter of their estimated useful lives or the
underlying lease term.
RESEARCH AND DEVELOPMENT
Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant. All research and development costs have been expensed as
incurred.
REVENUES
Revenues from software sales is recognized upon delivery of the software.
Revenues earned from customer support (i.e., long-term maintenance contracts and
consulting services) is recognized over the life of the contract, on a
straight-line method.
The Company also earns royalty fees from the incorporation of its products
into other vendors' software. Such revenue is recognized upon delivery of the
end product.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
Income taxes are provided based on earnings reported for financial
statement purposes. Deferred income taxes are provided for temporary differences
between financial reporting and income tax bases of assets and liabilities under
the liability method.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those are less than the assets' carrying
amount.
JOINT VENTURE
In December 1996, the Company formed a joint venture with another entity
from India. The Company is a 47.5% shareholder in the joint venture. The
Company's investment of $41,020 is accounted for under the equity method.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of Common Stock outstanding during the periods presented after giving effect to
the application of Securities and Exchange Commission Staff Accounting Bulletin
No. 83 ("SAB 83"). Pursuant to SAB No. 83, all common shares issued and stock
options and warrants granted by the Company at a price less than the initial
public offering price during the 12 months preceding the offering date (using
the treasury stock method until shares are issued) have been included in the
calculation of common and common equivalent shares outstanding for all periods
up to the initial public offering date. The fully diluted loss per share is
presented using the "if converted" method and reflects the impact of the
conversion of the preferred stock to Common Stock at the beginning of the
earliest period presented or at the date of issuance, if later.
In computing supplementary net loss per share, interest expense related to
debt retired with the proceeds of Common Stock issued in the initial public
offering has been added back to reduce the net loss. The weighted average number
of shares used in the calculation consists of Common Stock outstanding during
the period after giving effect to the conversion of all preferred stock to
Common Stock, additional SAB No. 83 shares as determined above and the required
shares of Common Stock issued to repay the debt.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," and applies Accounting Principles Board Opinion No. 25 (APB 25)
and related interpretations in accounting for its plans. Under APB 25, when the
exercise price of employee stock options equals the market price of the
underlying stock on the date of grant, no compensation is recognized.
3. LONG-TERM DEBT
Maturities of the long-term debt to related parties totaling $734,451 are
dependent upon the profitability of the Company in the future. Due to the
uncertainty surrounding the maturities of the long-term debt, it is not possible
to determine its fair market value. The various components of the debt are as
follows:
* As of December 31, 1996 and 1995, promissory notes issued to various
directors, officers, stockholders and employees of the Company had
outstanding principal balances of $150,351. The promissory notes bear
interest at the prime rate plus 2% (10.25% at December 31, 1996 and 10.5%
at December 31, 1995). Interest is payable on a quarterly basis. The notes
have a variable repayment plan which is dependent upon the Company
attaining after-tax profits. Also, certain of the noteholders are able to
convert the unpaid principal balance into Common Stock at a conversion rate
of $15.00. In addition, the noteholders have warrants to purchase a total
of 26,000 shares of Common Stock at $15.00 per share. The notes issued to
certain of the noteholders are secured by an interest in the Company's
technology.
* As of December 31, 1995, promissory notes issued to a group of
stockholders, officers and directors had an outstanding principal balance
totaling $69,848. In 1996, the Company repaid $46,914 of these notes. The
remaining $22,934 plus $3,625 of accrued interest, was converted into 8,169
shares of Common Stock. The promissory notes bore interest at the prime
rate plus 2% (10.5% at December 31, 1995).
* As of December 31, 1996 and 1995 promissory notes issued to certain
directors of the Company had outstanding principal balances totaling
$27,767. The promissory notes bear interest at the prime rate plus 2%
(10.25% at December 31, 1996 and 10.5% at December 31, 1995). Interest is
payable on a quarterly basis. The notes have a variable repayment plan
which is dependent upon the Company attaining after-tax profits. As of
December 31, 1995, interest of $4,536 was accrued related to those notes.
The holders of these notes can convert either principal or interest into
Common Stock at any time. The conversion price shall be the lower of (a)
the lowest prevailing market price, or (b) the price per share paid by any
third party (other than on the exercise of stock options). These notes are
secured by an interest in the Company" technology.
* As of December 31, 1996 and 1995, promissory notes issued to the Company's
employees for accrued wage concessions plus accrued interest, had
outstanding principal balances totaling $556,332 and $559,132,
respectively. Certain of these notes, totaling $280,866 at December 31,
1996, bear interest at the prime rate plus 2% (10.25% at December 31, 1996
and 10.50% at December 31, 1995). Interest is payable quarterly. The
remaining employee promissory notes, totaling $275,466 at December 31,
1996, bear no interest. These notes have a conversion feature allowing the
holder to convert the unpaid principal balance into Common Stock at a
conversion rate of $2.50 per share. The interest bearing notes have a
variable repayment plan which is dependent upon the Company attaining
after-tax profits. The non-interest bearing notes shall be paid in eight
equal quarterly installments beginning ninety days after the variable
repayment debt has been repaid. As of December 31, 1995, there was interest
of $46,122 accrued related to these notes.
* As of December 31, 1995, a promissory note issued to a related party, had
an outstanding principal balance totaling $279,657. The promissory note
accrued interest at the prime rate plus 2% (10.5% at December 31, 1995) and
was secured by certain licensing and marketing rights in the Company's
technology. In connection with the Subordination and Deferral Agreement
entered into on September 30, 1993, the related party agreed to defer its
interest payments until the bridge financing is repaid. In addition, the
related party received warrants to purchase Common Stock equal to 25% of
the interest accrued, but not paid. The exercise price of warrants is $1.50
per share. The warrants are exercisable for five years from the date of
grant. In addition, the related party retains an option to purchase 90,230
shares of Common Stock at an exercise price of $294,578 and a warrant to
purchase 161,204 shares of Common Stock at an exercise price of $5.68 per
share as additional consideration for the loan. The option may only be
exercised in full. The option and warrant both expire two years after the
repayment of the promissory note. As of December 31, 1995, interest of
$45,679 was accrued related to this note. The note and accrued interest was
repaid in full during September 1996.
In connection with the debt restructuring that occurred in February 1993,
the Company granted a related party a perpetual, royalty free license and
maintenance agreement and a separate related party a specific number of fully
paid licenses. Due to the lack of a definitive time frame over which the related
parties will be entitled to have the Company perform maintenance services,
limited to $50,000 per year, to customers of the related parties, and the
inability of the Company to estimate the cost of these maintenance services, no
liability has been recorded.
4. CONVERTIBLE DEBENTURES
In 1995, the Company issued a total of $1,508,000 of convertible
debentures. Interest accrued at the rate of ten percent per annum from the date
of issue. The holders of the convertible debentures received warrants to
purchase 150,800 shares of Common Stock. The warrants are exercisable at $6.00
per share and remain outstanding until May 31, 1997. In connection with the
issuance of the convertible debentures, the Company granted warrants to the
selling agent to purchase 44,800 shares of Common Stock at $3.00 per share. The
warrants are exercisable over five years and were deemed to have a value of
$74,300 which were recorded as interest expense over the life of the debenture.
In May 1996, the convertible debentures, with a carrying value of $1,508,000,
and accrued interest of $184,258 were converted into 564,086 shares of Common
Stock.
5. BRIDGE FINANCING
In 1994, the Company obtained $567,500 of bridge financing. At December 31,
1995, $56,000 remained outstanding. This amount was repaid in full during 1996.
The participants in the bridge financing received warrants to purchase 94,586
shares of Common Stock at a purchase price of $1.50 per share. The warrants are
exercisable for five years from the date of grant.
In March 1996, the Company borrowed $100,000 through a bridge financing
agreement. The Company issued a note payable of $100,000 bearing interest at 8%
per year. In connection with the issuance of the note, the Company granted
warrants to purchase 2,222 shares of Common Stock at $4.50 per share exercisable
over five years. The note was repaid in December 1996.
In May 1996, the Company borrowed a total of $250,000 through a bridge
financing agreement. The notes bore interest at 10% per year. In connection with
the notes, the Company issued warrants for the purchase of 12,500 shares of
Common Stock. The warrants are exercisable at $6.00 and remain outstanding for
five years from the date of issuance. The bridge financing was repaid in
September 1996.
In July 1996, the Company borrowed $100,000 from a financial institution.
The loan bore interest at 8.75% per year and had the personal guarantee of
Robert S. Mars, Jr. The loan was repaid in September 1996.
In August 1996, an officer of the Company made a bridge loan of $25,000.
This loan was evidenced by a promissory note and bore interest at the rate of
10.75% compounded annually. There were no warrants to purchase Common Stock
issued in this bridge loan transaction. The loan and accrued interest was repaid
in September 1996.
6. NOTES PAYABLE
In 1994, the Company entered into a $75,000 note. The note bore interest at
10% per year. In January 1995, the note was converted into 25,000 shares of
Common Stock.
In July 1995, the Company issued a total of $62,650 in notes with interest
ranging from 10% to 15%. During 1995, the Company repaid $2,534 on these notes.
The notes and related interest were fully paid in 1996.
7. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
In September 1996, the Company sold 870,000 units in an initial public
offering from which the Company received $5,481,000 before deducting expenses.
Each unit sold in the initial public offering consisted of one share of Common
Stock and one Redeemable Warrant. Each Redeemable Warrant entitles the holder to
purchase one share of Common Stock at a price of $8.00. In March 1997, the
Redeemable Warrant may be redeemed by the Company at a redemption price of $.01
per Redeemable Warrant if the closing bid price equals or exceeds (i) $10.50 per
unit or (ii) $9.50 per share of Common Stock for twenty consecutive trading
days.
PREFERRED STOCK
Upon the conclusion of the Company's initial public offering, all
outstanding shares of preferred stock were converted on a one-for-one basis to
Common Stock. Prior to that date, the Company had issued 160,000 shares of
Series A Convertible Preferred Stock. The previous Preferred Stock stockholders
have a warrant to purchase 31,334 shares of Common Stock at an exercise price of
$15.00 per share. The warrant expires on December 31, 1997.
The following table summarizes the number of shares of Common Stock to be
issued upon conversion of convertible preferred stock or convertible debt
outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
Descriptions Number of Shares Conversion Price
- ------------ ---------------- ----------------
<S> <C> <C>
Common Stock issuable upon conversion of convertible
promissory notes to various directors, officers,
shareholders and employees............................ 5,133 $15.00
Common Stock issuable upon conversion of convertible
promissory notes to employees......................... 110,427 $2.50
Common Stock issuable upon conversion of convertible
promissory notes to directors......................... 6,170 $4.50(1)
-------
Total 121,730
</TABLE>
(1) The conversion price is to be the lower of (a) the lowest prevailing market
price or (b) the price per share paid by any third party (other than on the
exercise of stock options). A conversion price of $4.50 was used as this
was the closing price of the Company's stock on December 31, 1996. All
parties have the right to convert any unpaid principal or accrued interest
at any time prior to payment.
8. STOCK-BASED COMPENSATION
STOCK OPTIONS
In 1996, the Company adopted the 1996 Omnibus Stock Plan (the "Plan"). The
Plan supersedes both the 1987 Incentive Stock Option Plan and the 1987
Non-Qualified Stock Option Plan. Under the Plan, 500,000 shares are reserved for
future issuance. Options granted under the Plan may be either incentive options
or non-qualified options. The Plan requires that the option price of incentive
stock options be not less than 100% of the fair market value of the Company's
Common Stock on the date of grant and may remain outstanding up to ten years
from the date of grant. Non-qualified options must be priced not less than 85%
of the fair market value of the Company's Common Stock on the date of grant.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
<S> <C> <C> <C>
Balance at December 31, 1994 324,718 476,280 $3.98
Granted (53,631) 53,631 3.17
Options canceled 14,080 (14,080) 2.65
Balance at December 31, 1995 285,167 515,831 3.91
Granted (223,200) 223,200 4.67
Shares no longer reserved under the 1987 Plan (61,967) - -
Shares reserved under the 1996 Omnibus Plan 500,000 - -
Omnibus Plan options granted (37,000) 37,000 6.50
Options exercised - (85,225) 1.79
Options canceled - (730) 4.64
Balance at December 31, 1996 463,000 690,076 $4.57
</TABLE>
Outside the Plans, the Company has 103,370 options outstanding to purchase
shares of Common Stock with a weighted average exercise price of $4.87 per
share.
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ---------------------------------
Weighted
Number Average Number
Outstanding at Remaining Weighted Exercisable at Weighted
Range of December 31, Contractual Average December 31, Average
Exercise Prices 1996 Life Exercise Price 1996 Exercise Prices
- --------------- ---- ---- -------------- ---- ---------------
<C> <C> <C> <C> <C> <C>
$1.50 to $2.50 63,600 7 years $ 1.68 63,600 $ 1.68
$3.00 to $4.50 381,279 8 years 3.30 186,809 3.12
$4.75 to $6.50 190,800 9 years 5.09 38,040 5.09
$15.00 54,397 8 years 15.00 39,397 15.00
690,076 $ 4.57 327,846 $ 4.50
</TABLE>
The number of options exercisable as of December 31, 1996 and 1995 were 327,846
and 216,578, respectively at weighted average exercise prices of $4.50 and $4.18
per share, respectively.
The weighted average fair value of options granted during the years ended
December 31, 1996 and 1995 was $4.58 and $3.00 per share, respectively.
PRO FORMA DISCLOSURES
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.31% ;
no dividend yield ; volatility factor of the expected market price of the
Company's common stock of 1.08 ; and a weighted-average expected life of the
option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
1996 1995
---- ----
Pro forma net loss ($1,933,125) ($1,616,878)
Pro forma primary net loss per share ($1.02) ($1.22)
Pro forma fully diluted net loss per share ($.94) ($1.09)
WARRANTS
The Company has also issued warrants in connection with debt and equity
offerings to purchase shares of Common Stock which are currently exercisable.
Warrant activity is summarized as follows:
<TABLE>
<CAPTION>
Warrants
Outstanding and Price Expiration
Exercisable per Share Date
----------- --------- ----
<S> <C> <C> <C>
Balance at December 31, 1993 229,040 $ 1.50 - $ 15.00 1994 - 1998
Warrants granted 110,753 1.50 - 15.00 1997(1) - 1999
Warrants canceled (7,483) 1.50 - 15.00 -
Balance at December 31, 1994 332,310 1.50 - 15.00 1997(1) - 1999
Warrants granted 211,206 3.00 - 4.50 1997 - 2000
Warrants canceled (35,510) 15.00 -
Balance at December 31, 1995 508,006 1.50 - 15.00 1997(1) - 2000
Warrants granted 980,742 4.50 - 9.10 1997(1) - 2001
Warrants canceled - - -
Balance at December 31, 1996 1,488,748 $ 1.50 - $15.00 1997(1) - 2001
</TABLE>
(1) Certain of the warrants granted have expiration dates that are contingent
upon the repayment of debt by the Company. The expiration dates are the
longer of the original expiration date, Ausgust 16, 1996, or two years
after the final debt repayment.
9. SALES CONTRACTS
The Company has entered into sales contracts with various customers. Each
agreement generally has a license fee and royalty or usage fees. Some of the
contracts are structured to include prepayment of license or royalty fees or
payments of minimum guarantees. Prepayments have been recorded as deferred
revenue in the financial statements.
10. INCOME TAXES
At December 31, 1996, the Company had net operating carryforwards of
approximately $8,540,000 plus research and development tax credit carryforwards
of approximately $150,000. The net operating loss carryforwards are available to
offset future taxable income through 2010 and are subject to the limitations
under Section 382 of the Internal Revenue Code due to changes in the equity
ownership of the Company.
Components of deferred tax assets are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 3,416,000 $ 2,692,000
Research and development credits 150,000 140,000
Other accruals 25,000 133,000
----------- -----------
3,591,000 2,965,000
Less valuation allowance (3,591,000) (2,965,000)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
11. LEASES
The Company leases office space under a non-cancelable operating lease
which provides for escalating rent payments expiring in October 1998. In
addition to base rent, the Company pays a pro rata portion of the operating
expenses of the facility. The Company also leases certain research and
development equipment under operating leases. Future minimum lease commitments
for all operating leases with initial or remaining terms of one year or more are
as follows:
Year ending December 31:
1997 $ 92,867
1998 77,559
1999 7,200
2000 5,784
Total $183,410
Rent expense on operating leases for the years ended December 31, 1996 and 1995
was $71,980 and $66,222, respectively.
12. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with members of its
senior management and development staff. The agreements include provisions for
compensation and benefits. The agreements expire at various times from December
31, 1997 through December 31, 1998. The employment agreements also contain
non-compete clauses that prohibit the employee from being employed by a
competitor of the Company. The non-compete clause is in effect for the longer of
three years from the signing of the employment agreement or one year after
termination.
13. SIGNIFICANT CUSTOMERS
In 1996, two customers accounted for 26% and 22% of revenues, respectively.
In 1995, the same two customers accounted for 22% and 43% of revenues,
respectively.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 24, 1997 XOX Corporation
By /s/ Lawrence W. McGraw
-------------------------------------
President and Chief Executive Officer
By /s/ William J. Birmingham
-------------------------------------
Chief Financial Officer
In accordance with the requirements of the Exchange Act, this Report has
been signed below by the following persons on behalf of the Company and in the
capacities indicated on March 24, 1997.
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Lawrence
W. McGraw and William J. Birmingham as their true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-KSB and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or cause to be done
by virtue thereof.
SIGNATURE POSITION
- --------- --------
/s/ Lawrence W. McGraw
- --------------------------------
Lawrence W. McGraw Director, President, Chief Executive Officer
/s/ William J. Birmingham
- --------------------------------
William J. Birmingham Chief Financial Officer
/s/ Robert S. Mars, Jr.
- --------------------------------
Robert S. Mars, Jr. Chairman of the Board
/s/ Dr. Pradeep Sinha
- --------------------------------
Dr. Pradeep Sinha Vice President of Research, Chief Technical
Officer and Director
/s/ Thomas J. Lucas
- --------------------------------
Thomas J. Lucas Director
/s/ Dr. John A. Swanson
- --------------------------------
Dr. John A. Swanson Director
<TABLE>
<CAPTION>
XOX CORPORATION
EXHIBIT INDEX TO
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996
Item No. Title of Document Method of Filing
- -------- ----------------- ----------------
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of small
business issuer .................................................... *
3.2 Amended and Restated Bylaws of small business issuer................ *
4.1 Specimen of Unit Certificate........................................ *
4.2 Form of Warrant Agreement........................................... *
4.3 Form of 1996 Promissory Note and Common Stock Purchase
Warrant............................................................. *
4.4 Security Agreement, $100,000 Promissory Note and Common
Stock Purchase Warrant between Unitechnic and the Company
dated March 8, 1996 ................................................ *
4.5 Form of 1994 Bridge Loan Promissory Note and Security
Agreement........................................................... *
4.6 Form of 1993 Convertible Variable Repayment Debenture............... *
4.7 Form of Director's Variable Repayment Debenture..................... *
4.8 Form of 1993 Employee Debt-Related Promissory Note.................. *
4.9 Form of 1993 Secured Collateralized Variable Repayment
Debenture .......................................................... *
4.10 Form of 1993 Unsecured Collateralized Variable Repayment
Debenture .......................................................... *
4.11 Form of 1993 Employee Debt-Related Variable Repayment
Debenture........................................................... *
4.12 $297,656.30 Variable Repayment Debenture dated February 1993,
between Swanson Analysis Systems, Inc., as Payee, and the
Company, as Payor .................................................. *
4.13 Form of 1993 Debt Exchange Subscription Agreement and
Letter of Investment Intent ........................................ *
5.1 Opinion of Doherty, Rumble & Butler Professional Association ....... *
10.1# License Agreement between ANSYS, Inc. (formerly Swanson
Analysis Systems, Inc.) and the Company dated February 9, 1993...... *
10.2 Joint Venture Agreement between IIS Infotech Ltd., the Company
and Dr. Indranil Chakravarty dated December 20, 1995 ............... *
10.3# Software License Agreement between Landmark Graphics, Inc. and
the Company dated January 1, 1995 .................................. *
10.4# Software License Agreement between Schlumberger Corporation
and the Company dated October 14, 1994 ............................. *
10.5# Software License Agreement between CogniSeis Development,
Inc. and the Company dated July 10, 1995 ........................... *
10.6 Sublease Agreement between the Company and St. Paul Software,
Inc. dated July 25, 1995............................................. *
10.7 Employment Agreement between the Company and Lawrence W.
McGraw dated December 20, 1994 ..................................... *
10.8 Employment Agreement between the Company and Dr. Pradeep
Sinha dated December 20, 1994 ...................................... *
10.9 Employment Agreement between the Company and Dr. T.K.
Srikanth dated December 20, 1994 ................................... *
10.10 Employment Agreement between the Company and Dr. Indranil
Chakravarty dated September 15, 1995................................ *
10.11 Employment Agreement between the Company and Turhan
Rahman dated December 20, 1994 ..................................... *
10.12 XOX Corporation 1996 Omnibus Stock Plan............................. *
10.13 XOX Corporation 1987 Incentive Stock Option Plan and
Agreement........................................................... *
10.14 XOX Corporation 1987 Non-Qualified Stock Option Plan and
Agreement .......................................................... *
10.15# Software License Agreement between CADKEY, Inc. and the
Company dated September 27, 1990 ................................... *
10.16# Software License Agreement between Schlumberger/Geco-Prakla
and the Company dated November 30, 1993 ............................ *
10.17# Software License Agreement between Shell Oil and the Company
dated October 7, 1994 .............................................. *
10.18# Confidential Disclosure Agreement between Fairfield Imaging-
VoluMetrix and the Company dated October 17, 1995 .................. *
10.19# Distribution License Agreement among the Company, Tech Soft
GmbH and SAPEX dated April 18, 1995 ................................ *
10.20# Marketing and Support Agreement between Tech Soft GmbH and
the Company dated October 1, 1994 .................................. *
10.21# Development and License Agreement between Visual Software,
Inc. and the Company dated November 28, 1995 ....................... *
10.22# International Distribution Agreement between Unitechnic SA and
the Company dated June 1, 1996 ..................................... *
10.23 $100,000 Secured Promissory Note, Guaranty and Security
Agreement among Robert S. Mars, Jr., as Guarantor, and First
Bank National Association, as Bank, and the Company, as
Borrower, dated July 10, 1996 ...................................... *
10.24# Software License Agreement between Evans and Sutherland
Corporation and the Company dated January 9, 1996 .................. *
10.25 Source Code Licensing Agreement between VoluMetrix and the
Company dated October 31, 1996 ..................................... Filed herewith electronically.
10.26 Software, known as "MACADAMIA", purchase agreement
between Jacques E. Gavois and the Company dated
December 1, 1996.................................................... Filed herewith electronically.
10.27 Employment Agreement between Jacques E. Gavois and the
Company dated December 1, 1996 ..................................... Filed herewith electronically.
10.28# Reciprocal Joint Development and Marketing Agreement between
IMETRIX Ltd. and the Company dated October 31, 1996 ................ Filed herewith electronically.
10.29# Letter of understanding regarding a Convertible Bridge Loan
Agreement between the Company and IMETRIX Ltd. dated
February 26, 1997 .................................................. Filed herewith electronically.
10.30# SURFER Software License Agreement between Shell Oil
Company and the Company dated October 3, 1996....................... Filed herewith electronically.
11.1 Computation of Net Loss per share................................... Filed herewith electronically.
24.1 Power of Attorney................................................... Included in signature page of
this Form 10-KSB
27.1 Financial Data Schedule............................................. Filed herewith electronically.
</TABLE>
* Incorporated by reference; SEC File No. 333-05112-C
# Confidential Treatment Requested pursuant to the Securities Act of 1933. Rule
406(b); confidential portions of the exhibits have been deleted and filed
separately with the Securities and Exchange Commission.
PROGRAM LICENSE AGREEMENT (SOURCE CODE)
This document describes a Source Code Licensing Agreement between VOLUMETRIX of
Ashdown Court, The Square, Forest Row, East Sussex RH18 5EZ and XOX CORPORATION
INC of 1450 Energy Park Drive, Suite 120, St Paul, MN 55108 USA.
This Agreement consists of:
(1) the accompanying Terms and Conditions and
(2) one (1) or more Program Descriptions adopted from time to time with
reference to this Agreement.
A separate Program Description will apply to each Program licensed from
VoluMetrix under this Agreement. The Program Description will identify the
Program and indicate the License Fees, Term of License, and implementation
Schedule for that Program.
WHEREAS, XOX has incorporated the Programs described in the Program Description
into its products for resale to third parties under an existing Reseller
Agreement with VM.
WHEREAS, VoluMetrix has created the programs described in the Program
Description specifically for incorporation into a product created by XOX for
non-exclusive resale by XOX under an existing Reseller Agreement.
WHEREAS, VoluMetrix and XOX agree to terminate the existing Reseller Agreement.
WHEREAS, VoluMetrix and XOX agree to separate their interests by the licensing
of the Source Code of the product described in Product Description, as
incorporated into XOX's product.
WHEREAS, VoluMetrix and XOX agree to complete confidentiality.
BY SIGNING BELOW, IT IS AGREED THAT THIS AGREEMENT, INCLUDING THE ACCOMPANYING
TERMS AND CONDITIONS, AND THE PROGRAM DESCRIPTIONS ADOPTED HEREUNDER, IS THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES RELATING
TO THE SUBJECT MATTER HEREOF. THIS AGREEMENT SHALL BECOME EFFECTIVE WHEN IT AND
AN INITIAL PROGRAM DESCRIPTION ARE ACCEPTED AND EXECUTED BY YOU AS THE CUSTOMER
AND APPROVED AND EXECUTED BY VOLUMETRIX.
Approved: Accepted:
VOLUMETRIX XOX CORPORATION INC
By: /s/ D.L. Cram /s/ Lawrence McGraw
Authorized Representative Authorized Representative
TERMS AND CONDITIONS
1. DEFINITIONS
"XOX" means the single customer organization signing this Agreement, namely XOX
CORPORATION INC of 1450 Energy Park Drive, Suite 120, St Paul, MN 55108 USA.
"VM" means the Licensor signing this Agreement, namely VOLUMETRIX of Ashdown
Court, The Square, Forest Row, East Sussex RH18 5EZ UK.
The "Source Code" of the Program(s) means the Program(s) written in programming
languages, such as C, including all comments and procedural code, such as job
control language statements, in a form intelligible to trained programmers and
capable of being translated into Object Code for operation on computer equipment
through assembly or compiling, and accompanied by documentation, including flow
charts, schematics, statements of principles of operations, and architecture
standards, describing the data flows, data structures, and control logic of the
Program(s) in sufficient detail to enable a trained programmer through study of
such documentation to maintain and/or modify the Program(s) without undue
experimentation.
"End-User Materials" means documentation that describes the function and use of
each Program in sufficient detail to permit use of the program.
"Test harness" means a method of testing the correct operation of the compiled
source code.
A "Derivative Work" means a work that is based on one or more pre-existing
works, such as a revision, enhancement, modification, translation, abridgement,
condensation, expansion, or any other form in which such pre-existing works may
be recast, transformed, or adapted. For purposes hereof, a Derivative Work shall
also include any compilation that incorporates such a pre-existing work.
An "Affiliate" means any corporation, partnership, joint venture, or other
entity (1) as to which XOX own or control, directly or indirectly, stock or
other interest representing more than twenty-five percent (25%) of the aggregate
stock or other interest entitled to vote on general decisions reserved to the
stockholders, partners, or other owners of such entity; (2) if a partnership, as
to which XOX or another Affiliate is a general partner; (3) to which XOX provide
substantial management services under contract; or (4) that XOX otherwise
control or assist in matters of management and operations.
"Program 1 " means source code known to XOX as a voxel rendering library called
the VVL, which XOX has successfully incorporated into it's products.
"Program 2" refers the source code for a program which has not yet been written
which will provide a perspective view within an OPenGL and voxel scene, which
will permit effective zooming by redisplay of both the OpenGL scene and voxel
overlay as is, or within a view port.
2. AFFILIATES
Unless otherwise provided in the Program Description, XOX's rights and licenses
hereunder may extend to the benefit of XOX's Affiliates, provided that they
assume and abide by the obligations and restrictions established hereunder.
3. COPYING OF PROGRAMS AND END-USER MATERIALS
VM grants XOX a non-exclusive license to copy and distribute internally
(including to Affiliates) the Program(s) and related End-User Materials listed
below in support of XOX's use of the Program(s) as provided in Paragraphs 4, and
5 hereof.
4. USE OF SOURCE CODE
VM grants XOX a non-exclusive license in and to the Program(s), in Source Code
form, to:
1. Use the Source Code to prepare Derivative Works of each Program.
2. Assemble or compile additional copies of each Derivative Work in
Object Code form.
VM requires that the Program(s), User Documentation and Test Harness are
returned to VM after creation of the Derivative Work and not later than 30 days
after delivery.
5. DERIVATIVE WORK
VM grants XOX the right to create a Derivative Work from Program(s), and all
rights of ownership of this Derivative Work pass to XOX and XOX's Affiliates.
All references to VoluMetrix (or it's predecessor Fairfield Imaging) will be
removed from the Derivative Work by removing direct references by name or
references by abbreviation or mnemonics.
6. DELIVERY
Unless otherwise provided in the pertinent Program Description, VM will deliver
to XOX one (1) full set of Program 1 and related documentation in Source Code
form, and one (1) set of End-User Materials, and one (1) copy of the Test
Harness for testing the VVL functions relating to Program 1 within five (5)
business days after the date of execution of this Agreement. Unless otherwise
provided in the pertinent Program Description, delivery shall be complete when
such materials are transferred to a representative of XOX.
Unless otherwise provided in the pertinent Program Description, VM will deliver
to XOX one (1) full set of Program 2 and related documentation in Source Code
form, and one (1) set of End-User Materials, and one (1) copy of the Test
Harness capable of testing all functions relating to Program 2 within three (3)
months after the date of execution of this Agreement. Unless otherwise provided
in the pertinent Program Description, delivery shall be complete when such
materials are transferred to a representative of XOX.
7. INSTALLATION AND SUPPORT
VM will not be responsible for delays caused by events or circumstances beyond
its reasonable control. XOX are responsible for obtaining computers and
operating systems compatible with the Program(s), as shown in the technical
specifications for each Program. Installation shall be the responsibility of XOX
but shall not be affected any warranties still in effect under Paragraph 16.
VM will provide support to XOX programmers for a period of thirty days after
delivery of Program(s). This support will be limited to telephone support during
VM office hours and will only extend to explanations of the working of the
source code and will specifically not extend to additions to the source code or
supporting interactions with XOX's development of the source within the
Derivative Work.
8. LICENSE FEES
XOX agrees to pay US$50,000 (50% of the total) of the License Fees for XOX's
license of Program 1 upon execution of the Agreement. US$50,000 (50% of the
total) upon delivery of Program 2.
9. OTHER CHARGES
License fees do not include travel and living expenses for implementation
meetings, installation and training, file conversion costs, optional products
and services, consulting services, shipping charges, or the costs of any
recommended hardware. XOX agree to pay such fees and costs, when and as the
services are rendered and the expenses incurred, as invoiced by VM. VM reserves
the right to require prepayment or advance deposit for services or expenses in
some instances. XOX are also responsible for sales or use taxes and state or
local property or excise taxes associated with XOX's licensing, possession, or
use of the Program(s).
10. PAYMENT METHOD
The method of payment in the case of both Program 1 and Program 2 will be
payment at delivery by bankers draft or other convertible means of cash
delivery.
11. MAINTENANCE AND CONSULTING
VM's responsibility to maintain Program 1 and Program 2 shall end 30 days after
delivery of the Program(s) unless XOX enter into a Software Maintenance
Agreement offered by VM. This maintenance will include replying to usage level
questions for this period of time, but will not include the extension of
functionality. The source code is delivered in it's complete form. In the event
that XOX request consulting services that are beyond the scope of this Agreement
and the Software Maintenance Agreement, VM may provide such services or
recommend appropriate outside consultants. In all cases, fees for such services
will be charged at VM's standard rates and XOX will be responsible to pay such
fees, plus any necessary travel and living expenses.
12. CUSTOMER RESPONSIBILITIES
XOX are responsible for the following actions:
1. Determining whether the Program(s) will achieve the results XOX
desire;
2. Procuring, installing, and operating computers and operating
systems to run the Program(s);
3. Providing a proper environment and proper utilities for the
computers on which the Program(s) operate, including an
uninterrupted power supply;
4. Selecting and training XOX's personnel so they can operate
computers and so they are familiar with the concepts embodied, and
the data that serve as input and output for the Program(s); and
5. Establishing adequate operational backup provisions in the event of
a defect or malfunction that renders the Program(s) or the computer
systems on which they run nonoperational.
VM reserves the right to charge additional service fees if an operator seeks
assistance with respect to such basic information or any other matters not
directly relating to the operation of the Program(s). VM does not hold itself
out as a professional expert and adviser regarding XOX's computer or information
needs. VM is not responsible for obsolescence of the Program(s) that may result
from changes in XOX's requirements.
13. PROPRIETARY PROTECTION
VM shall have sole and exclusive ownership of all right, title, and interest in
and to the Program(s) and User Materials, all copies thereof, and all
modifications and enhancements thereto (including ownership of all copyrights
and other intellectual property rights pertaining thereto), subject only to the
right and license expressly granted to XOX herein. This Agreement does not
provide XOX with title or ownership of the Program(s), but only a right of
limited use.
XOX shall have sole and exclusive ownership of all right, title, and interest in
and to the Derivative Works.
14. LIMITATIONS ON USE
XOX may not use, copy, modify, or distribute the Program(s) (electronically or
otherwise) or any copy, adaptation, transcription, or merged portion thereof,
except as expressly authorized in this Agreement, an applicable Program
Description, or a separate written agreement signed by VM. Except as provided
for Affiliates in Paragraph 2, XOX's license may not be transferred, leased,
assigned, or sublicensed without VM's prior written consent, except for a
transfer of the Program(s) in their entirety to a successor in interest of XOX's
entire business who assumes the obligations of this Agreement. XOX authorize VM
to enter XOX's premises in order to inspect the Program(s) during regular
business hours to verify compliance with the terms of this Agreement.
15. CONFIDENTIALITY OF SOURCE CODE
XOX agree to maintain in confidence the Source Code version of the Program(s) by
using at least the same physical and other security measures as you use for your
own confidential technical information and documentation. XOX further agree not
to disclose the Source Code version of the Program(s), or any aspect thereof, to
anyone other than employees or contractors who have a need to know or obtain
access to such information in order to support XOX's authorized use of the
Program(s) and are bound to protect such information against any other use or
disclosure. These obligations shall not apply to any information generally
available to the public, ascertainable based on the operation of the Object Code
version of the Program(s) or use of the End-User Materials, independently
developed or obtained without reliance on VM's information, or approved for
release by VM without restriction.
16. WARRANTY
VM warrants for a period of thirty (30) days after installation of each Program,
for XOX's benefit alone, that such Program, when operated with the equipment
configuration and in the operating environment specified by VM, will perform
substantially in accordance with the technical specifications included or
referred to in the applicable Program Description. VM does not warrant that the
Program will be error-free in all circumstances. In the event of any defect or
error covered by such warranty, XOX agree to provide VM with sufficient detail
to allow VM to reproduce the defect or error. As XOX's exclusive remedy for any
defect or error in the Program(s) covered by such warranty, and as VM's entire
liability in contract, tort, or otherwise, VM will correct such error or defect
by fixing the defect or, after a reasonable effort to no avail, then by issuing
corrected instructions, a restriction, or a bypass. However, VM is not
responsible for any defect or error not reported during the warranty period or
any defect or error in a Derivative Work which XOX has created, modified,
misused, or damaged. EXCEPT AS EXPRESSLY SET FORTH IN THIS PARAGRAPH, VM SHALL
HAVE NO LIABILITY FOR THE PROGRAM(S) OR ANY SERVICES PROVIDED, INCLUDING ANY
LIABILITY FOR NEGLIGENCE; VM MAKES AND XOX RECEIVE NO WARRANTIES, EXPRESS,
IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR ANY OTHER
COMMUNICATION; AND VM SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
17. LIMITATION OF LIABILITY; EXCLUSIVE OF CONSEQUENTIAL DAMAGES
The cumulative liability of VM to XOX for all claims relating to the Program(s)
and any services rendered hereunder, in contract, tort, or otherwise, shall not
exceed the total amount of all license fees paid to VM for the relevant
Program(s). This limitation shall not apply to the indemnification provided in
Paragraph 18. In no event shall either party be liable to the other for any
consequential, indirect, special, or incidental damages, even if such party has
been advised of the possibility of such potential loss or damage. The foregoing
limitation of liability and exclusion of certain damages shall apply regardless
of the success or effectiveness of other remedies.
18. INDEMNIFICATION.
If a third party claims that the Program(s) infringe any US patent, copyright,
or trade secret, VM will (as long as XOX are not in default under this Agreement
or any other agreement with VM) defend XOX against such claim at VM's expense
and pay all damages that a court finally awards, provided that XOX promptly
notify VM in writing of the claim, and allow VM to control, and cooperate with
VM in the defense or any related settlement negotiations. If such a claim is
made or appears possible, VM may, at its option, secure for XOX the right to
continue to use the Program(s), modify or replace the Program(s) so they are
noninfringing, or, if neither of the foregoing options is available in VM's
judgment, require XOX to return the Program(s) for a credit equal to the portion
of previously paid license fees allowable to the remaining term of your license.
THIS PARAGRAPH STATES VM'S ENTIRE OBLIGATION TO XOX WITH RESPECT TO ANY CLAIM OF
INFRINGEMENT.
VM has no obligation for any claim based on a Derivative Work of the Program(s)
or their combination, operation, or use with any product, data, or apparatus not
provided by VM.
19. DEFAULT
Should XOX fail to pay any fees or charges due hereunder or fail to carry out
any other obligation under this Agreement or any other agreement with VM, VM
may, at its option, in addition to other available remedies, terminate this
Agreement, provided that it first gives XOX fifteen (15) days' prior notice in
order to permit XOX to cure the default.
21. NOTICES
All notices or other communications required to be given hereunder shall be in
writing and delivered either personally or by mail, certified, return receipt
requested, postage prepaid, and addressed as provided in this Agreement or as
otherwise requested by the receiving party. Notices delivered personally shall
be effective upon delivery and notices delivered by mail shall be effective upon
their receipt by the party to whom they are addressed.
22. GOVERNING LAW
This Agreement shall be governed by and construed and enforced in accordance
with the laws of England as it applies to a contract made and performed in such
country.
23. MODIFICATIONS AND WAIVERS
This Agreement may not be modified except by a writing signed by authorized
representatives of both parties. A waiver by either party of its rights
hereunder shall not be binding unless contained in a writing signed by an
authorized representative of the party waiving its rights. The nonenforcement or
waiver of any provision on one (1) occasion shall not constitute a waiver of
such provision on any other occasions unless expressly so agreed in writing. It
is agreed that no use of trade or other regular practice or method of dealing
between the parties hereto shall be used to modify, interpret, supplement, or
alter in any manner the terms of this Agreement.
PROGRAM DESCRIPTION
PROGRAM 1
Program 1 is a library for orthographic rendering of regular grid voxel data
with user specified color map and opacity map. It is based upon the VoluMetrix
Voxel Library (VVL, a proprietary API to enable the application programmer to
composite voxels on top of an existing image). It is assumed that the polygon
rendering is performed by software other than the VVL. The VVL is designed to
integrate easily with OpenGL. The VVL provides the ability to create and destroy
1, 2 and 3D images as well as zooming the images produced by rendering. A wide
variety of pixel formats is available as 1, 2, and 3-D images.
The main functionalities are:
1. BTF voxel rendering as available in the VVL used by XOX.
2. BTF opaque voxel planes for insertion into volume data.
3. BTF voxel lighting ANSI X3H3.8 (PIK) standard.
4. Integer zoom of the volume by pixel replication (x2, 3, 4).
5. Floating point zoom.
Computer configuration recommended: Win 32 or UNIX available memory requirement
1.5X data volume size.
PROGRAM 2
Perspective rendering of regular grid voxel data with user specified color map
and opacity map. The main functions are:
1. BTF voxel rendering with a voxel rendering rate achieved with currently
available technology.
2. BTF opaque voxel planes for insertion into volume data.
3. BTF voxel lighting to an appropriate standard.
4. Integer zoom of the volume by pixel replication.
5. Floating point zoom of the voxel data rendering that includes clipping
the volume to viewport.
Computer configuration recommended: Win32 or UNIX. System requirement is that
OpenGL is installed. Memory requirement: not determined, but expected to be 2-3X
data volume size.
Date: 31/10/96
Between
Name: VOLUMETRIX
Address: Ashdown Court
The Square
Forest Row
East Sussex RH18 5EZ
Principal Contact: D.L. Cram
And
Customer Name XOX CORPORATION INC
Address: 1450 Energy Park Drive
Suite 120
St Paul
MN 55108
Principal Contact: L.W. McGraw
MACADAMIA PURCHASE AGREEMENT
1. IDENTIFICATION OF THE PARTIES: This Agreement, effective the 1st day of
December, 1996, is made between Jacques E. Gavois (hereinafter the "Licensor")
with a place of business at 2021 Highridge Dr. SW, 18A Huntsville AL 35802
U.S.A., and XOX Corporation., with a place of business at 1450 Energy Park Dr.,
Saint Paul, MN 55108 (hereinafter the "Licensee").
2. DEFINITIONS: The following definitions shall apply to this Agreement: "the
Software" is the set of computer programs in source code form and associated
documentation known as "MACADAMIA" (trademark registered to the Patent and
Trademark Office, the serial number being 74/543316) and primarily described in
Exhibit 1 of this Agreement. The Software is also described in a published
50-page promotional document, deposited to the Copyright Office. The programs
have been deposited to the Copyright Office in a way that does not disclose the
trade secrets embodied into the copyrightable materials. Other non-public
deposits have been made; The "Trade Secrets and Patentable Inventions" are
defined as the specific and original algorithms, mathematical formulas, methods,
ideas, or know-how used in the Software.
3. EMPLOYMENT PROVISION: This Agreement will terminate itself without fault from
either party, without transfer, right, license or obligation granted and without
any payment due, if a written employment agreement (hereinafter the "Employment
Agreement") has not been signed between Licensor and Licensee on or prior to the
1st day of December, 1996.
4. TRANSFER OF COPYRIGHT RIGHTS: Subject to the payment to Licensor of the
entire Transfer Fee in this Agreement and all other terms and conditions herein,
Licensor hereby transfers to Licensee: (a) all Licensor's Copyright Rights in
the Software; (b) the copyrightable materials described in Exhibit 1 of this
Agreement; and (c) Licensor's Trademark Rights in "MACADAMIA". These transfers
shall be effective and perpetual the day the payment of the entire Transfer Fee
is paid to Licensor and under the condition that Licensee or its successors did
not terminate without "cause" Licensor's employment with Licensee prior to
December 15, 1998 (the term "cause" is to be construed as defined in the
Employment Agreement in its paragraph "6.a"). For the period of time between the
date of delivery of the Software to Licensee and the date the entire Transfer
Fee is paid to Licensor, Licensor grants Licensee an exclusive but
non-transferable license to: (a) use, copy, derive the Software; (b) distribute
and display the Software in object (binary) code format only, worldwide, at
Licensee's convenience; and (c) use Licensor's trademark. In the event that
Licensee or its successors, as an employer of Licensor, would terminate without
"cause" Licensor's employment prior to December 15, 1998, all licenses granted
by Licensor to Licensee in this Agreement shall become immediately
non-exclusive. In this event, at the time the entire Transfer Fee is paid to
Licensor no transfer of Rights shall be conceded to Licensee but all licenses
granted by Licensor to Licensee in this Agreement shall become transferable and
perpetual and shall remain non-exclusive. During the term of this Agreement and
as long as Licensee's licenses in this Agreement are exclusive, Licensor shall
not grant to third parties any such licenses relating to the Software, except as
in paragraph 8 of this Agreement. In the event that Licensor, as an employee of
Licensee, terminates Without Cause his employment prior to December 15, 1998
then Licensee shall not be required to make any remaining payment of the
Transfer Fee and all transfers and licenses granted to Licensee in this
Agreement shall become immediately effective, perpetual and transferable.
5. TRADE SECRETS AND PATENTABLE INVENTIONS: Licensee acknowledges and agrees
that the ownership of the Trade Secrets and Patentable Inventions embodied in
the Software at the time of its delivery to Licensee is not transferred to
Licensee and shall remain with Licensor. Effective the date of delivery of the
Software to Licensee, Licensor grants Licensee a non-exclusive, non-transferable
license to use these Trade Secrets and Patentable Inventions. This license shall
become transferable and perpetual the day the entire Transfer Fee is paid by
Licensee to Licensor. Unless such Trade Secrets and Patentable Inventions are
already known by Licensee at the time of delivery of the Software and as
evidenced by written records, Licensee shall not attempt to apply, without
Licensor's written consent, for a patent based on these Trade Secrets and
Patentable Inventions. In the event Licensee wants to apply for a patent based
on these Trade Secrets and Patentable Inventions, Licensor shall be declared the
inventor and owner of the patent and if such patent is issued Licensee shall
receive a royalty-free, unlimited, but non-exclusive license to make, have made,
use and sell products embodying such patent, in compensation for Licensee
dealing with the expense of securing such patent. Licensor, as an employee of
Licensee, and Licensee shall not apply for a patent based on any Trade Secrets
and Patentable Inventions embodied in the Software at the time of delivery of
the Software to Licensee.
6. PAYMENT OF TRANSFER FEE: The entire Transfer Fee is $65,000 (sixty five
thousand dollars) paid in three installments. Licensee shall pay Licensor the
first installment of $35,000 (thirty five thousand dollars) at the date of
delivery of the Software to Licensee, the second installment of $15,000 (fifteen
thousand dollars) at the first anniversary of this delivery and the third
installment of $15,000 (fifteen thousand dollars) on December 15, 1998, in
consideration for the diverse licenses and/or for the Transfer of Copyright
Rights and Trademark Rights granted by Licensor to Licensee in this Agreement.
Licensor shall deliver to Licensee the Software as described in Exhibit 1 of
this Agreement between December 1st, 1996, and December 6, 1996.
7. WARRANTIES: THE WARRANTIES SET FORTH IN THIS SECTION OF THIS AGREEMENT ARE
THE ONLY WARRANTIES GRANTED BY LICENSOR TO LICENSEE. LICENSOR DISCLAIMS ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ANY ORAL
OR WRITTEN REPRESENTATIONS, PROPOSALS OR STATEMENTS MADE PRIOR TO THIS
AGREEMENT. (a) Licensor represents and warrants that this Agreement does not
contravene any other agreement to which Licensor is a party; (b) Licensor
warrants that the Software is his sole and exclusive proprietary product and
does not violate any copyright or trade secret rights of any third party.
Licensor's sole liability and Licensee's exclusive remedy under this warranty
shall be as provided in the section of this Agreement entitled "Intellectual
Property Infringement Claims". This warranty shall expire five years after the
Software is delivered to Licensee; (c) Licensor warrants that the Software
substantially conforms to the specifications contained in Exhibit 1, in the
published 50-page promotional document and in the 90-page "headers" document
received by Licensee prior to this Agreement. This warranty shall expire ninety
days after the Software is delivered to Licensee; (d) Expressly, Licensor does
not warrant that the operation of the Software will be uninterrupted or error
free. LICENSEE AGREES TO ACCEPT RESPONSIBILITY FOR THE RESULTS OBTAINED FROM THE
SOFTWARE; and (e) Any warranty to Licensee in this Agreement shall be null and
void if Licensee is in default under this Agreement.
8. IIS-XOX ASIA PACIFIC PVT. LTD. Licensor grants Licensee the right to give a
license to use, copy, derive, distribute and display the Software in object
(binary) code form only to "IIS-XOX Asia Pacific Pvt. Ltd" with a place of
Business at 274 Captain Gaur Marg, Srinivaspuri, New Delhi - 110065 INDIA
(hereinafter the "Partner") as long as the Partner complies himself with the
terms and provisions of this Agreement and complies with section "5 Trade
Secrets and Patentable Inventions" in this Agreement. Expressly Licensor does
not give any warranty whatsoever to the Partner. Licensee acknowledges and
agrees that Licensee shall be responsible for the Partner complying with the
terms and provisions of this Agreement.
9. WARNINGS: In consideration of the facts that the Software is a set of
advanced Mathematical utilities resulting from long term and unachieved
researches and developments, that the Software relies heavily on floating-point
arithmetic, fuzzy logic, round-off errors, tolerances and approximations,
Licensee understands and acknowledges the set of natural limitations and
restrictions applying to the Software and described in the 50-page promotional
document.
10. INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS: (a) Indemnification Against
Liability for Infringement: Licensor agrees to indemnify and hold harmless
Licensee against any claim made during a five years period following the date of
delivery of the Software to Licensee, by independent third parties, that the
Software infringes any copyright or trade secrets rights if such claim is
finally determined or settled with Licensor's consent. Licensor shall cooperate
fully in the defense of any such claim and may retain counsel of his/her own
choice at Licensor's own expense. In no event shall Licensor's liability under
this section exceed the sum already paid to Licensor by Licensee in section "6.
Payment of Transfer Fee" under this Agreement. The foregoing represents
Licensor's entire liability to Licensee in connection with claims alleging
intellectual property infringement by the Software; (b} Repair or Replacement of
Infringing Software: If a third party copyright infringement claim is sustained
in a final judgment from which no further appeal is taken or possible, and such
final judgment includes an injunction prohibiting Licensee from continued use of
the Software or portions thereof, Licensor shall, at its sole election and
expense: (1) procure for Licensee the right to continue to use the Software
pursuant to this Agreement; (2) replace or modify the Software to make it
noninfringing, provided that modifications or substitutions will not materially
and adversely affect the Software's performance or lessen its utility to
Licensee; or (3) if none of the above solutions is provided to Licensee within
30 days after such final judgment occurs, then Licensee may terminate this
Agreement to be refunded by Licensor the Transfer Fee already paid by Licensee
in section "6. Payment of Transfer Fee" of this Agreement minus depreciation
based on a five-year useful life, and upon Licensee's return of the Software and
Copyright Rights; and (c) Licensee agrees to accept full responsibility for the
Software after the period of five years following the date of delivery of the
Software to Licensee.
11. LICENSOR'S LIABILITY TO LICENSEE: IN NO EVENT SHALL LICENSOR BE LIABLE IN
ANY AMOUNT TO LICENSEE FOR LOST PROFITS, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
OTHER SIMILAR DAMAGES, EVEN IF ADVISED OF SUCH POSSIBILITY. UNDER NO
CIRCUMSTANCES, LICENSOR'S TOTAL LIABILITY UNDER THIS AGREEMENT FOR BREACH OF
WARRANTY, DAMAGES, COSTS AND EXPENSES, REGARDLESS OF CAUSE, CAN EXCEED THE
AMOUNT PAID TO LICENSOR BY LICENSEE IN SECTION "6 Payment of Transfer Fee" UNDER
THIS AGREEMENT. THE LIMITATIONS AND EXCLUSIONS OF THIS PARAGRAPH SHALL APPLY TO
ALL CLAIMS OF EVERY NATURE, KIND AND DESCRIPTION, WHETHER ARISING FROM CONTRACT,
BREACH OF WARRANTY, NEGLIGENCE OR OTHER TORT, OR OTHERWISE.
12. LICENSOR'S AND LICENSEE'S LIABILITY FOR THIRD PARTY CLAIMS: Licensee agrees
that: (a) Licensor shall not be liable for any claim or demand made against
Licensee by any third party except to the extent such claim or demand relates to
copyright and trade secrets rights, and then only as provided in the section of
this Agreement entitled "Intellectual Property Infringement Claims"; and (b)
Licensee shall hold harmless, defend and indemnify Licensor against all claims,
liabilities and costs, including reasonable attorney fees, of defending any
third party claim or suit arising out of the use of the Software, other than for
infringement of intellectual property rights, and then only as provided in the
section of this Agreement entitled "Intellectual Property Infringement Claims".
Licensor shall promptly notify Licensee in writing of any third party claim or
suit and Licensee shall have the right to fully control the defense and any
settlement of such claim or suit. The provisions of this section shall
explicitly survive the cancellation, termination or expiration of this Agreement
and shall continue to bind Licensee, its successors, heirs and assigns.
13. TERMINATION OF AGREEMENT: Each party shall have the right to terminate this
Agreement by written notice to the other if a party has materially breached any
obligation herein and such breach remains uncured for a period of 30 days after
written notice of such breach is given to the other party. Licensee may
terminate this Agreement as provided in the section of this Agreement entitled
"Intellectual Property Infringement Claims". Licensor may also terminate this
Agreement because of Licensee's failure to pay an installment of the Transfer
Fee following no wrongdoing or misconduct of Licensor in his employment with
Licensee. If Licensor terminates this Agreement all of the following shall
apply: (a) Licensee shall immediately cease use of the Software; (b) Licensee
shall, within 15 days of such termination, deliver to Licensor all copies and
portions of the Software and related materials and documentation in its
possession and furnished by Licensor under this Agreement; (c) All installments
of the Transfer Fee already paid to Licensor shall be nonrefundable; and (d) all
of Licensor's obligations under this Agreement shall terminate. If termination
of this Agreement occurs then all rights and licenses granted to Licensee under
this Agreement shall immediately terminate. The rights, obligations and
provisions under the sections entitled "Trade Secrets and Patentable
Inventions", "Intellectual Property Infringement Claims", "Licensor's Liability
to Licensee", "Licensor's and Licensee's Liability for Third Party Claims" and
"General Provisions" shall continue to bind the parties after termination of the
Agreement.
14. TAXES: Licensee shall be responsible for payment of all taxes based on
license granted or Transfer Fee paid in this Agreement.
15. GENERAL PROVISIONS:
(a) Complete Agreement: This Agreement together with exhibits 1 and 2, which are
herein incorporated by reference, is the sole and entire Agreement between the
parties relating to the subject matter hereof. This Agreement supersedes all
prior understandings, agreements and documentation relating to such subject
matter. In the event of a conflict between the provisions of the main body of
the Agreement and any attached exhibits, appendices or other materials, the
Agreement shall take precedence; (b) Modifications to Agreement: Modifications
and amendments to this Agreement, including any exhibit or appendix hereto,
shall be enforceable only if they are in writing and are signed by authorized
representatives of both parties; (c) Waiver: No term or provision of this
Agreement shall be deemed waived and no breach excused unless such waiver or
consent is in writing and signed by the party claimed to have waived or
consented; (d) Force Majeure: Licensor will not be responsible for any delay or
failure in performance for causes beyond Licensor's reasonable control,
including without limitation, acts of God, civil commotion, war, governmental
regulation or controls, casualty, inability to obtain materials or services, or
any other similar or dissimilar cause. (e) Notices: All notices required or
permitted under this Agreement shall be made in writing and shall be deemed
given when delivered personally, or three days after being deposited in a mail.
Notices shall be sent by certified mail, return receipt requested, and addressed
as follows, or to such other address as each party may designate in writing:
Licensee: XOX Corporation, 1450 Energy Park Dr., Saint Paul, MN 55108; Licensor:
Jacques E. Gavois, 2021 Highridge Dr. SW 18A, Huntsville AL 35802, U.S.A. (f)
Attornev Fees: If any action at law or in equity is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorney fees, costs and expenses, in addition to any other relief to which it
may be entitled; (g) Applicable Law: This Agreement will be governed by the laws
of the State of Minnesota, and (h) Severability: If any provision of this
Agreement is held invalid, void or unenforceable under any applicable statute or
rule of law, it shall to that extent be deemed omitted, and the balance of this
Agreement shall be enforceable in accordance with its terms.
14. SIGNATURES: Each party represents and warrants that on this date they are
duly Authorized to bind their respective principals by their signatures below.
LICENSEE: XOX CORPORATION.
By: /s/ Pradeep Sinha
____________________________
(signature)
Name: Pradeep Sinha
Title: CTO
Date: Nov. 22, '96
LICENSOR: JACQUES E. GAVOIS
/s/ Jacques E. Gavois
____________________________
Name: Jacques E. Gavois
Title: Author and Software Engineer
Date: Dec. 02, 1996
EXHIBIT 1: DESCRIPTION of the Software.
1. THE COPYRIGHTABLE MATERIALS (DELIVERABLES):
The Software is a package of routines (source code written in C ++), and
accompanying testing programs, datafiles, procedures and documentation, which
are delivered in DOS, ASCII text files on 3.5 " floppies. A rearranged copy of
the documentation of the version 2.0 of the Software is also provided on paper
(manuals).
(a) The "source code" of the routines (or functions) and associated testing
programs: There are about 180 routines in the package, representing its major
entry points and major utilities. Each routine is described in one module
(file), and is supplied with one testing program ("main") and its set of related
datafiles (for test and maintenance purposes). There are about 180 other modules
(files) in the package, representing other utilities (definition of the function
members of the objects supported by the package, definition of macros or small
functions, etc.). There may be several routines (functions) per module. There is
no associated testing program or datafile to these utilities. The package also
includes a graphic module and a few tools for the only purpose of maintaining
and testing the other routines of the package. This involves about 40 other
modules, with no associated testing program or datafile. The package includes
about 30 "include files" (set of definitions and declarations containing also
part of the documentation).
(b) The datafiles: There are about 1500 input datafiles and as many output
datafiles, representing Licensor's database of test files.
(c) The procedures: The package includes some DOS procedures which are needed to
compile and link the complete source code of the Software in order to generate
the math libraries in a binary form; and
(d) The manuals of version 2.0: . the Routines Directory: it gives the list of
all routine names and related abstracts; . the Objects Manual: it gives the
information on how the objects are mathematically defined, how their
representations as data-structures are organized, and it documents the
function-members of each object; . the Return Code Dictionary: it explains the
meaning and circumstances of any error code returned by any routine and explains
how the debug information is managed in the programs of the Software; . the
Keywords Dictionary: it gives the inventory of the keywords used in the programs
of the Software and explains the syntax and rules followed; . the Procedures
Manual: it explains the procedures and configuration files used to compile, link
and test the programs of the Software; and . the Main-drivers Manual: it
explains the organization or format of the test programs and datafiles of test.
The updated documentation of Version 2.1 (in progress) will be found in the
includes files of that version.
2. DESCRIPTION OF THE FUNCTIONALITIES PERFORMED BY THE SOFTWARE (VERSION 2.0):
The Software belongs primarily to the category of the "surface modeler" software
products (3D Design) in the CAD/CAM mechanical arena, and it also performs part
of functions usually met in "Numerical Control" software products
(Manufacturing). The Software is a mathematical toolkit or library or CAD/CAM
engine for free-form curves and surfaces represented in the NURBS ("Non Uniform
Rational B-Spline") and Bezier formalism.
It performs the following, and not limited to, major functions (most important
entry points of the package):
. All basic intersection operations between curves and/or surfaces;
. All scanning operations (intersection of curves or surfaces by a set of
parallel planes or lines);
. Many skinning operations (tubing, sweeping, ...) using multiple cross-sections
(contours), one trace and a guiding object that can be a plane, a direction, a
curve or a surface;
. All basic offsetting operations (multiple offset of a curve, a surface or a
curve on a surface);
. Projection operations: point(s) on curve or surface (per direction or
orthogonally), curve on surface (direction);
. Computation of the silhouette curves of a surface;
. Many interpolation operations: of a linear set of points or curves, of a grid
of points or curves (Coons and Gordon surfaces), smooth blending between 2
surfaces;
. Primitives creation: arc, cylinder, cone, sphere, torus;
. Minimum distance operations (point/curve, curve/curve, point/surface);
. Reconditioning of curve or surface: lowering degrees, conversion rational to
non-rational representation, ...
. Encapsulation of the "curve" and "surface" objects: numerous simpler
functionalities are made available for the regular and simpler handling of
curves and surfaces, through the definition of an objects interface.
Warnings: some limitations may arise in the use of these functions as referenced
in the 50-page promotional document.
Among the supporting functions of these basic entry points, the Software
provides with the following, and not limited to, valuable and optimized
mathematical utilities:
. Polynomial solvers (one or two equations and unknown parameters) and other
roots finding utilities;
. Polynomial or Spline approximation utilities;
. Evaluation, derivation, integration, product, division,
knot-insertion-deletion, conversion, data-compression etc...utilities applying
on polynomial or spline objects;
. Subdivision utilities on curve or surface;
. Box-management utilities: creation, interference, etc.; and
. Stack-management utilities: set of curves, set of surfaces, etc.
Also the Software includes a graphic module and a few other utilities used
exclusively for the maintenance and test of the Software. The graphic module
performs the reading of the maintenance datafiles (special format) and display
points, segments and NURBS or Bezier curves and surfaces on a monitor. It
performs translation, scaling, dynamic rotation, filtering, 2d or 3d
representation and allows the adjustment of some parameters of visualization on
the previous objects.
Among the objects currently supported by the Software, we find the polynomial
"Bezier" curves or surfaces, the "NURBS" curves or surfaces, the "set of
curves", the "set of patches", the "subdivision tree" of curve or surface, the
plane, the box, the point or "set of points", the "set of parameters" etc.
3. DESCRIPTION OF THE ADDED FUNCTIONALITIES PERFORMED BY THE SOFTWARE IN THE
CURRENT VERSION 2.1 IN PROGRESS:
The new major functionalities are:
. Filleting function (constant radius) between 2 NURBS surfaces or network of
Bezier patches. Some trimming remains to be done;
. B-spline least square curve approximation of a set of nd points;
. Recognition of surface of revolution from their math equations; Optimization
of surface offset function.
Also Version 2.1 implements a complete reorganization of the data-structures of
all the important objects used in the Software in order to ease their
integration and in order to set a proper and evolutive interface with a
topological module (trimmed surfaces and shell) and a database of objects.
Nevertheless the "trimmed surface" is not yet supported in the Software and
because this Version is still being developed one should not expect the same
level of readiness and robustness as for Version 2.0. End-of-Agreement
- -LICENSEE:______________, 12/02/96, LICENSOR: J.G., Dec. 02, 96, Page 5/5
Acknowledgment of receipt of the Software MACADAMIA
(Version 2.0 & Version 2.1).
1. INVENTORY OF THE DELIVERABLES RECEIVED:
a) A 62-page document entitled "OBJECTS MANUAL" containing a general description
of the objects used in Version 2.0 of the Software. Most of this information is
also found in the "include files" of the Software.
b) A 33-page document entitled "ROUTINE DIRECTORY" containing the complete list
of routines (names and related abstracts) in the Software (VERSION 2.0).
c) A 29-page document entitled "PROCEDURES MANUAL, MAIN-DRIVERS MANUAL, RETURN
CODE DICTIONARY, KEYWORDS DICTIONARY" containing diverse information as
described in the MACADAMIA Purchase Agreement Exhibit 1.
d) A set of 11 floppy disks containing the Version 2.0 of the Software, in DOS
ASCII text files: three disks for the source code (routines, include files,
test-programs, procedures, ...), three disks for the database of input datafiles
and five disks for the database of output datafiles.
e) A set of 8 floppy disks containing the Version 2.1 of the Software in DOS
ASCII text files: three disks for the source code (routines, include files,
test-programs, procedures, ...), two disks for the database of new or modified
input datafiles and three disks for the database of corresponding output
datafiles.
2. ACKNOWLEDGMENT OF RECEIPT: (2 originals):
Author: Signature: /s/ Jacques Gavois
Jacques Gavois
2021 Highridge Dr., SW 18A Title: Author and Software Engineer
Hunstville, AL 35802, U.S.A Date: 12/02/96
Customer: Signature: /s/
XOX Corp. Name:
1450 Energy Park Dr. Title: CTO
Saint Paul, MN 55108 Date: 12/03/96
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of December, 1996, by and
between Jacques E. Gavois (the "Employee") and XOX CORPORATION, a Delaware
corporation (the "Company").
RECITALS
A. The Employee desires to work as an employee of the Company.
B. Simultaneous with the execution of this Agreement, the Company and
the Employee will also enter into a License and Purchase Agreement, the subject
of which will pertain, in part, to the duties of the Employee while employed by
the Company (the "License Agreement").
C. The Company wishes to enter into an agreement with the Employee
governing the terms and conditions of his employment, and the Employee is
willing to be employed on the terms and conditions set forth in this Agreement.
TERMS AND CONDITIONS
In consideration of the premises recited above and the mutual covenants
set forth in this Agreement, the parties hereby agree as follows:
1. EMPLOYMENT PERIOD. The Company agrees to employ the Employee, and
the Employee agrees to serve the Company in the capacity noted below, for the
period beginning on the date of this Agreement and ending on December 15, 1998,
unless the Employee's employment is terminated pursuant to paragraph 4 or
paragraph 6 of this Agreement. Unless his employment is terminated earlier
pursuant to the terms of this Agreement, after December 15, 1998, the Employee
shall continue to be employed by the Company as an employee at will.
2. DUTIES. The Employee shall perform such duties as the Vice President
of Research or the Development Manager of the Company shall direct. The Employee
shall devote his best efforts and all of his business time and attention (except
for usual vacation periods and reasonable periods of illness or other
incapacity) to the business of the Company and its divisions and subsidiaries.
3. COMPENSATION. During the term of his employment, the Employee shall
be compensated as follows:
a. Salary. The Employee shall be paid a salary at an initial rate of
$65,000 per year. The Employee's salary shall be reviewed by the Company from
time to time. The Employee's salary shall be paid in equal, semi-monthly
installments.
b. Stock Options. The Employee shall be granted an option to
purchase 15,000 shares of the Company's common stock (the "Options") subject to
the terms and conditions of the Company's 1996 Omnibus Stock Plan and related
stock option agreement. The Options shall vest according to the following
schedule: 20% of the Options will vest immediately and 20% of the remaining
Options will vest annually thereafter. The provisions of this Agreement shall
supersede any contrary terms found in the Company's Omnibus Stock Plan and
related stock option agreement.
c. Expenses. The Employee shall be reimbursed for all reasonable
business expenses incurred in the performance of his duties pursuant to this
Agreement, to the extent such expenses are substantiated and are consistent with
the general policies of the Company and its subsidiaries relating to the
reimbursement of expenses.
d. Vacations; Fringe Benefits. In addition to any other compensation
provided under this Agreement, the Employee shall be entitled to vacation in
accordance with the Company's policies as in effect from time to time, and shall
be entitled to participate, during the term of his employment, in any employee
benefit plans or fringe benefit programs which are from time to time maintained
by the Company for its executive officers, in accordance with the provisions of
such plans or programs from time to time in effect.
e. Deductions and Withholding. All compensation and other benefits
payable to or on behalf of the Employee pursuant to this Agreement shall be
subject to such deductions and withholding as may be agreed to by the Employee
or required by applicable law.
4. DISABILITY. If, during the term of his employment, the Employee
shall become incapacitated by accident or illness and, in the opinion of the
Board of Directors of the Company, shall be unable to perform the duties of the
position he then occupies for a period of 120 consecutive days, the Company
shall have the right to place the Employee on disability status by giving
written notice thereof to the Employee, and the Employee's term of employment
shall terminate 30 days after such written notice is given. If the term of his
employment is thus terminated, the Employee shall not be entitled to receive any
compensation or other benefits pursuant to this Agreement, other than
compensation or benefits accrued through the effective date of termination of
employment. In the event that the Employee's employment is terminated pursuant
to this paragraph and does not receive benefits under any disability policy,
then fifty percent (50%) of any unvested Options held by Employee shall vest and
become exercisable in full at the expiration of the non-competition period set
forth in paragraph 7 of this Agreement, provided that the Employee has not
violated his obligations under this Agreement; and provided further, however,
that this provision shall not result in the extension of the expiration date of
any of the Options. Termination of the Employee's employment pursuant to this
section 4 shall not in any way effect either party's obligations under the
License Agreement or the enforceability of such agreement in general.
5. OTHER BENEFITS. The compensation provisions of this Agreement shall
be in addition to, and not in derogation or diminution of, any benefits that the
Employee or his beneficiaries may be entitled to receive under the provisions of
any pension, profit sharing, disability, or other employee benefit plan now or
hereafter maintained by the Company.
6. TERMINATION.
a. By the Company, For Cause. The Company may terminate the
Employee's employment for "cause" immediately, by delivering to the Employee
written notice of such termination.
(i) If the Company terminates the Employee's employment for
cause, the Employee shall not be entitled to receive any compensation or other
benefits pursuant to this Agreement, other than the compensation or benefits
accrued through the effective date of termination of his employment.
(ii) For the purposes of this Agreement, "cause" shall mean any
failure by the Employee to comply with the terms of this Agreement in any
material respect, any failure by the Employee to follow lawful reasonable
written directions of the Employee's managing supervisor, any conduct by the
Employee that has a material detrimental effect upon the Company, or any conduct
by the Employee involving dishonesty or moral turpitude.
b. By the Company, Without Cause. The Company may terminate the
Employee's employment without cause upon 30 days prior written notice to the
Employee. If the Company terminates the Employee's employment at any time for
reasons other than those specified in paragraph (ii) of subparagraph 6.a. of
this Agreement, then any unvested Options held by the Employee shall vest and
become exercisable in full at the expiration of the non-competition period set
forth in paragraph 7 of this Agreement, provided that the Employee has not
violated his obligations under this Agreement; and provided further, however,
that this provision shall not result in the extension of the expiration date of
any of the Options.
c. By the Employee, For Cause. The Employee may terminate his
employment upon 30 days prior written notice to the Company if the Company fails
to perform any of its obligations under this Agreement or the License Agreement.
The 30-day written notice shall specify in reasonable detail the basis for
termination by the Employee and, during such 30-day period, the Company shall
have the opportunity to cure the stated reason. If the Company fails to cure a
stated reason, the Employee may terminate his employment at the end of the
30-day notice period.
d. By the Employee, Without Cause. After December 15, 1998, the
Employee may voluntarily terminate his employment at any time upon 30 days prior
written notice to the Company.
(i) If the Employee terminates his employment for reasons other
than those specified in subparagraph 6.c. of this Agreement, the Employee shall
not be entitled to receive any compensation or other benefits pursuant to this
Agreement, other than the compensation or benefits accrued through the effective
date of termination of his employment; or
(ii) If the Employee terminates his employment for reasons other
than those specified in subparagraph 6.c of this Agreement prior to December 15,
1998, in addition to any and all remedies available under the law, the Company
will not be required to pay any further Transfer Fees owed to the Employee under
the License Agreement in order to receive full ownership of the Software. (Any
terms used in this paragraph 6.d.ii which have not been defined in this
Agreement are to be construed as defined in the License Agreement).
e. Termination After Change in Control. If, after a "change in
control" of the Company, the Employee's employment is terminated by the Company
pursuant to paragraph 6.b. or by the Employee pursuant to paragraph 6.c., all
unvested Options held by the Employee shall vest and become exercisable in full
at the expiration of the non-competition period set forth in paragraph 7 of this
Agreement, provided that the Employee has not violated his obligations under
this Agreement; and provided further, however, that this provision shall not
result in the extension of the expiration date of any such stock option. For
purposes of this Agreement, "change in control" shall mean (i) the merger or
consolidation of the Company with or into another corporation under
circumstances in which the Company is not the surviving entity; or (ii) the sale
of all or substantially all of the assets and business of the Company, or all or
substantially all of the Company's equity securities.
7. COMPETITION; NON-SOLICITATION.
a. During the term of his employment, the Employee will not, except
with the express written consent of the Board of Directors of the Company,
become engaged in, or permit his name to be used in connection with any business
other than the businesses of the Company and its subsidiaries, whether or not
such other business is a competitive business.
b. The Employee covenants and agrees that during the term of his
employment and for a period which is the longer of (1) two years from the date
of this Agreement and only if Employee terminates his employment "without
cause"; or (2) six months from the termination of the Employee's employment with
the Company, he will not, except with the express written consent of the Board
of Directors of the Company:
(i) directly or indirectly engage in, or permit his name to be
used in connection with, any competitive business;
(ii) directly or indirectly engage in business with a customer of
the Company and thereby cause the Company to lose said customer's business or
any significant part thereof;
(iii) directly or indirectly solicit, divert, take away or
attempt to solicit any business of the Company or its subsidiaries;
(iv) directly or indirectly solicit the services of any supplier,
distributor or representative of the Company or induce any supplier, distributor
or representative of the Company to terminate or discontinue its relationship to
the Company; or
(v) directly or indirectly hire, offer to hire, entice away or in
any manner persuade or attempt to persuade any officer, employee or agent of the
Company or any of its subsidiaries to discontinue his or her relationship with
the Company or its subsidiaries.
c. For the purposes of this paragraph 7:
(i) the phrase "directly or indirectly engage in" shall
encompass: (A) all of the Employee's activities whether on his own account or as
an employee, director, officer, agent, consultant, independent contractor, or
partner of or in any person, firm or corporation (other than the Company and its
subsidiaries), or (B) the Employee's ownership of more than 2% of the voting
stock of the corporation, 5% or more of the gross income of which is derived
from any business or businesses in which the Employee may not then engage; and
(ii) the phrase "competitive business" shall mean the conduct,
anywhere in the world, of: (A) the development and/or sale of software for
geometric computing and solid modeling, including but not limited to software
modeling kernels for sale or license to other software developers; or (B) any
other business which accounts for, or is reasonably anticipated to account for,
at least 5% of the Company's consolidated gross revenues.
8. DISCLOSURE OF INFORMATION. Employee acknowledges that, in and as a
result of his employment by the Company, he will be making use of, acquiring
and/or adding to confidential information of a special and unique nature and
value, including, without limitation, the Company's trade secrets, products,
systems, programs (including, without limitation, the Company's computer
software programs, procedures, manuals, guides, as periodically updated or
supplemented), confidential reports and communications (including, without
limitation, customer site information, technical information on the performance
and reliability of the Company's products or programs and the development or
acquisition of future products or product enhancements by the Company) and lists
of customers, as well as the nature and type of the services rendered by the
Company and the fees paid by the Company's customers. Employee further
acknowledges that any information and materials received by the Company from
third parties in confidence (or subject to nondisclosure covenants) shall be
deemed to be and shall be confidential information within the meaning of this
paragraph 8. As a material inducement to the Company to employ Employee and to
pay to Employee compensation for such services to be rendered to the Company by
Employee (it being understood and agreed by the parties hereto that such
compensation shall also be paid and received in consideration hereof), Employee
covenants and agrees that he shall not, except with the prior written consent of
the Company, or except if Employee is acting as an employee of the Company
solely for the benefit of the Company in connection with the Company's business
and in accordance with the Company's business practices and employee policies,
at any time during or following the term of his employment with the Company,
directly or indirectly divulge, reveal, report, publish, transfer or disclose,
for any purpose whatsoever, any of such confidential information which has been
obtained by or disclosed to him as a result of his employment with the Company,
including, without limitation, any Proprietary Information, as defined in
paragraph 9 hereof.
9. DEFINITION OF PROPRIETARY INFORMATION. For purposes of this
Agreement, the term "Proprietary Information" shall mean all of the following
materials and information (whether or not reduced to writing and whether or not
patentable or protectable by copyright) which Employee receives, receives access
to, conceives of or develops, in whole or in part, as a direct or indirect
result of his employment with the Company, in the course of his employment with
the Company, (in any capacity, whether executive, managerial, planning,
technical, sales, research, development, manufacturing, engineering or
otherwise) or through the use of any of the Company's facilities or resources:
(a) Application, operating system, communication and other computer
software, including, without limitation, all versions and all options available
with respect to, and all future products developed or derived from Geometric
Processing mathematical models, used in various applications pertaining to the
Company's business;
(b) With respect to the software, hardware and related items
described in paragraph 9.a above, all source and object codes, flowcharts,
algorithms, coding sheets, compilers, assemblers, design concepts, routines and
sub-routines, documents and manuals;
(c) Production processes, marketing techniques, mailing lists,
purchasing information, price lists, pricing policies, quoting procedures,
financial information, customer and prospect names and requirements, customer
data, customer site information and other materials or information relating to
the manner in which the Company does business;
(d) Discoveries, concepts and ideas, whether or not patentable or
protectable by copyright, including, without limitation, the nature and results
of research and development activities, technical information on product or
program performance and reliability, processes, formulas, techniques,
"know-how", source codes, object codes, designs, drawings and specifications;
(e) Any other materials or information related to the business or
activities of the Company which are not generally known to others engaged in
similar businesses or activities; and
(f) All ideas which are derived from or relate to Employee's access
to or knowledge of any of the above-enumerated materials and information.
Failure to mark any of the Proprietary Information as confidential shall not
affect its status as part of the Proprietary Information under the terms of this
Agreement.
10. OWNERSHIP OF INFORMATION.
(a) Employee hereby assigns to the Company all of Employee's right,
title and interest in any idea (whether or not patentable of protectable by
copyright), invention, computer software program or other computer related
equipment or technology, conceived or developed in whole or in part, or in which
Employee may have aided in its development, while employed by the Company,
including, without limitation, any Proprietary Information. If any one or more
of the aforementioned are deemed in any way to fall within the definition of
"work made for hire", as such term is defined in 17 U.S.C. ss. 101 such work
shall be considered "work made for hire", the copyright of which shall be owned
solely, completely and exclusively by the Company. If any of the aforementioned
are considered to be work not included in the categories of work covered by the
"work made for hire" definition contained in 17 U.S.C. ss. 101, such work shall
be owned, assigned or transferred completely and exclusively to the Company.
Employee agrees to execute any instruments and to do all other things reasonably
requested by the Company (both during and after Employee's employment with the
Company) in order to more fully vest in the Company all ownership rights in
those items hereby transferred by Employee to the Company. Employee further
agrees to disclose immediately to the Company all Proprietary Information
conceived or developed in whole or in part by him during the term of his
employment with the Company and to assign to the Company any tight, title or
interest he may have in such Proprietary Information.
(b) Employee hereby represents and warrants that Employee has fully
disclosed to the Company on Schedule A hereto any idea, invention, computer
software program or other computer-related equipment or technology not covered
in paragraph 9.a above which, prior to his employment with the Company, Employee
conceived of or developed, wholly or in part, but which has not been published
or filed with the United States Patent or Copyright Offices.
11. REMEDIES.
a. Specific Performance; Injunctive Relief. It is agreed that it
would be difflcult to measure the damage to the Company from any breach of this
Agreement by the Employee, and that injury to the Company from any breach would
be incalculable and irremediable and that damages therefor may be an inadequate
remedy. Accordingly, the Employee agrees that the Company may obtain specific
performance and/or injunctive relief in order to enforce the provisions of this
Agreement or prevent any violation thereof. This provision with respect to
specific performance and injunctive relief shall not, however, diminish the
right of the Company to claim and recovery damages in addition to specific
performance and injunctive relief.
b. Enforcement. If, at the time of enforcement of any provision of
paragraphs 7, 8, 9, and 10, a court shall hold that the period, scope, or
geographical area restrictions stated therein are unreasonable under
circumstances then existing, the maximum period, scope, or geographical area
reasonable under the circumstances shall be substituted for the stated period,
scope, or area.
12. SUCCESSORS.
a. Of the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Employee to terminate his employment with the
Company and to receive the payments provided for in subparagraph 6.e. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined, and
any successor to the business and/or assets of the Company which executes and
delivers the agreement provided for in this paragraph 12 or which otherwise
becomes bound by all the terms and provisions of this Agreement as a matter of
law.
b. Of the Employee. This Agreement shall inure to the benefit of and
shall be enforceable by the Employee, his legal representative, or other
successors in interest.
13. GENERAL PROVISIONS.
a. Modification, Amendment or Waiver. No modification, amendment, or
waiver of any provision of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
b. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
c. Assignment. The Employee's rights and interests under this
Agreement may not be assigned, pledged, or encumbered by him without the
Company's written consent.
d. Survival. The rights and obligations of the parties, included but
not limited to those under paragraphs 7, 8, 9, and 10 hereof, shall survive the
term of the Employee's employment to the extent that any performance is required
under this Agreement after the expiration or termination of such term.
e. No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
person.
f. Notices. Any notice to be served under this Agreement shall be in
writing and shall be deemed given when personally delivered or when mailed by
registered or certified mail, registry or certification fee and postage prepaid
and return receipt requested, addressed:
If to the Company, to XOX Corporation
1450 Energy Park Drive
Suite 120
Saint Paul, MN 55108
If to the Employee, to: Jacques E. Gavois
_________________________________
_________________________________
_________________________________
or to such other place as either party may specify in writing, delivered in
accordance with the provisions of this subparagraph.
g. Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof, and supersedes all
previous agreements between the parties relating to the same subject matter.
h. Applicable Law. All questions concerning the construction,
validity, and interpretation of this Agreement shall be governed by the laws of
the State of Minnesota.
i. Effect of Headings. The headings of all of the paragraphs and
subparagraphs of this Agreement are inserted for convenience of reference only,
and shall not affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE COMPANY: XOX CORPORATION
By /s/ Lawrence W. McGraw
--------------------------------
Lawrence W. McGraw
President and CEO
EMPLOYEE:
By /s/ Jacques E. Gavois
--------------------------------
Jacques E. Gavois
SCHEDULE A
- -Any idea, original or special algorithms, mathematical formula, methods or
know-how (the "Trade Secrets and Patentable Inventions" as defined in the
License Agreement) used or embodied in the Software MACADAMIA prior to or at the
time of its delivery to the Company.
- -The idea of computing on a surface the reflexion lines of a set of
line-sources of light, equally spaced on a large cylinder, by using reversed
ray-tracing and coding the result (color of pixels) on the bitmap of the screen
such that simple swapping of the bit of that bitmap in graphic memory would give
the illusion of reflexion lines on the surface interactively moving from one
position to another corresponding to diverse rotations (angular shift) of the
cylinder supporting the original line-sources of lights.
RECIPROCAL JOINT DEVELOPMENT AND MARKETING AGREEMENT
BETWEEN IMETRIX LTD. AND XOX CORPORATION.
This document specifies a reciprocal relationship and Joint Development and
Marketing Agreement between
XOX Corporation (XOX) located at 1450 Energy Park Drive, Suite 120,
St. Paul, MN 55108, USA
and
IMETRIX, Ltd. (IMETRIX) located at Weizmann Science Park, Bldg. 14,
Ness Ziona, Israel 76111;
referred to herein as the Parties.
1. RECITALS:
1.1.IMETRIX is in the business of developing and marketing 3D vision system
software.
IMETRIX has developed an image based 3D data colletion technology and
software called ADE. Primary use of the ADE for the purpose of this
agreement, is for terrain and planemetric data collection in the
Geo-technology industry.
The IMETRIX software is currently available on the IBM RS-6000/AIX platform
and will be ported to other appropriate UNIX platforms and to Windows NT.
1.2 XOX is in the business of developing and marketing geometric computing
systems software.
XOX currently produces a line of software called SHAPES which is a library of
geometric modeling functions. This software is available on a variety of UNIX
workstations with Windows NT. XOX also produces a geometry clean-up tool
called GDX, to be released in Q1, 1997.
1.3 XOX and IMETRIX intend to work towards the creation of the technologies
necessary for the integration of SHAPES with the IMETRIX software for the
purpose of creating an advanced data capture and geometric modeling
environment for the Geo-technology marketplace (herein referred to as the
Package) which both parties wish to be able to re-sell.
XOX and IMETRIX will assume joint responsibility for marketing the Package
and will jointly develop and execute a marketing and sales strategy, as part
of the overall Joint Development and Marketing Plan referenced below. For the
purpose of this agreement, the primary IMETRIX development effort will be
limited to developing SHAPES/ADE integrated products for the geo-technology
market.
2. JOINT DEVELOPMENT AND MARKETING PLAN:
2.1 The Package is intended to be marketed by both parties with revenue
shares as defined in Appendix A of this agreement. The parties agree to
jointly participate in developing a Joint Development and Marketing Plan that
is mutually agreeable.
2.2 In principle, it is the parties intent that both parties be jointly
responsible for the execution of the development plan and efforts, however,
product specification and product management responsibility will resided with
IMETRIX.
2.3 It is the intent of the parties to develop this Joint Development and
Marketing Plan so that there will be maximum dedication of services to
accomplish the goal of announcing and delivering the first release of the
Package (for terrain modeling) in 1997.
2.4 Time is of the essence, and the parties will develop the referenced Joint
Development and Marketing Plan by March 31, 1997. As applicable and feasible,
any such plan will utilize IIS-XOX Asia Pacific Ltd. as the primary
development entity. Alternate development resources will only be used by
joint agreement.
3. LIKE KIND EXCHANGE:
3.1 IMETRIX and XOX agree to exchange copies of the binary images
(executables) of their programs suitable for execution on platforms the
parties have access to and to grant each other license to use these programs
to begin evaluation methods for integrating SHAPES with ADE.
3.2 It is understood that the first version of the Package will integrate
SHAPES with IMETRIX ADE/PT and the final version will integrate SHAPES with
IMETRIX ADE/FE. An interim product will integrate SHAPES with ADE/OM.
3.3 This agreement may be extended to other application areas upon mutual
agreement.
3.4 A joint cross-license agreement will be executed for the purpose of
exchanging software and is part of this agreement.
3.5 For the purposes of integrating SHAPES with the IMETRIX software, both of
which are available for multiple platforms, both parties agree to supply any
and all existing multiple platform versions of their respective software.
4. JOINTLY HELD PROPERTY:
4.1 The jointly developed product is expected to include: (i) base and
enhancements of the SHAPES-based modeling capabilities (SHAPES Modules) (ii)
base and enhancements of the ADE-based data capture capabilities (ADE
Modules) (iii) integration programs connecting SHAPES and ADE modules
(Interface Modules).
4.2 The source code of the Interface Modules will be held as jointly held
property by the Parties. This means that either party can treat the source
code as if they themselves had developed it, and neither party can limit the
others use of Interface Modules.
4.3 All SHAPES Modules and ADE Modules remain the property of XOX and
IMETRIX, respectively, regardless of their actual developer.
5. PROPRIETARY RIGHTS/CONFIDENTIALITY:
5.1 For the purpose of this section "Software" pertains to SHAPES Modules and
ADE Modules.
5.2 No title or ownership of the either party's Software or rights in
patents, copyrights and trade secrets in either parties Software is
transferred to the other by virtue of the Agreement. All copies of the
Software provided are and shall remain the property of the providing party
and subject to the terms and conditions of this Agreement.
5.3 It is expressly understood by the party that each party's Software (i)
constitutes that party's principal products; (ii) contains valuable trade
secrets of the party; and (iii) is made available only in binary (i.e. object
code) form and only on the condition that it will not be transformed, or
attempted to be transformed, into any other form, reverse compiled, reverse
assembled or used by the receiving party other than as provided herein in
order to preserve its value as trade secrets. Each party shall (i) keep
confidential the other's trade secrets in the Software and all information
related thereto; (ii) disclose such information only to the extent required
to carry out this Agreement; and (iii) with respect to employees,
consultants, agents and other third parties, satisfy its obligation under
this Agreement with respect to maintaining the confidentiality of the
providing party's trade secrets.
5.4 The parties may wish, from time to time, in connection with this
Agreement, to disclose information that has commercial importance to such
party ("Proprietary Information"), including without limitation, trade
secrets, computer programs, works of authorship, source and object codes,
algorithms, techniques, know-how, product ideas and strategies, inventions
(whether patentable or not), business plans and forecasts, and other
technical, business or financial information.
5.5 Each party agrees not to use the other party's Proprietary Information
(other than for purposes contemplated by this Agreement) and each will use
reasonable efforts to prevent the disclosure to third parties of any of the
other party's Proprietary Information during the term of this Agreement and
for three (3) years thereafter. The above obligations shall not apply to
information that the recipient party can demonstrate (i) is not disclosed in
writing or reduced to writing and so marked within thirty (30) days of
disclosure; (ii) is already in the receiving party's possession at the time
of disclosure thereof; (iii) is or later becomes part of the public domain
through no fault of either party; (iv) is received from a third party having
no obligations to either party or (v) is independently developed by the
receiving party.
6. PRODUCT PACKAGING/NAME LEADERSHIP:
6.1 The parties agree to package and promote the resulting package so that
primary name leadership is given to IMETRIX and that prominent affiliation
recognition is given to XOX.
7. RECIPROCAL RELATIONSHIP AND ROYALTIES:
7.1 Upon completion of the integration of the SHAPES and ADE Modules
resulting in a complete Package, the resulting Package can be re-sold by
either party, or by any third party mutually agreed to by the parties.
7.2 Confidential treatment requested pursuant to the Securities Act of 1933,
rule 406(b).
7.3 Confidential treatment requested pursuant to the Securities Act of 1933,
rule 406(b).
7. 4 Royalties are to be paid within 30 days of the end of the month in which
either party invoices a customer for the Package.
8. NON-COMPETITION:
8.1 Each party agrees not to create or procure or otherwise affiliate itself
with technology that will be competitive to the other party or that will be
competitive to the joint products to be developed. This clause will survive
any termination or breach for one year.
9. VALIDITY
9.1 The validity of this Agreement holds, assuming that IMETRIX receives
sufficient funding to establish its business with sufficient resources to
execute this Agreement by January 1, 1997
10. TERM AND TERMINATION:
10.1 The term of this agreement shall be two years after an acceptable
integrated product ("Package") is developed, or eighteen months after the
date signed, if an acceptable integrated product has not been developed.
10.2 To be acceptable, the Package would have to meet reasonable customer
requirements.
10.3 If an acceptable Package is developed, then the Agreement may be renewed
on a yearly basis after the initial two year period.
10.4 Either party wishing to terminate the agreement must give 90 days notice
prior to the end of any term.
10.5 Failure of either party to give notice will automatically extend the
agreement as indicated.
10.6 In case of termination for any reason, the property ownership described
in the paragraph entitled Jointly Held Property will survive. Also, royalty
payments requirements will survive as related to customers existing at the
time of termination, and for any new customers acquired within the first year
after termination.
11. BREACH:
11.1 Should either party breach this agreement by not complying with or by
violating its terms and conditions, the non-breaching party will be entitled
to receive the current source code of the breaching party's technology, for
the purpose of completing the contemplated joint product Package only. In
such case, the non-breaching party will have to prove capabilities and
resources to complete the Package. The non-breaching party will also be
entitled to all further royalties and revenues from the joint Package until
that party recovers its cost of completing the package. After such time, the
breaching party will be entitled to the revenue splits defined in Appendix A
only.
11.2 Legal issues with regard to breach of contract or claimed breach of
contract will be adjudicated by arbitration proceedings governed by laws of
the state of non-breaching party.
12. AGREEMENT:
12.1 The parties signed below hereby agree with the terms of this document,
and by signing indicate a commitment to execute the actions outlined herein
in a timely manner. The parties agree to operate in good faith and only
towards the mutual benefit of the parties.
12.2 The parties, having carefully read this Agreement and having consulted
or having been given an opportunity to consult legal counsel, hereby
acknowledge their agreement to all of the foregoing terms and conditions by
executing this agreement. Each signatory hereto represents and warrants that
it is authorized to sign this Agreement on behalf of the respective party.
IMETRIX LTD. XOX CORPORATION
/s/ Jacob Almagor /s/ Lawrence W. McGraw
_________________________ ___________________________
Signature Signature
Jacob Almago Lawrence W. McGraw
Managing Director President
Date: October 31, 1996 Date: October 31, 1996
Appendix A
The parties agree to the following share of revenues derived from the sales of
the Package described under this Joint Development and Marketing Agreement:
% of Revenue
Product (after selling costs)
------- ---------------------
Confidential treatment requested pursuant to the Securities
Act of 1933, rule 406(b).
[LOGO]
XOX Corporation Tel: 612/645-9000
1450 Energy Park Drive, Suite 120 Fax: 612/645-9565
St. Paul. MN 55108 E-mail: [email protected]
LETTER OF UNDERSTANDING
FEBRUARY 26, 1997
Mr. Jacob Almagor
IMETRIX Limited
P.O.B. 2205
Rehovat 76121, Israel
Dear Mr. Almagor:
The purpose of this letter is to set forth the mutual agreements and
understandings between IMETRIX Limited, an Israeli corporation ("IMETRIX") and
XOX Corporation, a Delaware corporation ("XOX") with respect to the desire of
XOX to loan funds to IMETRIX on the terms and conditions set forth in this
Letter of Understanding ("Letter"). Upon execution of counterparts of this
Letter by XOX to IMETRIX, the obligations described in paragraphs 14 and 15 will
constitute the legally binding and enforceable agreement of XOX and IMETRIX. The
other matters described herein do not impose upon either XOX or IMETRIX an
enforceable duty or obligation to negotiate towards a definitive agreement.
1. LOAN: Subject to conditions to be set forth in a
definitive, legally binding, written convertible
bridge loan agreement to be negotiated and agreed
upon by both parties, XOX proposes to lend IMETRIX up
to $200,000.00, U.S. currency (the "Loan"). Of this
Loan amount, $76,000.00 was advanced to IMETRIX prior
to this Letter and an additional $50,000 shall be
available for advancement upon execution of this
Letter (cumulatively, these advances totaling
$126,000 shall be referred to as the "First
Advance"). Of the remaining Loan, up to an additional
$74,000 shall be advanced to IMETRIX subject to
completion of the definitive convertible bridge loan
agreement, mentioned hereinafter (any portion of this
$74,000 that is advanced to IMETRIX shall be
cumulatively referred to as the "Second Advance").
The terms of the Loan are subject to the requirements
of any applicable Israeli Law which specifically
govern a loan or investment of U.S. currency in an
Israeli company, including without limitation, the
Currency Control Law, of 1978, as amended and any
regulations promulgated thereunder and the Income Tax
Ordinance and any regulations promulgated thereunder.
2. TERM OF LOAN: A promissory note shall be delivered to XOX
concurrently with delivery of each advance (the
"Notes"). Each Note shall have a term of 12 months
and will contain customary rights and obligations.
3. INTEREST RATE: 10% simple interest (or a lessor interest rate
according to the regulations of the Bank of Israel),
compounded annually, to be paid at maturity of the
Notes.
4. CONVERSION: At the option of XOX during the one month period
prior to termination of each of the Notes, any
portion of the Notes shall be convertible into either
the capital stock of IMETRIX or the capital stock of
a future parent, subsidiary, holding company or
related entity of IMETRIX, or any other type of
similar arrangement of IMETRIX which obtains either
the stock and/or certain assets of IMETRIX (the
"Parent"). The First Advance and Second Advance shall
be convertible into securities sold by the Parent in
a future private offering of the capital stock of the
Parent at a discount of twenty-five percent (25%) of
the securities sold in such offering; provided
however, in the event that IMETRIX or the Parent have
not entered into a letter of intent with a
placement/underwriting agent prior to the date of the
Second Advance, the Second Advance shall be
convertible into securities sold by the Parent in a
future private offering of the capital stock of the
Parent at a discount of fifty percent (50%) of the
securities sold in such offering. If the Parent does
not exist at the time of conversion, the capital
stock of IMETRIX shall convert into equivalent shares
of the Parent at the time of its formation. XOX shall
deliver a prior 10-day written notice to the Parent
in which it will notify IMETRIX of its intentions to
convert any or all of the Notes.
5. WARRANT COVERAGE: Upon conversion of the First Advance and Second
Advance, XOX shall also receive warrants to purchase
$50,000 worth of shares (25% warrant coverage) of the
securities sold by the Parent in a future private
offering at an exercise price equivalent to the
offering price of the securities sold in such
offering; provided however, in the event that IMETRIX
or the Parent have not entered into a letter of
intent with a placement/underwriting agent prior to
the date of the Second Advance, XOX shall receive
warrants to purchase $68,500 worth of shares (25%
warrant coverage on First Advance and 50% warrant
coverage on Second Advance) of the securities sold by
the Parent in a future private offering at an
exercise price equivalent to the offering price of
the securities sold in such offering. If the Parent
does not exist at the time of conversion, XOX shall
receive warrants to purchase the capital stock of
IMETRIX which shall convert into equivalent warrants
of the Parent at the time of its formation. The
warrants will be immediately exercisable and will
have a term of 7 years. In the event that any portion
of the First Advance or Second Advance is not
converted, XOX shall not receive warrant coverage on
that portion of the investment only.
6. SECURITY FOR LOAN: The Loan shall be secured by a first security
interest in all assets (excluding intellectual
property) of IMETRIX and the Parent, which position
shall be shared with other bridge investors who lend
money to IMETRIX within 90 days from the date of this
Letter pursuant to the same terms as described
herein, subject to any senior existing security
interests.
IMETRIX has the option to prepare a detailed list of
assets instead of the general security interest
described above. The value of the detailed assets
must equal the value of the Loan to the satisfaction
of both XOX and IMETRIX. Such detailed assets will
then become the security interest for the Loan
described in the security agreement which is a part
of the definitive convertible bridge loan agreement.
7. PREEMPTIVE RIGHT: XOX will obtain preemptive rights to purchase a
pro-rata portion of any securities proposed to be
offered by IMETRIX and the Parent in any future
financings prior to the offering thereof to any third
party, except for the issuance of securities pursuant
to any outstanding warrant of IMETRIX and any future
options to be granted to employees.
8. TRANSFER OF SHARES: The "Founding Shareholders" of IMETRIX, specifically
Mr. Jacob Almagor, Mr. Yerucham Shapira and Mr. John
Lai, may not sell more than 15% of their IMETRIX
shares until all of Notes have either been repaid or
converted, without the prior written consent of XOX.
9. CO-SALE: Any sale by the Founding Shareholders shall in any
event be subject to the right of XOX (the "Piggyback"
right) to participate and include shares of XOX in
such Sale, on a pro-rata basis. Both XOX and the
Founding Shareholder must agree upon the reasonable
value of controlling interests which will not be paid
to XOX upon completion of the Sale.
10. REGISTRATION RIGHTS: XOX shall have the right to demand to include up to
all of their shares upon conversion of the Note(s)
(the "Demand Registration" right) in an initial
public offering of the securities of the Parent
and/or IMETRIX (an "IPO"), and to have such shares
registered with the U.S. Securities and Exchange
Commission in the registration statement in
connection with such IPO, at the expense of IMETRIX
and the Parent.
In addition, XOX shall have the right to sell any of
its shares of IMETRIX or the Parent in any subsequent
public offering of securities of IMETRIX or the
Parent (an "SPO"), on a pro-rata basis (the
"Piggyback Registration" right).
The amount of shares of XOX which may be in included
in an IPO or sold in any SPO may be subject to
limitation by the underwriter, if any of such IPO or
SPO, due to marketing restraints. Notwithstanding the
foregoing, IMETRIX will negotiate that XOX shall be
entitled to sell at least a number of its shares
equal to a total of 15% of the shares sold in such
IPO or SPO.
11. BOARD OF DIRECTORS: XOX shall be entitled to the right to designate one
(1) Board member of IMETRIX who will sit on the Board
for one year. The Founding Shareholders agree to vote
their IMETRIX shares accordingly.
12. REPORTING: IMETRIX and the Parent shall provide XOX with:
(a) annual reports audited by a nationally recognized
accounting firm (or unaudited, if a private company);
(b) quarterly financial statements; and
(c) other pertinent information, as agreed to between
XOX and IMETRIX.
Prior to the beginning of each fiscal year, IMETRIX
shall distribute an annual budget and operating plan
to the Board for approval.
13. SPECIAL VOTE: For a period of two and one-half years from the date
the definitive bridge loan agreement is executed, any
material change in the line of business of IMETRIX
(or of any subsidiary) or ceasing operation in the
business contemplated by the Business Plan dated May
1996, other than reasonable changes relating to
normal business operations, will require the written
approval of XOX.
14. DEFINITIVE AGREEMENT: The definitive convertible bridge loan agreement
shall require that XOX be provided: (1) an opinion of
Prof. Joseph Gross, Hodak & Co. stating that IMETRIX
has complied with the requirements of any applicable
Israeli Law as such laws relate to the terms of the
Loan, including but not limited to the conversion
rights and security interest, and (2) representations
by the Founding Shareholders that they are, to the
best of their efforts, undertaking to obtain an
underwriting agent to conduct a private offering of
the securities of IMETRIX and/or the Parent. In
addition, the definitive convertible bridge loan
agreement will contain usual and customary
representations, warranties, covenants and other
agreements (including a security agreement). A
definitive convertible bridge loan agreement must be
executed by both parties prior to the Second Advance.
In the event that no definitive convertible bridge
loan agreement is executed within 90 days from the
date of this Letter, the Notes shall be immediately
due and payable upon the demand of XOX.
15. RECIPROCAL JOINT DEVELOPMENT AND MARKETING AGREEMENT:
The terms of a Reciprocal Joint Development and
Marketing Agreement dated October 31, 1996, shall
continue to be valid, binding and enforceable,
subject to the following: IMETRIX and XOX hereby
agree that the requirements under section 9 of the
Agreement requiring IMETRIX to receive sufficient
funding to establish its business with sufficient
resources by January 1, 1997 are waived. IMETRIX and
XOX also agree and understand that Appendix A to the
Agreement is hereby amended to the extent that
IMETRIX [Confidential treatment requested pursuant to
the Securities Act of 1933, rule 406(b)]. The
Agreement, including the terms and understandings
stated within this Letter, shall continue in force
for the remainder of its term.
16. CALL PROVISION: At any time prior to when the Notes are due and
payable, IMETRIX or the Parent shall have the right
to call the Notes and the Warrants. In that event,
XOX shall receive 150% of the value of the Notes
(principal plus interest) and 150% of the value of
the Warrants described herein.
Please sign and date this Letter of Understanding in the spaces provided below
to confirm our mutual understanding and agreements as set forth herein.
Sincerely,
/s/ Lawrence McGraw
XOX CORPORATION
By: Lawrence McGraw
Its: President
Acknowledged and
agreed to:
IMETRIX LIMITED
By: /s/Jacob Almagor
Its: Managing Director
Dated: 26 Feb 1997
SURFER SOFTWARE LICENSE AGREEMENT
This Agreement, is by and between Shell E&P Technology Company, a
Division of Shell Exploration & Production Company, acting as an agent for Shell
Oil Company ("SHELL"), a Delaware Corporation having its principal place of
business in Houston, Texas, and XOX Corporation ("LICENSEE"), a Delaware
Corporation having its principal place of business in St. Paul, Minnesota.
SHELL has developed the SURFER software package which reconstructs
surfaces in 3-dimensions from a given network of curves.
LICENSEE desires to receive certain rights to SURFER in order to prepare
a derivative software product which will be licensed to third parties.
Therefore, in consideration of the mutual covenants, terms, and
conditions contained herein, the parties hereto hereby agree as follows:
ARTICLE I - DEFINITIONS
1.1 As used herein, the following terms shall have the following meanings:
(a) "Affiliates" as applied to SHELL shall mean:
(1) N. V. Koninklijke Nederlandsche Petroleum Maatschappij
B.V., a Netherlands company, The "Shell" Transport and Trading
Company p.l.c., an English company, and any company (other
than SHELL) which is for the time being directly or indirectly
affiliated with the two first-mentioned companies or either of
them. For the purposes of this definition particular company
is: (i) directly affiliated with another company or companies
if the latter hold/holds shares carrying fifty percent or more
of votes exercisable at a general meeting (or its equivalent)
of the particular company, and (ii) indirectly affiliated with
a company or companies ("the parent company or companies") if
a series of companies can be specified beginning with the
parent company or companies and ending with particular
company, so related that each company or companies, except the
parent company or companies, is directly affiliated with one
or more companies earlier in the series.
(2) any company which is managed or operated by SHELL or a
company as defined in (1) above, and/or has a construction,
operating or technical service agreement with SHELL or a
company as defined under (1) above.
(b) "SURFER" shall mean the SURFER software package as developed
by SHELL and related documentation as described in Exhibit A
hereto.
(c) "SURFER+" shall mean the software product comprised of SURFER
and software calls to LICENSEE's SHAPES computer software
package ("SHAPES") to implement topological correction
operations on SURFER output. SURFER+ shall not include SHAPES.
(d) "License Fee" shall mean the total amount payable to LICENSEE
by sublicensees of SURFER+ or any derivative work thereof in
exchange for the right to use such software.
(e) "Effective Date" shall mean the date on which this Agreement
becomes effective, which shall be the last date this Agreement
is signed by a party hereto.
ARTICLE II - SOFTWARE ESCROW
2.1 Within seven days of the Effective Date, SHELL shall archive a full
copy of SURFER in an internal escrow account. The parties agree that
such archived copy of SURFER shall be used to verify, for any purposes
hereunder, the status and content of SURFER on the Effective Date.
ARTICLE III - GRANTS
3.1 SHELL hereby grants to LICENSEE, subject to the terms and conditions of
this Agreement, a sole license to use SURFER to develop SURFER +, and
to license SURFER+ to third parties in executable code format only.
3.2 SHELL's grant hereunder does not provide any rights to the smoothing
algorithm which is employed in SHELL's internal use of SURFER and is
further described in Exhibit B hereof. LICENSEE shall remove the
smoothing algorithm code from SURFER and replace it with an algorithm
code of LICENSEE's origin, in its development of SURFER+.
3.3 SHELL reserves the right to modify and use SURFER in its own operations
and in the operations of joint ventures and partnerships of SHELL. This
right shall be extendable by SHELL to its' Affiliates for use in their
own operations and in the operations of joint ventures and partnerships
of Affiliates.
3.4 LICENSEE shall grant SHELL a royalty free right to use SURFER+ in its
own operations and in the operations of joint ventures and partnerships
SHELL. This grant shall include the right to copy, modify, and prepare
derivative works of SURFER+. These rights shall be extendable by SHELL
to its Affiliates for use in their own operations and in the operations
of joint ventures and partnerships of Affiliates.
3.5 Each party hereto shall retain all ownership interest in intellectual
property rights relating or attaching to their information, software,
and inventions. The parties agree that SURFER+ shall not be a joint
work of authorship.
3.6 SHELL shall provide SURFER to LICENSEE within thirty days of the
Effective Date.
3.7 SHELL agrees to provide the following cost-free services to LICENSEE.
regarding SURFER:
(a) Three consecutive days of assistance at LICENSEE's offices by
an individual designated by SHELL to be a SURFER expert.
(b) Limited support for a period of one year after the Effective
Date for SURFER problems encountered by LICENSEE. Such SHELL
support shall be limited to 80 person-hours and will be
provided by telephone or by LICENSEE's visit to SHELL's
offices.
ARTICLE IV - CONSIDERATION
4.1 In consideration for the license granted herein, LICENSEE agrees to pay
to SHELL a royalty for each license of SURFER+ equal to the greater of
[Confidential treatment requested pursuant to the Securities Act of
1933, rule 406(b)].
4.2 In the event that royalty payments by LICENSEE to SHELL hereunder do
not equal or exceed [Confidential treatment requested pursuant to the
Securities Act of 1933, rule 406(b)], SHELL shall have the right,
upon sixty days notice, to convert the license granted in Paragraph 3.1
from sole to nonexclusive.
4.3 LICENSEE shall, on or before the last day of January and July of each
calendar year, forward to SHELL a written statement showing the
licenses of SURFER+ in the immediately preceding semi-annual period and
the computation of the royalty payable hereunder. Payment of the amount
shown to be due to SHELL shall accompany each such statement LICENSEE.
Payments made after thirty days from the due date shall include an
interest charge on the amount due, calculated at the annual rate of
twelve percent (12%).
4.4 LICENSEE shall keep such detailed records and account books as may be
necessary to determine the license fees owing hereunder. SHELL shall
have the right to examine, at its own expense, these detailed records
and account books of LICENSEE during regular business hours. It is
understood that SHELL shall not have access to records not related to
licenses of SURFER+.
4.5 LICENSEE agrees to pay all applicable sales or use taxes, charges or
fees, other than taxes on the net income of SHELL, which now or
hereafter are required to be paid or collected by SHELL as a result of
this Agreement. If LICENSEE fails to timely pay taxes, LICENSEE agrees
to indemnify and hold SHELL harmless from any liability for taxes,
interest, penalties and other expense by reason of LICENSEE's failure.
ARTICLE V - TERMINATION
5.1 If LICENSEE shall be in default for more than thirty (30) days in its
obligations under any provision of this Agreement, then SHELL may give
written notice to LICENSEE calling its attention to such default. If
LICENSEE has not remedied such default within thirty (30) days after
receipt of such written notice, then SHELL shall have the right to
terminate all licenses under this Agreement.
5.3 Any termination under this Agreement shall not relieve LICENSEE of any
obligations incurred hereunder prior to such termination.
ARTICLE VI - WARRANTIES & INDEMNIFICATION
6.1 SHELL MAKES NO REPRESENTATION, EXTENDS NO WARRANTIES (EITHER EXPRESS OR
IMPLIED), AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH RESPECT TO
THE PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE
OF SURFER. FURTHER SHELL DOES NOT REPRESENT OR WARRANT THAT DEVELOPMENT
OF SURFER + WILL NOT INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES OUTSIDE THIS AGREEMENT AND SHELL DOES NOT ASSUME ANY
RESPONSIBILITY FOR SUCH INFRINGEMENT. LICENSEE SHALL HAVE THE SOLE
RESPONSIBILITY FOR DETERMINING THE FITNESS OF SURFER FOR ITS INTENDED
USE AND HEREBY AGREES TO DEFEND, INDEMNIFY AND HOLD SHELL HARMLESS FROM
ANY DAMAGES, EXPENSES, FEES, COSTS, ETC., RELATED TO ANY DAMAGE, INJURY
OR INFRINGEMENT CAUSED, OR CLAIMED TO BE CAUSED, IN ANY WAY BY
LICENSEE'S USE OF SURFER.
ARTICLE VII - NOTICES
7.1 All written notices and royalty statements and payments are to be sent
by first-class, certified or registered mail, as follows:
If to SHELL: Shell E&P Technology Company
3737 Bellaire Blvd.
Houston, Texas 77025
Attention: Licensing Manager
If to LICENSEE: XOX Corporation
1450 Energy Park Drive, Suite 120
St. Paul, MN 55108
Attention: Mr. Lawrence W. McGraw
or to such address as may be specified in writing in the manner
prescribed by this Paragraph 7.1.
ARTICLE VIII - CHOICE OF LAW
8.1 The validity, construction, performance and termination of this
agreement shall be governed by the laws of the State of Texas.
ARTICLE IX - MISCELLANEOUS
9.1 This Agreement togather with the Confidential Disclosure Agreement
dated October 17, 1995, embodies the entire understanding between the
parties relating to the subject matter hereof. There are no prior
collateral representations, warranties, or agreements relating thereto.
This Agreement is executed and delivered upon the basis of this
understanding.
9.2 The invalidity or unenforceability of any provision of this Agreement
shall not in any way affect any other provision hereof, and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
9.3 Any modifications or amendments to this Agreement are required to be in
writing and signed by both parties.
9.4 This Agreement is not intended to be, nor shall be construed as, a
joint venture, partnership or other formal business organization.
Furthermore, the parties agree that this Agreement does not constitute
a partnership for tax purposes. In the event that it is so construed,
however, the parties agree to be excluded from the provisions of
Subchapter K of the United States Internal Revenue Code of 1986, as
amended.
9.5 LICENSEE shall obtain SHELL's approval before making any reference to
SHELL in any marketing material regarding the licensing of SURFER +
hereunder. Such approval shall not be unreasonably withheld.
IN WITNESS WHEREOF; the parties hereto have caused this Agreement to
be executed on the dates hereinafter shown.
SHELL E&P TECHNOLOGY COMPANY, X0X CORPORATION
A DIVISION OF SHELL EXPLORATION
& PRODUCTION COMPANY, ACTING
AS AN AGENT FOR SHELL OIL
COMPANY
By: /s/ W.D.Saulmon By: /s/ Lawrence W. McGraw
--------------------- --------------------------
Name: W.D. Saulmon Name: Lawrence W. McGraw
--------------------- --------------------------
Title: Licensing Manager Title: President/CEO
-------------------- -------------------------
Date: October 1, 1996 Date: 10/3/1996
-------------------- -------------------------
EXHIBIT A
DESCRIPTION OF SURFER
SURFER is a computer software package developed by SHELL which reconstructs
surfaces in 3-dimensions from a given network of curves. SURFER automatically
analyzes the network and decomposes the surface into patches bounded by simple
closed curves. SURFER requires that each curve have an intersection with another
in the network, but has no further restriction on the orientation or geometry of
the curves. SURFER includes all source and executable code as archived pursuant
to Paragraph 2.1 hereof. Documentation consists of written materials describing
the SURFER application and its use.
EXHIBIT B
DESCRIPTION OF THE SMOOTHING ALGORITHM
The smoothing algorithm is a computer software routine which provides a general
method for interpolating quantities at the nodes of discrete meshes. SURFER as
used internally by SHELL uses the smoothing algorithm to interpolate spatial
coordinates from nodes at given locations to nodes without pre-assigned
locations.
XOX CORPORATION
<TABLE>
<CAPTION>
Form 10-KSB Exhibit 11.1 Computation of Net Loss per share
<S> <C> <C>
PRIMARY NET LOSS PER SHARE:
Weighted average common shares outstanding 1,830,434 1,155,065
Common shares outstanding oursuant to Staff
Accounting Bulletin No. 83 69,882 167,716
----------- -----------
1,900,316 167,716
=========== ===========
Net loss ($1,667,399) ($1,600,945)
=========== ===========
Nel loss per share ($0.88) ($1.21)
=========== ===========
FULLY DILUTED NET LOSS PER SHARE:
Primary shares outstanding 1,900,316 1322781
Preferred stock on an as if converted basis 160,000 160000
----------- -----------
2,060,316 1482781
=========== ===========
Net loss ($1,667,399) ($1,600,945)
=========== ===========
Net loss per share ($0.81) ($1.08)
=========== ===========
SUPPLEMENTARY NET LOSS PER SHARE:
Fully diluted shares outstanding 2,060,316
Common shares assumed issued for repayment of debt 54,571
-----------
2,114,887
===========
Net loss ($1,667,399)
interest related to debt repayed 28,650
-----------
($1,638,749)
===========
Net loss per share ($0.77)
===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XOX
CORPORATION'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,720,551
<SECURITIES> 0
<RECEIVABLES> 205,976
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,017,484
<PP&E> 478,827
<DEPRECIATION> 345,190
<TOTAL-ASSETS> 3,302,349
<CURRENT-LIABILITIES> 286,750
<BONDS> 0
0
0
<COMMON> 73,260
<OTHER-SE> 12,236,142
<TOTAL-LIABILITY-AND-EQUITY> 3,302,349
<SALES> 0
<TOTAL-REVENUES> 806,506
<CGS> 0
<TOTAL-COSTS> 2,325,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,061
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,667,399)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.81)
</TABLE>
