UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Commission file number 0-28610
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)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $.025 Par Value - 2,952,931 shares outstanding as of November 12,
1997.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XOX CORPORATION September 30, December 31,
Balance Sheets 1997 1996
U.S. Dollars Unaudited
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,024,474 $ 2,720,551
Accounts receivable 240,924 193,976
Prepaid expenses 99,714 90,957
Other 161,000 12,000
------------ ------------
Total current assets 1,526,112 3,017,484
Property and equipment:
Furniture and fixtures 67,814 67,613
Computer equipment 409,379 342,448
Leasehold improvements 71,866 68,766
------------ ------------
549,059 478,827
Less accumulated depreciation 393,460 345,190
------------ ------------
Net property and equipment 155,599 133,637
License agreements, net of amortization of $47,917 67,083 110,208
and $4,792 at September 30, 1997 and December
31, 1996, respectively
Investment in joint venture 80,532 41,020
------------ ------------
Total assets $ 1,829,326 $ 3,302,349
============ ============
Current liabilities:
Accounts payable $ 117,135 $ 209,395
Accrued expenses 60,723 77,355
------------ ------------
Total current liabilities 177,858 286,750
Deferred revenue 99,962 65,667
Long-term liabilities:
Long-term debt - related parties 632,006 734,451
Accrued payroll taxes 33,319 34,163
Other accrued liabilities 78,771 78,624
------------ ------------
Total long-term liabilities 744,096 847,238
Stockholders' equity:
Common stock 73,823 73,260
Additional paid-in capital 12,289,704 12,236,142
Accumulated deficit (11,556,117) (10,206,708)
------------ ------------
Total stockholders' equity 807,410 2,102,694
------------ ------------
Total liabilities and stockholders' equity $ 1,829,326 $ 3,302,349
============ ============
</TABLE>
See Note to Financial Statements
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XOX CORPORATION For the Three Months Ended For the Nine Months Ended
Statements of Operations September 30, September 30,
U.S. Dollars 1997 1996 1997 1996
Unaudited Unaudited Unaudited Unaudited
----------- ----------- ----------- -----------
Net revenues:
<S> <C> <C> <C> <C>
Customer support and consulting $ 163,735 $ 105,892 $ 349,219 $ 280,416
Product revenues 39,603 27,297 329,511 100,952
Royalties 4,061 7,565 4,061 24,341
Less Commissions (8,260) 0 (8,260) 0
----------- ----------- ----------- -----------
199,139 140,754 674,531 405,709
Operating expenses:
Research and development 254,491 156,199 944,513 502,335
Selling, general and administrative 328,741 413,120 1,152,204 962,873
----------- ----------- ----------- -----------
583,232 569,319 2,096,717 1,465,208
Loss from operations (384,093) (428,565) (1,422,186) (1,059,499)
Interest income 16,756 7,057 68,277 7,606
Interest expense (10,781) (40,771) (35,011) (182,288)
Share of joint venture net gain 19,650 0 39,512 0
----------- ----------- ----------- -----------
Net loss ($ 358,468) ($ 462,279) ($1,349,408) ($1,234,181)
=========== =========== =========== ===========
Net loss per share ($ 0.12) ($ 0.18) ($ 0.46) ($ 0.53)
Weighted average number of shares
outstanding 2,952,931 2,511,894 2,941,666 2,337,503
</TABLE>
See Note to Financial Statements
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XOX CORPORATION For the Nine Months Ended
Statements of Cash Flows September 30,
U.S. Dollars 1997 1996
Unaudited Unaudited
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($1,349,408) ($1,234,181)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 48,270 21,439
Recognition of Deferred Revenue (155,138) (23,016)
Amortization 43,125 0
Share of joint venture net gain (39,512) 0
Noncash interest expense related to warrants 0 32,745
Changes in other operating assets and liabilities:
Accounts receivable 46,948 (67,694)
Prepaid expenses 8,757 (76,666)
Accounts payable (92,260) (8,856)
Accrued interest 0 (80,801)
Accrued liabilities (26,244) 36,026
Deferred revenue 189,433 177,220
----------- -----------
Net cash used in operating activites (1,326,029) (1,223,784)
INVESTING ACTIVITIES
Purchase of property and equipment (70,228) (9,818)
Working capital advances to IMETRIX Limited (149,000) 0
----------- -----------
Net cash used in investing activities (219,228) (9,818)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 3,300 5,016,441
Net proceeds from bridge loans 0 475,000
Payments on notes payable (51,621) (817,686)
----------- -----------
Net cash provided (used) by financing activities (48,321) 4,673,755
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,593,578) 3,440,153
Cash and cash equivalents at beginning of period 2,720,551 29,918
----------- -----------
Cash and cash equivalents at end of period $ 1,126,973 $ 3,470,071
=========== ===========
</TABLE>
See Note to Financial Statements
<PAGE>
Part 1
FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
XOX Corporation
Note to Financial Statements
September 30, 1997
Note 1 - Basis of Presentation
The financial statements have been prepared by XOX Corporation, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The information furnished in the financial statements includes normal recurring
adjustments and reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of such financial statements. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and accompanying
notes included in the Company's annual report to the Securities and Exchange
Commission on Form 10-KSB for the fiscal year ended December 31, 1996.
Note 2 - Net Loss per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computations, as their effect is
antidilutive. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. There is expected to be
no effect on earnings per share from the adoption due to the Company being in a
net loss position.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This report, other than historical financial information, contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements will likely be impacted by factors outside the
Company's control and may differ materially from actual future events or
results. There are a number of important factors that could cause actual results
to differ materially from those anticipated by any forward-looking information.
A description of risks and uncertainties relating to XOX Corporation and its
industry and other factors which could affect the Company's financial results
are included in the Company's Securities and Exchange Commission filings.
The Company's year to date revenues of $674,531 does not meet prior expectations
of the Company's board of directors and its management. This failure to meet
expected revenues is, in part, based on an unforeseen failure in the generation
of revenues from the Company's royalty business model. As a result, year-end
revenues for 1997 are no longer expected to exceed $1,000,000 and the last half
of 1997 is no longer anticipated to be profitable.
In an attempt to achieve profitability in 1998, the Company's board of directors
and its management will continue to attempt to reduce expenses and associated
reductions in monthly cash expenditures. These reductions are anticipated to be
reflected in the Company's quarterly results beginning in the first quarter of
1998. The Company does not expect any work force reductions of key technical
personnel. Any future work force reductions are not expected to have a material
negative impact on 1998 revenues. In addition to future expense reductions, the
Company is researching a broader range of business opportunities, including
without limitation, the sale of nonexclusive licenses which may include the
ownership of source code, partnerships and strategic alliances for the purpose
of joint development and marketing of end user products, and continued sale of
OEM licenses at an increased price of $100,000, which price includes negotiated
royalties and development support. Notwithstanding the foregoing, while the
Company is still in the process of attempting to validate what long-term
strategic opportunities could successfully supplement or replace the Company's
royalty business model, there can be no assurance that any of the foregoing
business opportunities will help the Company achieve profitability during or
after 1998.
RESULTS OF OPERATIONS
Net revenues for the quarter ended September 30, 1997 increased 41% to $199,139
from $140,399 reported for the same quarter in 1996. Net revenues for the
nine-month period ended September 30, 1997 increased 66% to $674,531 from
$405,709 reported in the same prior year period. For the quarter ending
September 30, 1997, the increase is primarily attributable to an increase in
license sales as well as consulting revenues, of which Schlumberger Corporation
provided $95,000 in consulting fees. For the nine- month period ending September
30, 1997, the increase is attributable to an increase in license sales, as well
as contracts with Shell International Exploration & Production B.V.
<PAGE>
of the Netherlands and ANSYS, Inc. reported for the quarter ended March 31, 1997
and consulting fees from Schlumberger during the third quarter.
Although revenues for the quarter ended September 30, 1997 increased 41% over
the comparable quarter of 1996, operating expenses also increased over the
previous quarter by 2% to $583,232. For the nine-month period ending September
30, 1997 operating expenses increased 43% to $2,096,717 over the previous nine
months in 1996. These factors, combined with the lack of royalty revenues,
resulted in a net loss of $358,468 for the quarter ended September 30, 1997 and
a net loss of $1,349,408 for the nine-month period ending September 30, 1997.
The net loss for the comparable quarter in 1996 was $462,279 and the net loss
for the comparable nine-month period in 1996 was $1,234,181.
Research and development expenses increased 63% to $254,491 for the quarter
ended September 30, 1997, from $156,199 reported for the same quarter of 1996.
For the nine- month period ended September 30, 1997 research and development
expense increased 88% to $944,513 from $502,335 reported in the same prior year
period. For both periods the increase is attributable to increased staffing, as
well as increased utilization of IIS-XOX Asia Pacific Ltd., the Company's Indian
joint venture ("IIS-XOX").
Selling, general and administrative expenses decreased 20% to $328,741 for the
quarter ended September 30, 1997 from $413,120 reported for the same quarter in
1996. The decrease in selling, general and administrative expenses for the
quarter ending September 30, 1997 compared to the same quarter in 1996 is
primarily attributable to termination of the Company's chief financial officer
and the termination of the Company's consulting agreement with its sales
representative in London, England during the second quarter of 1997, as well as
other reductions in general and administrative expenses. For the nine-month
period ended September 30, 1997, selling, general and administrative expenses
increased 20% to $1,155,204 from $962,873 reported in the same prior year
period. The increase in sales, general administrative expenses over the same
period in 1996 is due to increased employment levels at the time and spending or
other administrative expenses relating to operating as a public company during
the first two quarters of 1997.
During the quarter ended September 30, 1997, the Company continued to keep its
surplus cash invested in money market accounts and short-term commercial paper.
These investments of the surplus cash provided approximately $16,756 of interest
income. During the comparable quarter of 1996, the Company's interest income was
$7057. For the nine-month period ended September 30, 1997, interest income
increased to $68,277 from $7,606 reported in the comparable prior year period.
This increase is attributable to proceeds from the Company's initial public
offering, which closed in September of 1996.
Debt repayments and conversions in 1996 resulted in a lower interest expense for
the quarter ended September 30, 1997 when compared to the comparable quarter in
1996. For the quarter ended September 30, 1997, interest expense decreased to
$10,781 from $40,771 reported for the comparable quarter of 1996. For the
nine-month period ended
<PAGE>
September 30, 1997 interest expense decreased to $35,011 from $181,288 reported
in the comparable prior year period.
In late December 1996, the Company made an equity investment of $41,020 in
IIS-XOX. The Company is a 47.5% shareholder in the joint venture. For the
three-month period ended September 30, 1997 the joint venture had net income of
$41,367. The Company's 47.5% share of that net income, or $19,650, is reflected
in both the balance sheets and statements of operations as part of the equity
method of accounting for the joint venture investment. However, the salary of
the managing director of IIS-XOX is paid entirely by the Company; therefore, any
net income from IIS-XOX is entirely offset by this expenditure.
For the next several quarters, the Company expects that operating results could
vary substantially from quarter to quarter due to a number of factors that are
difficult to forecast. The results of one quarter may not be indicative of
operating results in subsequent quarters. At its current stage of business
development, the Company's quarterly revenues and results of operations may be
materially affected by, among other factors, development and introduction of
products, time to market, market acceptance, demand for the Company's products,
reviews in the press concerning the products of the Company or its competitors
and general economic conditions. Many of these factors are not within the
control of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,024,474 at September 30, 1997, compared to
$2,720,551 at December 31, 1996 and $3,470,071 at September 30, 1996. The
Company's working capital was $1,348,254 at September 30, 1997, compared to
$2,730,734 at December 31, 1996. The Company had a working capital deficit of
$3,473,988 at September 30, 1996. The Company completed its initial public
offering in September of 1996.
For the nine-month period ended September 30, 1997, the Company used
approximately $1,428,528 of cash to finance its operating activities. For the
comparable nine-month period in 1996 approximately $1,223,784 of cash was used
in operating activities. The Company continued to have operating expenses that
far exceeded revenues, and as a result, large negative cash flows were
experienced in the operating activities for the quarter and the nine-month
period ended September 30, 1997.
To help remedy this situation, the Company reduced its work force by five
employees effective April 22, 1997. This expense reduction and associated
reduction in monthly cash expenditures is reflected in the Company's operating
results beginning in May 1997. The Company does not expect any future work force
reductions of key technical personnel. Any future work force reductions are not
expected to have a material negative impact on 1998 revenues.
<PAGE>
The Company had no capital expenditures for the quarter ended September 30,
1997.
The Board of Directors of the Company has authorized working capital advances to
be made to IMETRIX, an Israeli company, in the form of a term loan of up to
$200,000. The Company entered into a term loan agreement with IMETRIX on
September 15, 1997. As part of that term financing, the Company has made working
capital advances to IMETRIX of $12,000 in October 1996, $114,000 in the quarter
ended March 31, 1997, and $35,000 in the current quarter. The total working
capital advances of $161,000 are carried on the Company's balance sheet in the
current asset section under the heading of "other."
Capital expenditures for the balance of fiscal year 1997 are estimated to be
$20,000.
The Company estimates that its current cash balance and the cash generated from
customer revenues will be sufficient to fund its operations and capital needs
through at least the second quarter of 1998. At its current stage of business
development, the Company's quarterly revenues and results of operations may be
materially affected by, among other factors, development and introduction of
products, time to market, market acceptance, demand for the Company's products,
reviews in the press concerning the products of the Company or its competitors
and general economic conditions. Many of these factors are not within the
control of the Company. As a result, there can be no assurance that the Company
will be sufficiently funded through the second quarter of 1998.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
(a) Use of Proceeds from Registered Securities
<PAGE>
1. (a) State the name of the issuer or successor issuer filing the report.
XOX Corporation
(b) If a successor issuer is filing the report with respect to the
registration statement of its predecessor, state the name of such
predecessor issuer.
N/A
<PAGE>
2. (a) Indicate the effective date of the registration statement for which this
information is reported.
MO DAY YEAR
[0 9] [1 1] [9 6]
Regional
(b) Provide the SEC file number assigned to the registration Office
statement. Code
If Any
[ 0 ] [ - ] [ 2 ] [ 8 ] [ 6 ] [ 1 ] [ 0 ] [ - ]
(c) If the issuer has been assigned a CUSIP number, specify the first (6)
digits.
[ 9 ] [ 8 ] [ 4 ] [ 1 ] [ 2 ] [ Y ]
3. (a) Has the offering commenced? Yes No
|X| |_|
(b) If yes, indicate the date the offering commenced. MO DAY YEAR
[0 9] [1 1] [9 6]
If no, explain briefly
----------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
4. Did the offering terminate before any securities were sold? Yes No
|_| |X|
If yes, explain briefly
---------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Note: If the offering terminated before any securities were sold,
see Rule 477 under Regulation C (17 CFR 230.477) regarding
withdrawal of the registration statement.
Instruction: If the answer to Item 4 is "yes", do not answer 5-12.
5. Did the offering terminate prior to the sale of all securities Yes No
registered? |_| |X|
If yes, explain briefly
---------------------------------------
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<PAGE>
6. Furnish the name(s) of the managing underwriter(s), if any.
(01) Equity Securities Trading Co., Inc.
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(02)
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(03)
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(04)
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7. (a) Indicate the title and code of each class of securities registered
and, where a class of convertible securities is being registered, indicate
the title and code of any class of securities into which such securities
may be converted
Title of security Code
--------------------------------------------------------------------------
(01) Units, each Unit consisting of one share of Common EQ
Stock, $.025 par value and one Redeemable Common
Stock Purchase Warrant
--------------------------------------------------------------------------
(02) Common Stock, $.025 par value, underlying Redeemable EQ
Common Stock Purchase Warrants
--------------------------------------------------------------------------
(03) Underwriter's Warrant to purchase shares of Common EQ
Stock, $.025 par value
--------------------------------------------------------------------------
(04) Common Stock, $.025 par value, issuable upon exercise
of the Underwriter's Warrant
--------------------------------------------------------------------------
Instruction: Select the appropriate code for each class of
securities registered. Debt -- DE; Convertible Debt -- CD; Equity --
EQ; Limited Partnership Interest -- LP; Other (e.g., Investment
contracts, warrants, rights, and optional) -- OT.
(b) Describe briefly any class of securities categorized as "other."
N/A
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8. Indicate on the following table the amount and aggregate offering price of
securities registered and sold to date for the account of the issuer and
for the account(s) of any selling security holder(s).
<PAGE>
<TABLE>
<CAPTION>
For the account of the issuer For the account(s) of any
selling security holder(s)
- -----------------------------------------------------------------------------------------------------------------------------------
Title of Amount Aggregate Amount sold Aggregate Amount Aggregate Amount sold Aggregate
security registered price of offering registered offering offering
offering price of price of price of
amount amount sold amount amount sold
registered registered
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(01) 977,500 $6,842,500 870,000 $6,090,000
Units
- -----------------------------------------------------------------------------------------------------------------------------------
(02) Common Stock 977,500 $7,820,000 0 0
Underlying
Warrants
- -----------------------------------------------------------------------------------------------------------------------------
(03) Underwriter's 1 0 1 $100
5 Year
Warrant
- -----------------------------------------------------------------------------------------------------------------------------
(04) Common Stock 70,544 $ 641,950 0 0
Issuable Upon
Exercise of
Underwriter's
Warrant
- -----------------------------------------------------------------------------------------------------------------------------
(05)
870,000 $6,090,100
Total Units
1 Warrant
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
9. State, if known, or furnish a reasonable estimate of, the amount of
expenses incurred for the issuer's account in connection with the issuance
and distribution of the securities registered for each category listed
below. Place an "X" in the box to the left of any amount given that is an
estimate.
<TABLE>
<CAPTION>
DIRECT OR INDIRECT PAYMENTS TO
DIRECTORS, OFFICERS, GENERAL PARTNERS OF
THE ISSUER OR THEIR ASSOCIATES; TO
PERSONS OWNING TEN PERCENT OR MORE OF
ANY CLASS OF EQUITY SECURITIES OF THE
ISSUER; AND TO AFFILIATES OF THE DIRECT OR INDIRECT
ISSUER PAYMENTS TO OTHERS
(A) (B)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(01) Underwriting discounts $ $ 609,000
and commissions
- --------------------------------------------------------------------------------------------------------
(02) Finders' Fees
- --------------------------------------------------------------------------------------------------------
(03) Expenses paid to or for 182,700
underwriters
- --------------------------------------------------------------------------------------------------------
(04) Other expenses 301,114
- --------------------------------------------------------------------------------------------------------
(05) Total Expenses $ $1,092,814
- --------------------------------------------------------------------------------------------------------
</TABLE>
10. Indicate the net offering proceeds to the issuer after the [$ 4,997,286]
total expenses in Item 9 above.
11. State, if known, or furnish a reasonable estimate of, the amount of net
offering proceeds to the issuer used for each of the purposes listed
below. Do not include any amount in "working capital" to which a more
specific category is applicable. Place an "X" in the box to the left of
any amount given that is an estimate.
<PAGE>
<TABLE>
<CAPTION>
DIRECT OR INDIRECT PAYMENTS DIRECT OR INDIRECT
TO DIRECTORS, OFFICERS, GENERAL PAYMENTS TO OTHERS
PARTNERS OF THE ISSUER OR THEIR
ASSOCIATES; TO PERSONS OWNING
TEN PERCENT OR MORE OF ANY
CLASS OF EQUITY SECURITIES OF
THE ISSUER; AND TO AFFILIATES
OF THE ISSUER
(A) (B)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(01) Construction of plant, building and
facilities $ $
- --------------------------------------------------------------------------------------------------------
(02) Purchase and installation of
machinery and equipment 115,139
- --------------------------------------------------------------------------------------------------------
(03) Purchase of real estate
- --------------------------------------------------------------------------------------------------------
(04) Acquisition of other business(es)
- --------------------------------------------------------------------------------------------------------
(05) Repayment of indebtedness 530,339 671,779
- --------------------------------------------------------------------------------------------------------
(06) Working capital 416,610
- --------------------------------------------------------------------------------------------------------
Temporary investment (specify)
- --------------------------------------------------------------------------------------------------------
(07) Money Market $ X $ 1,060,272
- --------------------------------------------------------------------------------------------------------
(08)
- --------------------------------------------------------------------------------------------------------
(09)
- --------------------------------------------------------------------------------------------------------
(10)
- --------------------------------------------------------------------------------------------------------
Other purposes (specify)
- --------------------------------------------------------------------------------------------------------
(11) Purchase of Software X $ $ 85,000
- --------------------------------------------------------------------------------------------------------
(12) Sales and Marketing 620,617
- --------------------------------------------------------------------------------------------------------
(13) Research and Development 1,336,431
- --------------------------------------------------------------------------------------------------------
(14) IMETRIX Loan 161,000
- --------------------------------------------------------------------------------------------------------
(15)
- --------------------------------------------------------------------------------------------------------
(16)
- --------------------------------------------------------------------------------------------------------
</TABLE>
Instructions: 1. Specify under "other purposes" any purpose for which at
least 5 percent of the issuer's total offering proceeds of
$50,000, whichever is less, has been used.
2. Compute all amounts from the effective date of the
registration statement of the ending date of the reporting
period for this report.
3. Round all amounts to the nearest dollar.
<PAGE>
12. Do the uses(s) of proceeds in item 11 represent a material change in the
use(s) of proceeds described in the prospectus?
YES NO
|_| |X|
If yes, explain briefly
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<PAGE>
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
<PAGE>
Not Applicable.
Item 5. Other Information.
Effective August 6, 1997, Lawrence W. McGraw resigned as president,
chief executive officer and acting chief financial officer of the Company. Mr.
McGraw also resigned as a member of the board of directors.
Concurrent with Mr. McGraw's resignation, the board appointed Steven
Mercil and Dirk McDermott as new members of the board. They replaced
respectively Mr. McGraw and Dr. John Swanson, who voluntarily resigned to
maintain an odd number of board members, as required by the Company's bylaws.
The board accepted the resignations of Dirk McDermott and Robert Mars,
Jr. due to time constraints. Effective November 11 and 13, 1997, the board
received acceptance of appointment from Steven B. Liefschultz, Bernard J. Reeck,
Richard L. Fast and John Sherbin as new members of the board. Therefore the
entire composition of the Company's seven member classified Board of Directors
is as follows: Richard L. Fast, Steven B. Liefschultz, Thomas Lucas, Steven
Mercil, Bernard J. Ruck, John Serbin and Dr. Pradeep Sinha.
Concurrent with his appointment to the Board, Mr. Liefschultz was
appointed Chairman of the Board, replacing Steven Mercil who had previously been
appointed as Chairman. Also on November 11, 1997, Steven Mercil was appointed
interim chief executive officer, president, and chief financial officer of the
Company until a suitable replacement can be found. Dr. Pradeep Sinha, who had
been acting in that interim capacity since Mr. McGraw's resignation, remains a
board member, Vice President of Research, and Chief Technical Officer.
Mr. Mercil's compensation is be based on an annual salary of $100,000.
In addition, he has been granted options to purchase 50,000 shares of the
Company's common stock pursuant to the terms of the Company's 1996 Omnibus Stock
Plan.
In addition to normal duties as chairman, Mr. Liefschultz will also
perform other strategic and financial duties on behalf of the Company. As
compensation for these other services, the Company granted Mr. Liefschultz
nonqualified options to purchase 100,000 shares of the Company's common stock.
These options were not granted under the Company's 1996 Omnibus Stock Plan.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(i) Those exhibits required to be furnished in response
to this item, other than Exhibits 10 and 27, were
furnished in connection with the Company's
Registration Statement on Form SB-2, File No.
333-05112-C, as filed with the Securities and
Exchange Commission and as amended, and other reports
filed under the Securities Exchange Act of 1934, all
of which are incorporated herein by reference.
<PAGE>
(ii) Exhibit 10 - Term Loan Agreement between IMETRIX
Limited and the Company dated September 15, 1997.
(iii) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
(i) None.
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.
XOX Corporation
November 14, 1997
By /s/ Steven B. Mercil
------------------------------------
Steven B. Mercil
President, Chief Executive Officer &
Chief Financial Officer
TERM LOAN AGREEMENT
THIS AGREEMENT is made and entered into this 15th day of September,
1997 by and among IMETRIX Limited, a corporation organized under the laws of The
State of Israel ("Borrower"), Geometric Imaging, Inc., a Minnesota corporation
organized to become the parent corporation of Borrower ("Parent") and XOX
Corporation, a Delaware corporation (hereinafter "Lender").
ARTICLE I
LOAN
1.1 Term Loan. Subject to the terms and conditions contained in this
Agreement, Lender hereby agrees to loan to Borrower the aggregate sum of
$200,000 (the "Loan Amount"), of which amount $126,000 has been funded in
contemplation of the execution and delivery of this Agreement (the "First
Advance"). The remaining $74,000 of the Loan Amount (the "New Advances") shall
be funded in installments according to the schedule provided in Schedule 1.1 to
this Agreement. Each of the New Advances will be funded within five business
days following the satisfaction by Borrower (itself or in collaboration with
Lender and its affiliates) of the milestone requirement for that New Advance as
described in Schedule 1.1 and delivery to Lender of evidence of the satisfaction
of the milestone requirement. The parties intend that this five business day
period will provide Lender with the time and opportunity to verify satisfaction
of the milestone to Lender's reasonable satisfaction and to fund the New
Advance. The First Advance and each New Advance will be secured and evidenced by
a separate promissory note of Borrower to the order of Lender (each, a "Note")
substantially in the form attached hereto as Exhibit I.
1.2 Terms of Repayment. Interest at the rate of ten percent (10%) per
annum, calculated on the basis of the number of days actually elapsed in a
360-day year, shall be due and payable on each Note on June 30, 1999 (the
"Maturity Date"), together with the entire principal balance. Interest on the
First Advance shall accrue from January 1, 1997. Notwithstanding the foregoing,
the rate of interest set forth in the first sentence of this paragraph shall be
reduced for the entire term of each Note to the extent such reduction is
required under the rules and regulations promulgated by the Bank of Israel.
1.3 Conversion Rights and Obligation. Lender shall have the option (the
"Option") with respect to each Note, or the obligation in some circumstances, to
convert all or part of such Note into fully paid and nonassessable shares of the
capital stock (the "Capital Stock") of Parent, which has been organized to own
100% of the outstanding capital stock of Borrower, upon the following terms:
(i) Lender may convert all or any portion of the Term Loan
into shares of the same class or series of Capital Stock as is being sold in a
private placement offering (a "Private Offering") of shares of its Capital Stock
or in a proposed Private Offering pursuant to a letter of intent with a selling
agent or being conducted by officers of the Parent at a rate equal to
seventy-
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five percent (75%) of the price in the Private Offering, applied to the
remaining principal balance of the Term Loan being converted.
(ii) If Parent completes one or more Private Offerings prior
to the Maturity Date yielding at least $1,000,000 in gross proceeds, then Lender
shall be obligated to convert the entire amount of the Term Loan into Capital
Stock at the option of Parent at any time prior to the Maturity Date, at a rate
equal to seventy-five percent (75%) of the price in the most recent Private
Offering, applied to the remaining principal balance of the Term Loan being
converted.
Lender shall exercise the Option for any Note by delivering written
notice of same to Borrower at least ten days prior to the Maturity Date. Such
notice of Lender shall specify the amount of the Note to be converted into
shares of Capital Stock, together with Lender's calculation of the per share
conversion price. Parent shall give to Lender reasonable notice of any Private
Offering to permit Lender to evaluate its rights to convert the Notes.
At the closing for any conversion transaction pursuant to the Option or
any obligation of Lender to convert, Lender shall deliver the Note or Notes
being converted to Parent, and Parent shall deliver to Lender certificates
representing the shares of Capital Stock acquired by Lender upon conversion,
together with payment of accrued interest and any remaining portion of the Note
not converted. The closing for the conversion transaction shall occur at any
time on or before the date three days before the Maturity Date at a time and
place mutually agreeable to Parent and Lender.
If the Parent does not own 100% of the capital stock of Borrower at the
time of conversion of all or a portion of a Note, then the Note shall be
converted into capital stock of Borrower on the terms described above. The
capital stock of Borrower acquired by Lender upon such original conversion shall
automatically convert into substantially equivalent shares of the capital stock
of the Parent at such time as Parent owns 100% of the capital stock of Borrower
(other than the capital stock held by Lender).
1.4 Warrants. In the event that Lender fully converts the Notes
representing the First Advance and all New Advances pursuant to Section 1.3,
Borrower shall issue to Lender warrants, substantially in the form attached
hereto as Exhibit II (the "Warrants"), to purchase up to $50,000 of Capital
Stock of the Parent in any future private placement offering of Capital Stock (a
"Future Private Offering") at the per share offering price used in such Future
Private Offering; provided, however, that if neither Borrower nor Parent has
conducted or is currently conducting a Private Offering nor entered into a
letter of intent with respect to a Future Private Offering at the time the New
Advance is funded, Borrower shall issue to Lender Warrants to purchase up to
$68,500 of Capital Stock of the Parent in any Future Private Offering at the per
share offering price used in such Future Private Offering. In the event the
Parent does not own 100% of the capital stock of Borrower at the time the
Warrants shall be issuable, Lender shall receive warrants to purchase shares of
the Capital Stock of Borrower upon the same terms as above, provided, however,
that such shares of Borrower shall automatically convert into substantially
equivalent shares of the Capital Stock of the Parent when Parent becomes the
owner of 100% of the capital stock of Borrower.
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1.5 Call Provision. At any time on or prior to the date of repayment or
conversion of the last of the Notes to remain outstanding, Borrower or Parent
shall have the right to call for purchase, from the holder or holders thereof,
all outstanding Notes. The closing of the purchase shall be completed on a date
specified in the notice of the call, not to exceed ten days after the date of
the notice; provided, that Lender shall have the opportunity to convert the
Notes pursuant to Section 1.3 prior to the date of the closing. The purchase
price shall be equal to 150% of the remaining principal and unpaid interest
balance. Of the aggregate purchase price, two-thirds shall be payable on the
closing date, and one-third shall be payable on the one year anniversary of the
closing date.
1.6 Conditions to Borrowing. In addition to the milestone requirements
described in Section 1.1 and Schedule 1.1, Lender shall not be obligated to fund
any New Advance unless (i) Lender has received an executed original Note and all
other documents or agreements applicable to the Term Loan described herein, in
form and content reasonably satisfactory to Lender; (ii) Lender has been
provided with the opinion of Prof. Joseph Gross, Hodak & Co. (only on the date
of the first New Advance) stating that the terms of this Agreement, including
without limitation the conversion rights and security interest, do not conflict
with applicable Israeli law; and (iii) Lender has received a written undertaking
from each of Messrs. Jacob Almagor, Yerucham Shapira and John Lai (the "Founding
Shareholders") (a) to use their best efforts to conduct and complete a private
placement offering of shares of Capital Stock, (b) not to sell more than 15% of
their shares of Borrower or Parent until all of the Notes have either been
repaid or converted without the prior written consent of Lender and (c) upon
Lender's full conversion of the Notes representing the full amount of the Term
Loan pursuant to Section 1.3 hereof, to enter into a Stock Transfer and Co-Sale
Agreement with Lender substantially in the form attached hereto as Exhibit III.
In addition to the foregoing, Lender shall not be obligated to fund any
New Advance after March 1, 1998 and all cooperative work from and with Lender
will cease if Borrower or Parent has not completed a Private Offering resulting
in gross proceeds of at least $500,000.
ARTICLE II
DEFINITIONS
2.1 Definitions. Unless the context otherwise requires, the terms
defined in this Section 2 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined below shall,
except as otherwise expressly provided, be determined by reference to Borrower's
books of account and in conformity with generally accepted accounting principles
in the opinion of the independent certified public accountants selected by the
Board of Directors of Borrower as required under the provisions of Section 3
hereof.
2.2 "Collateral" shall have the meaning set forth in Section 6.1 of
this Agreement and Exhibit V hereto.
2.3 "Indebtedness for Borrowed Money" shall include only indebtedness
of Borrower incurred as the result of a direct borrowing of money and shall not
include any other indebtedness
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including, but not limited to, indebtedness incurred with respect to trade
accounts, but shall include without duplication, (i) any indebtedness for
borrowed money or issued in substitution for or exchange of indebtedness for
borrowed money, (ii) any indebtedness evidenced by any note, bond, debenture or
other debt security, (iii) any indebtedness for the deferred purchase price of
property or services with respect to which Borrower is liable, contingently or
otherwise, as obligor or otherwise (other than trade payables and other current
liabilities incurred in the ordinary course of business which are not more than
six months past due), (iv) any commitment by which Borrower assures a creditor
against loss (including, without limitation, contingent reimbursement
obligations with respect to letters of credit), (v) any indebtedness guaranteed
in any manner by Borrower (including, without limitation, guarantees in the form
of an agreement to repurchase or reimburse), (vi) any obligations under
capitalized leases with respect to which Borrower is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or with respect to which
obligations Borrower insures a creditor against loss, (vii) any indebtedness
secured by a Lien on Borrower's assets and (viii) any unsatisfied obligation for
"withdrawal liability" to a "multiemployer plan" as such terms are defined under
ERISA.
2.4 "Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof, together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) Internet addresses, server addresses and universal resource locators,
(viii) other intellectual property rights and (ix) copies and tangible
embodiments thereof (in whatever form or medium).
2.5 "Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock corporation, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
2.6 "Securities Act" means the Securities Act of 1933, as amended, or
any similar United States federal law then in force.
2.7 "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar United States federal law then in force.
2.8 "Security Interest" shall have the meaning set forth in Section 6.1
of this Agreement.
ARTICLE III
WARRANTIES AND COVENANTS
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During the term of this Agreement, and while any part of the Loan
Amount remains unpaid or outstanding, Borrower and Parent continuously
represent, warrant and agree as follows:
3.1 Organization and Standing. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of The State of
Israel, and has the requisite corporate power and authority to own its
properties and to carry on its business in all material respects as it is now
being conducted. Borrower has the requisite corporate power and authority to
issue each Note and to otherwise perform its obligations under this Agreement.
The copies of the charter documents delivered to Lender prior to the execution
of this Agreement are true and complete copies of the duly and legally adopted
charter documents of Borrower in effect as of the date of this Agreement.
3.2 Qualification. Borrower is duly qualified or licensed as a foreign
corporation in good standing in each jurisdiction wherein the nature of its
activities or of its properties owned or leased makes such qualification or
licensing necessary and failure to be so qualified or licensed would have a
material adverse impact on its business.
3.3 Title to Properties and Encumbrances. Borrower has good and
marketable title to properties and assets it owns, which properties and assets
are not subject to any mortgage, pledge, lease, lien, charge, security interest,
encumbrance or restriction. The equipment and other tangible assets necessary
for the conduct of Borrower s business as presently conducted and as presently
proposed to be conducted are in good operating condition and are fit for use in
the ordinary course of business.
3.4 Litigation. There are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending or, to the knowledge of Borrower, threatened against Borrower, its
properties, assets or business, and Borrower is not aware of any facts which are
likely to result in or form the basis for any such action, suit or other
proceeding. Borrower is not in default with respect to any judgment, order or
decree of any court or any governmental agency or instrumentality. Borrower has
not been threatened with any action or proceeding under any business or zoning
ordinance, law or regulation.
3.5 Compliance with Applicable Laws and Other Instruments. The business
and operations of Borrower have been and are being conducted in accordance with
all applicable laws, rules and regulations of all governmental authorities.
Neither the execution nor delivery of, nor the performance of or compliance
with, this Agreement nor the consummation of the transactions contemplated
hereby will conflict with, or, with or without the giving of notice or passage
of time, result in any breach of, or constitute a default under, or result in
the imposition of any lien or encumbrance upon any asset or property of Borrower
pursuant to, any applicable law, administrative regulation or judgment, order or
decree of any court or governmental body, any agreement or other instrument to
which Borrower is a party or by which it or any of its properties, assets or
rights is bound or affected, and will not violate the charter documents of
Borrower. Borrower is not in violation of its charter documents nor in violation
of, or in default under, any lien, indenture, mortgage, lease, agreement,
instrument, commitment or arrangement to which it is a party in any material
respect.
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3.6 Securities Laws. No consent, authorization, approval, permit or
order of or filing with any governmental or regulatory authority is required
under current laws and regulations in connection with the execution and delivery
of this Agreement or the offer, issuance, sale or delivery of the Notes other
than the qualification thereof, if required, under applicable state securities
laws, which qualifi cation has been or will be effected as a condition of the
transactions contemplated by this Agreement.
3.7 Intellectual Property Rights. Except as disclosed in Schedule 3.7
hereto, Borrower (a) owns or has the right to use, free and clear of all
material liens, claims and restrictions, all Intellectual Property and rights
with respect thereto, used in the conduct of its business as now conducted, (b)
is not obligated or under any liability whatsoever to make any payments of a
material nature by way of royalties, fees or otherwise to any owner of, licensor
of, or other claimant to, any Intellectual Property or other intangible asset,
with respect to the use thereof or in connection with the conduct of its
business or otherwise, (c) owns or has the right to use all Intellectual
Property, including know-how, inventions, designs, processes, computer programs
and technical data necessary to the development, operation and sale of all
products and services sold or proposed to be sold by it, free and clear of any
material rights, liens or claims of others, and (d) is not using any
confidential information or trade secrets of others. Borrower is not, nor has it
received notice with respect to, infringing upon or otherwise acting adversely
to any known right or claimed right of any third person with respect to any
Intellectual Property owned by such third party.
3.8 Outstanding Debt. Except as disclosed in Schedule 3.8 hereto,
Borrower has no Indebtedness for Borrowed Money.
3.9 Corporate Proceedings. This Agreement and the Note have been duly
authorized by all necessary corporate action on behalf of Borrower and Parent,
and have been duly executed and delivered by authorized officers of Borrower and
Parent. All corporate action necessary to the authorization, creation, issuance
and delivery of the Note and this Agreement has been taken on the part of
Borrower. This Agreement and the Note are valid and binding agreements of
Borrower and/or Parent, as the case may be, enforceable in accordance with their
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, and except for judicial limitations
on the enforcement of the remedy of specific enforcement and other equitable
remedies.
3.10 Licenses. Borrower possesses from the appropriate agency,
commission, board and government body and authority, whether state, local or
federal, all licenses, permits, authorizations, approvals, franchises and rights
which (a) are necessary for it to engage in the business currently conducted by
it, and (b) if not possessed by Borrower would have an adverse impact on
Borrower's business. Borrower has no knowledge that would lead it to believe
that it will not be able to obtain all licenses, permits, authorizations,
approvals, franchises and rights that may be required for any business Borrower
proposes to conduct.
<PAGE>
3.11 Registration Rights. Except as disclosed in Schedule 3.11 hereto,
and except as provided herein, neither Borrower nor Parent has agreed to
register any of its authorized or outstanding securities under the Securities
Act.
3.12 Status of Shares. All shares of Capital Stock issued by Parent
and/or capital stock issued by Borrower to Lender upon conversion of any Notes
will, upon conversion of the Notes and such issuance, be duly authorized,
validly issued, fully paid and non-assessable shares of capital stock of Parent
or Borrower, as the case may be.
ARTICLE IV
AFFIRMATIVE COVENANTS
While any part of the Loan Amount remains unpaid or outstanding,
Borrower and Parent agree that they shall be obligated as described below, and
Parent will cause Borrower to comply with the following covenants after Parent
owns 100% of Borrower's capital stock:
4.1 Corporate Existence. Borrower will maintain its corporate existence
in good standing and comply with all applicable laws and regulations of The
State of Israel and of any governmental authority where failure to so comply
would have a material adverse impact on Borrower or its business or operations.
4.2 Books of Account. Borrower will keep books of record and account in
which full, true and correct entries are made of all of its dealings, business
and affairs, in accordance with generally accepted accounting principles as in
effect in The State of Israel.
4.3 Furnishing of Financial Statements and Information. Borrower will
deliver to Lender:
(a) as soon as practicable, but in any event within forty-five (45)
days after the close of each quarter, the unaudited balance sheet of
Borrower as of the end of such quarter, together with the related
statements of operations and cash flow for such quarter, setting forth
the budgeted figures for such period prepared and submitted in
connection with Borrower's annual plan as required under Section 4.4
hereof and in comparative form figures for the corresponding quarter of
the previous fiscal year, all in reasonable detail and certified by an
authorized accounting officer of Borrower, subject to year-end
adjustments;
(b) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year, the balance sheet of Borrower, as of
the end of such fiscal year, together with the related statements of
operations, stockholders' equity and cash flow for such fiscal year,
setting forth in comparative figures for the previous fiscal year, duly
certified by a nationally recognized accounting firm, which firm shall
have given Borrower an opinion, unqualified as to the scope of the
audit, regarding such statements, provided, however, that if Borrower
shall not be subject to the reporting requirements of the Securities
Exchange Act as of the end of such fiscal year, such financial
information need not be so certified.
<PAGE>
After Parent owns 100% of the capital stock of Borrower, the above
requirements will be satisfied by supplying equivalent consolidated financial
information regarding Parent.
4.4 Preparation and Approval of Budgets. At least one month prior to
the beginning of each fiscal year of Borrower, Borrower shall prepare and submit
to its Board of Directors, for its review and approval, an annual plan for such
year, which shall include monthly capital and operating expense budgets, cash
flow statements and profit and loss projections itemized in such detail as the
Board of Directors may reasonably request. Each annual plan shall be modified as
often as is necessary in the judgment of the Board of Directors to reflect
changes required as a result of operating results and other events that occur,
or may be reasonably expected to occur, during the year covered by the annual
plan, and copies of each such modification shall be submitted to the Board of
Directors. After Parent owns 100% of the capital stock of Borrower, the above
requirements will be satisfied by Parent and its Board of Directors.
4.5 Intellectual Property Rights. Borrower shall possess and maintain
all material Intellectual Property Rights necessary to the conduct or protection
of its businesses and own all right, title and interest in and to and have valid
license for all such Intellectual Property Rights. Borrower shall not take any
action or fail to take any action which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights or
which to Borrower's knowledge would or would reasonably be expected to infringe
upon misappropriate any rights of other Persons. Borrower shall promptly provide
notice of such action or failure to take action to Lender.
4.6 Title. Borrower will maintain absolute title to each item of
Collateral and all proceeds thereof, free and clear of all interests, liens,
attachments, encumbrances and security interests except the Security Interests.
Borrower will defend the Collateral against all claims or demands of all Persons
(other than Lender) claiming the Collateral or any interest therein. Borrower
will not sell or otherwise dispose of the Collateral or any interest therein,
except the sale of inventory in the ordinary course of Borrower's business,
without Lender's prior written consent.
4.7 Laws. Borrower will use and keep the Collateral, and will require
that others use and keep the Collateral, only for lawful purposes, without
violation of any law of The State of Israel or of any federal, state or local
law, statute or ordinance of the United States.
4.8 Election of Director. For a period of one year from the date of
this Agreement, Lender will have the right to designate one member of the Board
of Directors of Borrower. At such time as Parent owns 100% of the capital stock
of Borrower, this right shall be converted into the right to designate one
member of the Board of Directors of Parent. The Board of Directors of Borrower
or Parent, as the case may be, will promptly elect this member to the Board, and
the Founding Shareholders (and the Parent, in the case of the Board of Directors
of Borrower) will agree to vote in favor of the election or re-election of such
member to the Board during this period.
ARTICLE V
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NEGATIVE COVENANTS
5.1 For a period of thirty months after the date of this Agreement,
there shall not be a material change in the business of Borrower and Parent,
taken as a whole, and Borrower shall not cease operations in the business
contemplated in the Parent's Business Plan provided to Lender in August 1997
(other than, in each case, reasonable changes relating to normal business
operations and needs) without the prior written consent of Lender.
5.2 For a period of three years following the date of this Agreement,
Parent shall not issue shares of its Capital Stock (a "Stock Issuance") without
providing Lender an opportunity to purchase a sufficient number of shares, for
the same per share consideration to be received in such Stock Issuance, to
maintain Lender's proportionate interest ("Proportionate Interest") in the
issued and outstanding shares of Capital Stock of Parent, as the case may be.
For purposes of this Section 5.2, the term Stock Issuance shall not include the
issuances of Capital Stock pursuant to the Warrants or issuances of Capital
Stock pursuant to stock options issued to employees of Borrower or the Parent
and approved by the Board of Directors of the issuing company. For purposes of
this Section 5.2, Lender's Proportionate Interest shall be determined on a fully
diluted basis solely with regard to shares of Capital Stock acquired pursuant to
Section 1.3 hereof. Borrower shall notify Lender at least twenty (20) days prior
to each such Stock Issuance, specifying the number of shares to be issued and
the amount of consideration to be received therefor. Lender shall have a period
of ten days after receipt of such notice to advise Borrower in writing of
Lender's election (the "Election Notice") to purchase shares pursuant to this
Section 5.2 on the same terms as other investors in the stock issuance. Lender's
failure to deliver the Election Notice within the time period specified above
shall be deemed an election not to exercise Lender's rights under this Section
5.2.
ARTICLE VI
SECURITY INTEREST
6.1 Grant of Security Interest. Borrower hereby assigns to Lender and
grants Lender a security interest (hereinafter referred to as the "Security
Interest") in the property owned by Borrower as described on Exhibit V hereto
(the "Collateral"), as security for the payment and performance of each and
every debt, liability and obligation of every type and description which
Borrower may now or at any time hereafter owe to Lender (collectively referred
to as the "Obligations").
6.2 Reproductions. A carbon, photographic or other reproduction of this
Agreement or of any financing statement signed by Borrower shall be sufficient
as a financing statement.
6.3 No Legal Advice or Responsibility. Borrower has, for the
convenience of Lender, provided Lender with summaries and translations of
Israeli law relating to security interests, which were prepared with the
assistance of Borrower's Israeli counsel. In order to facilitate the
transactions pursuant to this Agreement, Borrower and its counsel may also
assist Lender in making appropriate filings in Israel to evidence this security
interest. Lender acknowledges that Borrower's counsel is not representing Lender
in any capacity, and that Borrower and its counsel are not responsible for the
creation or perfection of a valid security interest under the laws of any
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jurisdiction. Lender has had the opportunity to consult with its counsel to the
extent it deems appropriate in connection with these matters.
ARTICLE VII
REGISTRATION RIGHTS
7.1 Registration Rights. (a) "Registrable Securities" shall mean (i)
the Capital Stock into which the Notes have been converted pursuant to Section
1.3, if all of the Notes representing the Term Loan have been converted in full,
and (ii) any additional securities issued with respect to such Capital Stock
upon any stock split, stock dividend, recapitalization or similar event,
provided, however, that none of the above described securities shall be treated
as Registrable Securities if they may be sold by the holder of the securities
under Rule 144 under the Securities Act.
(b) Each time prior to the third anniversary date of this Agreement
that Parent determines to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection with the proposed
offer and sale for the money of any of its securities by it or any of its
security holders (other than a registration statement on Form S-4 or S-8 or
other limited purpose form), Parent will give written notice of its
determination to Lender. Upon the written request of Lender given within 20 days
after receipt of any such notice from Parent, Parent will, except as herein
provided, cause all or a portion of the Registrable Securities held by Lender to
be included in such registration statement, all to the extent requisite to
permit the sale or other disposition by Lender of the Registrable Securities to
be so registered; provided, however, that nothing herein shall prevent Parent
from, at any time, abandoning or delaying any registration.
If any registration pursuant to this Section is underwritten in whole
or in part, Parent may require that the Registrable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If a greater number of Registrable Securities is offered for
participation in the proposed offering than in the reasonable opinion of the
managing underwriter of the proposed offering can be accommodated without
adversely affecting the proposed offering, then the amount of Registrable
Securities proposed to be offered by Lender for registration, as well as the
number of securities of any other selling shareholders participating in the
registration, shall be proportionately reduced to a number deemed satisfactory
by the managing underwriter; PROVIDED, HOWEVER, that Parent will make provisions
with the managing underwriter so that Lender shall be entitled to sell at least
a number of the shares Lender desires to offer equal to a total of 15% of the
shares sold in such offering. Those shares of Capital Stock (including
Registrable Securities) held by Lender which are excluded from the underwritten
public offering as described in the preceding sentence shall be withheld from
the market for a period, not to exceed 90 days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering.
7.2 Registration Expenses. All expenses of any such registration
referred to in this Section 7, except the fees of counsel to Lender,
underwriting commissions or discounts and filing fees, shall be borne by Parent.
<PAGE>
7.3 Indemnification. Parent hereby indemnifies Lender, and the officers
and directors who control Lender within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages, and liabilities caused by
(a) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus (and as amended or
supplemented if Parent shall have furnished any amendments thereof or
supplements thereto), any preliminary prospectus or any state securities law
filings; or (b) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading except insofar as such losses, claims, damages, or liabilities
are caused by any untrue statement or omission contained in information
furnished in writing to Parent by Lender expressly for use therein; and Lender
by its acceptance hereof agrees that it will indemnify and hold harmless Parent,
each of its officers who signs such registration statement, and each Person who
controls Parent within the meaning of Section 15 of the Securities Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement, allegedly untrue statement, omission or alleged omission
contained in information furnished in writing to Parent by Lender expressly for
use therein.
7.4 Cooperation. Lender agrees to cooperate with Parent in the
preparation and filing of any registration statement, and in the furnishing of
information concerning Lender for inclusion therein, or in any efforts by Parent
to establish that the proposed sale is exempt under the Securities Act as to any
proposed distribution.
ARTICLE VIII
DEFAULT
8.1 Events of Default. Notwithstanding any cure periods described
below, Borrower will immediately notify Lender in writing when Borrower obtains
knowledge of the occurrence of any default specified below. Regardless of
whether Borrower has given the required notice, the occurrence of one or more of
the following shall constitute an Event of Default:
(a) Nonpayment. Borrower shall fail to pay (i) any interest
due on the Note, or any fees, charges, costs or expenses under any Note by
thirty (30) days after the same becomes due; or (ii) any principal amount due of
the Note when due.
(b) Nonperformance. Borrower shall fail to perform or observe
any material agreement, term, provision, condition, or covenant required to be
performed or observed by Borrower.
(c) Bankruptcy; Insolvency. If Borrower becomes insolvent or
bankrupt, or admits in writing its inability to pay its debts as they mature, or
makes an assignment for the benefit of creditors, or ceases doing business as a
going concern, or Borrower applies for or consents to the appointment of a
trustee or receiver for Borrower, or for the major part of the property of
Borrower; or
(d) Appointment of Trustee. If a trustee or receiver is
appointed for Borrower for the major part of the property of Borrower and the
order of such appointment is not discharged, vacated or stayed within thirty
(30) days after such appointment; or
<PAGE>
(e) Order for Relief. If an order for relief shall be entered
in any federal bankruptcy proceeding in which Borrower is the debtor; or if
bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings,
or other proceedings for relief under any bankruptcy or similar law or laws for
the relief of debtors, are instituted by or against Borrower and, if instituted
against Borrower, are consented to or, if contested by Borrower, are not
dismissed by the adverse parties or by an order, decree or judgment within
thirty (30) days after such institution; or
(f) Breach of Representation or Warranty. If (i) any
representation or warranty made by or on behalf of Borrower in this Agreement or
in any certificate, report or other instrument delivered under or pursuant to
any term hereof or thereof shall prove to have been untrue or incorrect in any
material respect as of the date of this Agreement, or (ii) any report,
certificate, financial statement or financial schedule or other instrument
prepared or purported to be prepared by Borrower or any officer of Borrower
furnished or delivered under or pursuant to this Agreement after the Closing
Date shall prove to be untrue or incorrect in an amount in excess of $50,000 as
of the date it was made, furnished or delivered.
8.2 Remedies upon Default. Upon the occurrence of any Event of Default,
and at any time thereafter unless and until such Event of Default is waived in
writing by Lender, Lender may exercise any remedies legally available to it,
including, without limitation, one or several or all of the following rights and
remedies:
(a) Lender may at any time thereafter, by written notice to
Borrower, declare the unpaid principal balance of any Note, together with the
interest accrued thereon and other amounts accrued hereunder, to be immediately
due and payable; and the unpaid balance shall thereupon be due and payable, all
without presentation, demand, protest or further notice of any kind, all of
which are hereby waived, and notwithstanding anything to the contrary contained
herein.
(b) Lender may terminate this Agreement with immediate
effectiveness and without notice or lapse of time. Notwithstanding such
termination, all claims, rights and security interests of Lender and all debts,
liabilities, obligations and duties of Borrower shall remain in full force and
effect.
(c) Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party, including, without
limitation, the right to take possession of Collateral, or any evidence thereof
and the right to sell, lease or otherwise dispose of any or all of the
Collateral, and in connection therewith Borrower will on demand assemble the
Collateral and make it available to Lender at a place to be designated by Lender
which is reasonably convenient to all parties. If notice to Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given in the manner specified in Section 10.7 at least twenty
calendar days prior to the date of intended disposition or other action.
(d) Nothing in this Article VIII is intended to restrict
Lender's rights under this Agreement or at law, and Lender may exercise all such
rights and remedies as and when they
<PAGE>
are available and Lender may exercise or enforce any and all other rights or
remedies available by law or agreement against the Collateral, against Borrower,
or against any other Person or property.
ARTICLE IX
REPRESENTATIONS OF LENDER
9. Representations and Warranties of Lender. Lender represents and
warrants for itself with respect to each Note purchased under this Agreement and
all Capital Stock and Warrants of Parent that may be received pursuant to this
Agreement (together, all of such securities are referred to as the "Securities")
that:
9.1 Investment Intent. The Securities are being purchased for Lender's
own account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Lender understands that the Securities have not been registered under the
Securities Act or any applicable state laws by reason of their issuance or
contemplated issuance in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act and such laws, and that
the reliance of Borrower, Parent and others upon this exemption is predicated in
part upon this representation and warranty. Lender further understands that the
Securities may not be transferred or resold without (a) registration under the
Securities Act and any applicable state securities laws, or (b) an exemption
from the requirements of the Securities Act and applicable state securities
laws.
Lender understands that an exemption from such registration is not
presently available pursuant to Rule 144 promulgated under the Securities Act by
the Securities and Exchange Commission (the "Commission"). Lender understands
that any sales pursuant to Rule 144 may only be made in full compliance with the
provisions of Rule 144.
9.2 Location of Principal Office and Qualification as Accredited
Investor. The state in which Lender's principal office is located is set forth
in Lender's address in Schedule A hereto. Lender qualifies as an accredited
investor within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act. Lender has had access to oral or written descriptions or English
translations of documents and other information about Borrower and Parent, and
Lender or its qualified agents have had access to Borrower's and Parent's
executive officers to Lender's satisfaction for the purpose of asking questions
about Borrower and Parent and obtaining additional information about Borrower
and Parent.
9.3 Acts and Proceedings. This Agreement has been duly authorized by
all necessary action on the part of Lender, has been duly executed and delivered
by Lender, and is a valid and binding agreement upon the part of Lender.
ARTICLE X
MISCELLANEOUS
<PAGE>
10.1 Amendment. This Agreement can be waived, amended, terminated or
discharged only by the mutual written consent of the parties to this Agreement.
10.2 Cumulative Remedies. All rights and remedies of any party shall be
cumulative and may be exercised singularly in any order or sequence, or
concurrently, at the party's option, and the exercise or enforcement of any such
right or remedy shall neither be a condition to nor bar the exercise of
enforcement of any other.
10.3 Partial Invalidity. If any provision or application of this
Agreement is held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which can be
given effect, and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby.
10.4 Survival. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement, but shall terminate once each Note shall have been repaid in full or
converted pursuant to the terms of this Agreement.
10.5 Delay; Cumulative Remedies. No delay on the part of Borrower or
Lender in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein specified
are cumulative and are not exclusive of any rights or remedies which Borrower or
Lender would otherwise have.
10.6 Successors. Neither party shall be entitled to assign any of its
rights or obligations under this Agreement or any other document or instrument
related hereto without the prior written consent of the other party.
10.7 Notices. Although any notice required to be given hereunder might
be accomplished by other means, notice will always be deemed given when placed
in the United States or Israeli mail, with postage prepaid, or sent by overnight
delivery service, or sent by telex or facsimile, in each case to the address set
forth below or as amended.
10.8 Payments. Payments due under the Note shall be made in lawful
money of the United States. All payments shall be applied by Lender to principal
first.
10.9 Applicable Law and Jurisdiction; Interpretation. Except as set
forth in Section 1.2 and except as set forth in this Section 10.9, this
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Minnesota (exclusive of conflict of laws provisions contained
therein), except to the extent superseded by Federal law. Invalidity of any
provision of this Agreement shall not affect the validity of any other
provision. Notwithstanding the foregoing, however, the terms of this Agreement
are subject to the requirements of applicable laws of The State of Israel
governing a loan or an investment in the currency of the United States in an
Israeli company, including, without limitation, the Currency Control Law of
1978, as amended, and any rules and regulations promulgated thereunder and the
Income Tax Ordinance and any rules and regulations promulgated thereunder.
<PAGE>
10.10 Entire Agreement. This Agreement, including the Schedules and
Exhibits, constitute the entire agreement between the parties with respect to
the subject matter of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this TERM LOAN
AGREEMENT as of first above written.
BORROWER: IMETRIX LIMITED
By: ___________________________
Its: _________________________
PARENT: GEOMETRIC IMAGING, INC.
By: ___________________________
Its: _________________________
LENDER: XOX CORPORATION
By: ___________________________
Its: _________________________
<PAGE>
ATTACHMENTS TO TERM LOAN AGREEMENT
Exhibit I - Form of Promissory Note
Exhibit II - Form of Stock Purchase Warrant
Exhibit III - Form of Co-Sale Agreement
Exhibit IV - Letter of Undertaking
Exhibit V - List of Collateral
Schedule 1.1 - New Advances and Related Milestones
Schedule 3.7 - Restrictions on Intellectual Property
Schedule 3.8 - Other Indebtedness for Borrowed Money
Schedule 3.11 - Other Registration Rights
<PAGE>
EXHIBIT I
TERM NOTE
$____________________ REHOVOT, ISRAEL
_________________, 199_
FOR VALUE RECEIVED, the undersigned, a corporation organized and
existing under the laws of The State of Israel, hereby promises to pay to the
order of XOX Corporation (hereinafter "Lender") in lawful money of the United
States of America at its offices at 1450 Energy Park Drive, Suite 120, St. Paul,
Minnesota 55108, or at such other place as the holder hereof may from time to
time designate:
The principal sum of ______________ U.S. Dollars ($_________) or such
lesser amount as may be outstanding hereunder, together with interest
on said principal amount from time to time outstanding from the date
hereof at the rate provided in that certain Term Loan Agreement between
the undersigned and Lender dated September 15, 1997, as amended from
time to time (the "Loan Agreement") , calculated on the basis of the
number of days actually elapsed in a 360-day year, and which shall be
due and payable on June 30, 1999 together with the entire principal
balance.
This Note may be prepaid in whole or in part at any time, without
premium or penalty, upon ten (10) days written notice.
This Note is a "Note" within the meaning of the Loan Agreement. All of
the terms and conditions set forth in the Loan Agreement are hereby incorporated
by this reference, including without limitation, all provisions relating to the
acceleration of the principal amount evidenced by this Note. Capitalized terms
not otherwise defined herein shall have the meanings ascribed to them in the
Loan Agreement.
This Note has been delivered in the State of Minnesota and shall be
construed and enforced in accordance with the substantive laws thereof, except
as otherwise provided in the Loan Agreement.
IMETRIX LIMITED
By: _______________________________
Its: ______________________________
<PAGE>
EXHIBIT II
Warrant No. __________________
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE TRANSFERRED UNLESS REGISTERED
UNDER THE ACT, EXCEPT IN A TRANSACTION WHICH, IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE HOLDER HEREOF QUALIFIES AS AN EXEMPT TRANSACTION
UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
STOCK PURCHASE WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
GEOMETRIC IMAGING, INC.
THIS CERTIFIES THAT, for good and valuable consideration, XOX
Corporation, or its registered assignees, is entitled to subscribe for and
purchase from Geometric Imaging, Inc., a corporation organized under the laws of
Minnesota (the "Corporation"), up to such number of shares (as adjusted pursuant
to Section 5) of the Corporation's Common Stock (the "Warrant Shares") equal to
the result of dividing $__________ by the per share offering price in the
Corporation's first private placement offering conducted during the seven-year
period commencing on the date hereof (the "Warrant Exercise Price"). As used
herein, the term "Holder" means the initial holder, any party who acquires all
or a part of this Warrant as a registered transferee of the initial holder in
accordance with the terms of this Warrant, or any record holder or holders of
the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant; the term "Common Stock" means and includes the Corporation's presently
authorized common stock, $____ par value per share, and shall also include any
capital stock of any class of the Corporation hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation; and the term "Convertible Securities" means any stock or other
securities convertible into, or exchangeable for, Common Stock. [(INSERT IF THE
WARRANT INITIALLY COVERS SHARES OF STOCK OF IMETRIX LIMITED): THIS WARRANT OR
THE SHARES OF CAPITAL STOCK ACQUIRED UPON EXERCISE OF THIS WARRANT SHALL
AUTOMATICALLY CONVERT INTO SHARES REPRESENTING AN EQUIVALENT PERCENTAGE OF THE
CAPITAL STOCK OF THE CORPORATION, PURSUANT TO THE TERM LOAN AGREEMENT DATED
SEPTEMBER 15, 1997, AMONG IMETRIX LIMITED, THE CORPORATION AND XOX CORPORATION,
AT SUCH TIME AS THE CORPORATION BECOMES THE OWNER OF 100% OF THE OUTSTANDING
CAPITAL STOCK OF IMETRIX LIMITED.]
This Warrant is subject to the following provisions, terms and
conditions:
<PAGE>
1. Exercise. The rights represented by this Warrant may be exercised by
the Holder hereof, in whole or in part (but not as to a fractional share of
Common Stock), prior to the expiration of this Warrant by written notice of
exercise (in the form attached hereto) delivered to the Corporation at the
principal office of the Corporation and accompanied or preceded by the surrender
of this Warrant along with cash, a certified check, bank draft, shares of the
Corporation's Common Stock in payment of the Warrant Exercise Price for such
shares, or as otherwise set forth in Section 9. The Holder shall then complete a
subscription agreement in a form reasonably requested by the Corporation.
2. Exchange and Replacement. Subject to Section 7 hereof, this Warrant
is exchangeable upon the surrender hereof by the Holder to the Corporation at
its office for new Warrants of like tenor and date representing in the aggregate
the right to purchase the number of Warrant Shares purchasable hereunder, each
of such new Warrants to represent the right to purchase such number of Warrant
Shares (not to exceed the aggregate total number purchasable hereunder) as shall
be designated by the Holder at the time of such surrender. Upon receipt by the
Corporation of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Corporation will
make and deliver a new Warrant of like tenor, in lieu of this Warrant; provided,
however, that if the initial holder shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Corporation upon the surrender
hereof in connection with any exchange or replacement. The Corporation shall pay
all expenses, taxes (other than stock transfer or income taxes), and other
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 2.
3. Issuance of the Warrant Shares.
(a) The Corporation agrees that the shares of Common Stock
purchased hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been surrendered,
the payment made for such Warrant Shares as aforesaid and the subscription
agreement is returned to the Corporation. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding thirty (30) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
All Warrant Shares will, upon issuance, be duly authorized and issued, fully
paid and nonassessable.
(b) Notwithstanding the foregoing, however, the Corporation
shall not be required to deliver any certificate for Warrant Shares upon
exercise of this Warrant except in accordance with exemptions from the
applicable securities registration requirements or registrations under
applicable securities laws. Nothing herein, however, shall obligate the
Corporation to effect registrations under federal or state securities laws. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the
<PAGE>
Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least thirty (30) calendar days from the date the Holder has
received written notice from the Corporation of the availability of such
registrations or exemptions. The Holder agrees to execute such documents and
make such representations, warranties, and agreements as may be required solely
to comply with the exemptions relied upon by the Corporation, or the
registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Corporation. The Corporation covenants and agrees
that all Warrant Shares will, upon issuance, be duly authorized and issued,
fully paid, nonassessable, and free from all taxes (except stock transfer and
income taxes), liens, and charges with respect to the issue thereof. The
Corporation further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Corporation will at all
times have authorized and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant a sufficient
number of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock
into a greater number of shares;
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise; or
(iv) take any action (not including any issuance of equity
securities for consideration) which should reasonably result in such an
adjustment, notwithstanding the fact that it is not included in (i),
(ii) or (iii) above;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this subsection, the Holder of
<PAGE>
any Warrant thereafter surrendered for exercise shall become entitled to receive
shares of two or more classes of capital stock or shares of Common Stock and
other capital stock of the Company, the Board of Directors (whose determination
shall be conclusive) shall determine the allocation of the adjusted Warrant
Exercise Price between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock. All calculations under this
subsection shall be made to the nearest cent or to the nearest 1/100 of a share
as the case may be. In the event that at any time as a result of an adjustment
made pursuant to this subsection, the holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of the
Company other than shares of Common Stock, thereafter the Warrant Exercise Price
of such other shares so receivable upon exercise of any Warrant shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in this
Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
subsection (a) of this Section above but the Holder of each Warrant then
outstanding shall have the right thereafter to convert such Warrant into the
kind and amount of shares of stock and other securities and property which he
would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale, or conveyance had such Warrant
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale, or conveyance and in any such case, if
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section with respect to the rights and interests
thereafter of any Holders of the Warrant, to the end that the provisions set
forth in this Section shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock and other
securities and property thereafter deliverable on the exercise of the Warrant.
The provisions of this subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
<PAGE>
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Corporation.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) The Holder, by acceptance hereof, agrees to give fifteen
(15) days written notice to the Corporation before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Such notice may be provided in the
form of Warrant Assignment attached hereto. Promptly upon receiving such written
notice, the Corporation shall present copies thereof its counsel. If in the
opinion of such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Corporation, as promptly as practicable, shall notify the Holder of such
opinion, whereupon the Holder shall be entitled to transfer this Warrant or to
dispose of Warrant Shares received upon the previous exercise of this Warrant,
all in accordance with the terms of the notice delivered by the Holder to the
Corporation; provided that an appropriate legend may be endorsed on this Warrant
or the certificates for such Warrant Shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel and
satisfactory to the Corporation to prevent further transfer which would be in
violation of Section 5 of the Securities Act of 1933, as amended (the "1933
Act") and applicable state securities laws; and provided further that the
prospective transferee or purchaser shall execute such documents and make such
representations, warranties and agreements as may be required solely to comply
with the exemptions relied upon by the Corporation for the transfer or
disposition of the Warrant or Warrant Shares.
(b) If in the opinion of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such Warrant
Shares described in the written notice given pursuant to this Section 7 may not
be effected without registration or qualification of this Warrant or such
Warrant Shares, the Corporation shall promptly give written notice thereof to
the Holder, and the Holder will limit its activities to such as, in the opinion
of such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Corporation shall, upon the exercise of this Warrant for
the largest number of whole shares then called for, pay a sum in cash equal to
the sum of (a) the excess, if any, of the Fair Market Value (as defined in
Section 9) of such fractional share over the proportional part of the Warrant
Exercise Price represented by such fractional share, plus (b) the proportional
part of the Warrant Exercise Price represented by such fractional share.
<PAGE>
The Holder of the Warrant agrees to cooperate with the Corporation in
the preparation and filing of any Registration Statement, and in the furnishing
of information concerning the holder for inclusion therein, or in any efforts by
the Corporation to establish that the proposed sale is exempt under the Act as
to any proposed distribution.
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time prior to
its expiration into shares of Common Stock of the Corporation as provided for in
this Section 9. Upon exercise of the Conversion Right, the Corporation shall
deliver to the holder (without payment by the holder of any Warrant Exercise
Price) that number of shares of Corporation Common Stock equal to the result
obtained by multiplying (i) the number of shares which the holder seeks to
exercise by (ii) the quotient obtained by dividing (x) the value of the one
Warrant at the time the Conversion Right is exercised (determined by subtracting
the Warrant Exercise Price for the one Warrant Share in effect immediately prior
to the exercise of the Conversion Right from the Fair Market Value for one
Warrant Share immediately prior to the exercise of the Conversion Right) by (y)
the Fair Market Value of one share of Corporation Common Stock immediately prior
to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Corporation at the offices of the Corporation exercising the Conversion Right
and specifying (i) the total number of shares of Stock the Holder will purchase
pursuant to such conversion and (ii) a place and date not less than one or more
than 20 business days from the date of the Conversion Notice for the closing of
such purchase.
(c) At any closing under Section 9(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Corporation will deliver to the Holder a
certificate or certificates for the number of shares of Corporation Common Stock
issuable upon such conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Corporation will deliver to the Holder a new warrant
representing the number of shares, if any, with respect to which the Warrant
shall not have been exercised.
(d) For purposes of this Section 9, Fair Market Value of a share of
Common Stock as of a particular date (the "Determination Date") shall mean:
(i) If the Corporation's Common Stock is traded on an exchange
or is quoted on NASDAQ, then the average closing or last sale prices,
respectively, reported for the ten (10) business days immediately
preceding the Determination Date.
(ii) If the Corporation's Common Stock is not traded on an
exchange or on NASDAQ but is traded on the over-the-counter market,
then the average closing bid and asked prices reported for the ten (10)
business days immediately preceding the Determination Date.
<PAGE>
(iii) If the Corporation's Common Stock is not traded on any
public market, then the fair market value thereof determined in good
faith by the Board of Directors of the Corporation as of a date which
is within ten (10) business days of the Determination Date.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
signed by its duly authorized officer this ____ day of _______________, 199__.
GEOMETRIC IMAGING INC.
By: ____________________________________
Its: ___________________________________
<PAGE>
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: ____________________
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase for cash, _____________ of the shares issuable upon the
exercise of such Warrant, and requests that certificates for such shares
(together with a new Warrant to purchase the number of shares, if any, with
respect to which this Warrant is not exercised) shall be issued in the name of
(Print Name)
Please insert social security or other ____________
identifying number of registered
holder of certificate
(_____________) ____________
(Address)
Date: _____________, ______ ____________________________________
Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the
name as written upon the face of the Warrant in every particular without
alteration or enlargement or any change whatsoever. When signing on behalf
of a corporation, partnership, trust or other entity,
PLEASE indicate your position(s) and title(s) with such entity.
<PAGE>
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of Geometric Imaging, Inc. to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of said Corporation, with full power of
substitution in the premises.
The manner of the proposed transfer by the undersigned is described
briefly in the space below.
Dated: ________________________ __________________________________
(signature)
(Address)
In Presence Of:
______________________________________
<PAGE>
EXHIBIT III
CO-SALE AGREEMENT
THIS AGREEMENT is made and entered into as of the ____ day of
__________, 199__, by and among XOX Corporation, a Delaware corporation ("XOX")
and Jacob Almagor, Yerucham Shapira and John Lai (collectively the "Founding
Shareholders").
W I T N E S S E T H:
WHEREAS, the Founding Shareholders are the legal and beneficial owners
of over __________ percent (____%) of the issued and outstanding Capital Stock
of Geometric Imaging, Inc. a Minnesota corporation (the "Company");
WHEREAS, pursuant to the Option described in Section 1.3 of that
certain Term Loan Agreement, dated September 15, 1997 among the Company, IMETRIX
Limited and XOX (the "Loan Agreement"), XOX acquired __________ shares (the
"Shares") of the Capital Stock of the Company (as such term is defined in such
term Loan Agreement) (the "Capital Stock");
WHEREAS, pursuant to Section 1.6 of the Loan Agreement, the Founding
Shareholders are obligated to enter into this Agreement granting certain rights
of co-sale with respect to the Shares and agreeing to certain restrictions on
transfer with respect to the Shares, in order to induce XOX to enter into the
Loan Agreement;
NOW, THEREFORE, in consideration of the premises and mutual obligations
of the parties hereto, the parties hereby severally covenant and agree as
follows:
A G R E E M E N T:
1. Restrictions on Transfer. Each of the Founding Shareholders
severally agrees that so long as this Agreement remains in effect he will not
sell, transfer or otherwise dispose of (or enter into a binding agreement to
sell, transfer or otherwise dispose of) all or any of the shares of Capital
Stock owned by him except pursuant to Section 2 of this Agreement.
2. Right of Co-Sale. Each Founding Shareholder severally agrees not to
sell, transfer or otherwise dispose of any Capital Stock without permitting XOX
to participate as a seller in such transaction, subject to the sentence
appearing below, pro rata (according to the Shares then held by XOX) with the
Founding Shareholder(s); provided, however, that transfers of Capital Stock to a
spouse, children or other members of the Founding Shareholder's immediate family
(or trusts for their benefit) so long as the transferee agrees to the
restrictions and co-sale rights contained in this Agreement shall not be covered
by this right of co-sale. In connection with the sale of more than fifty percent
(50%) in the aggregate of the voting power of the issued and outstanding shares
<PAGE>
of the Company's Capital Stock, XOX's right to participate shall not entitle XOX
to receive any premium over the fair market value of the Capital Stock received
by any one or more of the Founding Shareholders, where the premium is reasonably
related to the sale of a controlling interest in the Company.
Each Founding Shareholder shall give prompt notice to XOX in the event
that he has a present intention to sell, transfer or otherwise dispose of
Capital Stock in a transaction subject to these rights of co-sale, and XOX
hereby agrees to notify the applicable Founding Shareholder(s) within ten (10)
days of receipt of such notice as to whether he wishes to participate in such
transaction and bear a pro rata portion of the expenses incident thereto, with
all negotiations leading to the consummation of such transaction to be conducted
thereafter under the joint control of all sellers. Failure to response within
such ten (10) day period shall be deemed a declination of any right to
participate in such transaction provided that: (i) such transaction is fully
closed and consummated within ninety (90) days of the expiration of such ten
(10) day period; (ii) the terms of the actual transaction include no fewer or
greater shares than those set forth in the notice hereunder; and (iii) no
purchasers or ultimate legal or beneficial holders of such Capital Stock are
involved in the transaction in addition to those disclosed in any such notice.
Failure to meet any of the foregoing conditions shall require a new notification
and right of co-sale with regard to such transaction under this Section 2.
3. Legends and Stop Transfer Orders.
(a) Legend Covering this Agreement. Each Founding Shareholder
severally agrees that he will promptly add the following legend to each of the
certificates representing Capital Stock heretofore or hereafter issued to him
and standing in his name on the books of the Company and each Founding
Shareholder agrees that for so long as this Agreement shall remain in full force
and effect he will add (and hereby direct any transfer agent appointed by the
Company, to add) such legend to any and all Capital Stock acquired by him
(whether beneficially or legally) or issued or reissued to him, such legend to
be and remain upon such certificates, as well as any reissuance thereof unless
and until removed pursuant to the provisions of Section 3(c) below:
"The securities represented by this certificate are subject to
a Co-Sale Agreement among this Corporation, the registered
owner of such securities, and certain other persons listed in
such Agreement, and may not be sold, transferred or otherwise
disposed of except in compliance with the terms of such
Co-Sale Agreement, a copy of which is on file in the principal
office of this Corporation."
(b) Stop Transfer Order. A stop transfer order shall be placed
with the Company, as well as any transfer agent appointed by the Company,
preventing transfer or any of the securities referred to in Section 3(a) pending
compliance with the conditions set forth in any such legend.
<PAGE>
(c) Removal of Legends. Any legend endorsed on a certificate
or instrument evidencing a security subject to this Agreement shall be removed,
and the Company shall issue a certificate or instrument without such legend to
the holder of such security, if this Agreement has expired by its terms or such
security is being disposed of pursuant to the terms of this Agreement in a
transaction which upon completion will leave such Capital Stock free and clear
of this Agreement, and, in either event, the holder of such security provides
the Company and the other parties to this Agreement with an opinion of counsel
for such Shareholder (concurred in by counsel to the Company) to such effect.
4. Term of Agreement. This Agreement shall terminate in accordance with
the terms hereof, or upon such earlier date as is mutually agreed to by the
parties to this Agreement, or such of them as may then still be Shareholders of
the Company. Notwithstanding the foregoing, the rights and obligations of each
Shareholder under this Agreement shall terminate upon the earlier of (i) the
closing of an initial public offering with an aggregate initial public offering
price of at least $5,000,000, or (ii) the death of such Shareholder.
5. Miscellaneous Provisions.
(a) Changes, Waivers, Etc. Neither this Agreement nor any
provisions hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing executed by all of the parties to this Agreement.
(b) Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail
to the party's address shown on the books and records of the Company, or at such
other address as the party may specify by written notice received by the
Company.
(c) Parties-In-Interest and Non-Assignability of Certain
Rights and Benefits. Except as otherwise expressly provided herein, all the
terms and provisions of this Agreement shall be binding upon and be enforceable
against the respective heirs, successors, assigns and legal representatives of
the parties hereto, whether so expressed or not.
(d) Headings. The headings of the sections and subsections of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(e) Choice of Law. It is the intention of the parties that the
laws of Minnesota shall govern the validity of this Agreement without regard to
conflicts of laws provisions, the construction of its terms and the
interpretation of the rights and duties of the parties. All actions on
proceedings with respect to this Agreement shall be conducted
<PAGE>
in the State or Federal Courts located in Hennepin County, Minnesota. The
parties hereto irrevocably consent to the jurisdiction over them with respect to
such courts and consent to such jurisdiction for service of process.
(f) Counterparts. This Agreement may be executed concurrently
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instruments.
(g) Fax Signatures. Fax signatures on all documents shall be
treated as originals. The parties shall be obligated to provide original
execution pages immediately following transmission of the Fax.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective as of the date set forth in the paragraph.
[SIGNATURES]
<PAGE>
EXHIBIT IV
September 15, 1997
XOX Corporation
1450 Energy Park Drive, Suite 150
Saint Paul, Minnesota 55108
Ladies and Gentlemen:
We, the undersigned shareholders (the "Founding Shareholders") of
IMETRIX Limited ("Borrower") and of Geometric Imaging, Inc. ("Parent") pursuant
to Section 1.6 of that certain Term Loan Agreement (the "Loan Agreement") dated
September 15, 1997, by and among Borrower, Parent and XOX Corporation ("XOX") do
hereby agree and undertake as follows:
1. To use our best efforts to engage a qualified Selling Agent in connection
with a private placement offering of shares of Capital Stock of Parent;
2. Each of the Founding Shareholders severally agrees that, until the entire
balance of each promissory note issued by Borrower pursuant to the Loan
Agreement is repaid in full or converted pursuant to the terms of the Loan
Agreement, he will not sell, transfer or otherwise dispose of (or enter into a
binding agreement to sell, transfer or otherwise dispose of) more than 15% of
the shares of Capital Stock of Borrower owned by him as of the date of the Loan
Agreement (or equivalent stock of Parent received upon exchange of shares of
Borrower), without the prior written consent of XOX; provided that the exchange
of shares of Borrower or rights thereto for shares of Parent or equivalent
rights shall not require such consent;
3. Upon XOX's full conversion of all loans pursuant to Section 1.3 of the Loan
Agreement, to enter into a Co-Sale Agreement with XOX substantially in the form
as Exhibit III to the Loan Agreement.
4. Each of the Founding Shareholders hereby irrevocably grants to XOX a proxy to
vote his shares of capital stock of Borrower or Parent, as the case may be, in
favor of the person designated by XOX to serve on the Board of Directors of
Borrower or Parent pursuant to Section 4.8 of the Loan Agreement for a period of
one year from the date of the Loan Agreement at any meeting of shareholders of
Borrower or Parent called for the purpose of electing directors.
This letter is signed by the Founding Shareholders as of the date set
forth above.
- ------------------------------------- -----------------------------------
Jacob Almagor Yerucham Shapira
- -------------------------------------
John Lai
<PAGE>
EXHIBIT V
LIST OF COLLATERAL
All intellectual property of IMETRIX Limited, a corporation existing
under the laws of The State of Israel, including intellectual property granted
pursuant to the Intellectual Property Transfer Agreement dated December 20, 1993
between Jacob Almagor and IMETRIX Limited ("IMETRIX") and enhancements developed
by IMETRIX as of the date of the Term Loan Agreement, collectively denoted as
ADE/Terrain(TM), AND any enhancements to ADE/Terrain(TM) following the date of
the Term Loan Agreement, AND all proceeds thereof, up to the loan amounts
advanced by Lender, SUBJECT TO any applicable restrictions on transfer of such
property by IMETRIX pursuant to the laws of The State of Israel.
The following list defines more specifically the intellectual property
of IMETRIX as of the date of the Term Loan Agreement, collectively denoted as
ADE/Terrain(TM):
1. An exclusive re-sellable license to use the following proprietary knowledge
of automated generation of elevation grid for the development and marketing of a
commercial software system for automated generation of elevation grid for
photogrammetric mapping:
a. Algorithms
(i) Breaklines and 3D Surface Reconstruction - Extensions
to Public Domain Work, Jacob Almagor, Tel-Aviv, 1991
b. Automated Terrain Generation Software Package (I), containing:
(i) Relative/Absolute Image Orientation Module
(ii) Point-Feature Extraction Module
(iii) Line-Feature Formation Module
(iv) Line-based Matcher
(v) Image-to-ground Coordinate Conversion Module
(vi) Irregular Grid Creation Module
(vii) Regular Grid Creation Module
(iix) Service Module (ix) GUI Module
(x) Documentation
2. Automated Terrain Extraction Software Package (II), containing:
a. Advanced Disambiguous Extraction Kernel for Terrain
(ADE/Terrain(TM) Kernel) Software Package, containing:
(i) Relative/Absolute Image Orientation Module
(ii) Point-Feature Extraction Module
(iii) Line-Feature Formation Module
(iv) Line-based Matcher
(v) Multi-scale coordinator
<PAGE>
(vi) Image-to-ground Coordinate Conversion Module
(vii) Irregular Grid Creation Module
(viii) Regular Grid Creation Module
(ix) Documentation
b. Softcopy Development Environment (SDE(TM)) Software Package,
containing
(i) Embedded Semantic Analyzer for Line-based Matcher
(a) Data Supplier
(b) Data Displayer
(ii) GUI Modules
(a) Relative/Absolute Image Orientation
(b) Basic 2D Display
(c) 3D Stereo Extension
(d) Semantic Analyzer
(iii) Documentation
<PAGE>
SCHEDULE 1.1
NEW ADVANCES AND RELATED MILESTONES
Milestone Amount of Advance
- ----------------------------------------------------------- -----------------
Completion of the Softcopy Development Environment (SDE)
Specifications (completed as of the date of this Agreement)
and completion of the Business Plan, incorporation of U.S.
corporation and Private Placement Memorandum $35,000
Completion of specification and R&D plan for Terrain and
completion of preliminary design of ADE horizontal breakline
extension 15,000
Completion of preliminary design of ADE memory management 15,000
Completion of detailed design of ADE horizontal breakline
extension and detailed design of ADE memory management 9,000
-------
Total $74,000
=======
<PAGE>
SCHEDULE 3.7
INTELLECTUAL PROPERTY INFORMATION
1. Certain Intellectual Property owned by IMETRIX Limited ("IMETRIX")
has been licensed to IMETRIX from Jacob Almagor ("Almagor") pursuant to the
Intellectual Property Transfer Agreement dated December 20, 1993 between Almagor
and IMETRIX.
2. IMETRIX is obligated to pay royalties pursuant to the following
arrangements:
A. IMETRIX is obligated to pay royalties from sales of
ADE/Terrain(TM) to the Office of Chief Scientist, Ministry of Commerce
and Industrialization, The State of Israel ("OCS"), in consideration of
grants previously received from OCS. These royalty payments equal 3% to
5% of the annual revenues from sales of ADE/Terrain(TM), up to the
aggregate amount of $570,000.
B. IMETRIX is obligated to pay royalties to El-Op
Electro-optic Industries ("El-Op"), pursuant to an Agreement among
Almagor, IMETRIX and El-Op dated June 17, 1996. The royalty payments
are 3% to 5% of the annual revenues from the sales of IMETRIX, up to
the aggregate amount of $445,000.
<PAGE>
SCHEDULE 3.8
INDEBTEDNESS OF IMETRIX
The following is a description of the Indebtedness for Borrowed Money
of IMETRIX:
1. IMETRIX is indebted to XOX Corporation for previous advances that
will be included in the amounts covered by the Term Loan Agreement. Prior to the
date of execution of the Term Loan Agreement, the total amount of the
indebtedness to XOX is $126,000.
2. IMETRIX is indebted to John Finnell in the amount of $15,000
pursuant to a Letter of Understanding between IMETRIX and Mr. Finnell dated
February 26, 1997.
3. IMETRIX has $8,000 in outstanding indebtedness to El-Op for money
borrowed from El-Op.
<PAGE>
SCHEDULE 3.11
REGISTRATION RIGHTS
The following parties have registration rights with respect to stock of
IMETRIX. In connection with the formation of Geometric Imaging, Inc. ("GII") and
at the time of the first closing of the proposed private placement by GII, GII
will become the owner of 100% of the capital stock of IMETRIX. All holders of
stock in IMETRIX and rights to purchase such stock will exchange such rights for
equivalent rights in GII.
1. Genesis Investment Advisors, Ltd. ("Genesis"), and to Ta'agidim
Trust Company Limited ("Ta'agidim") have rights to receive 1.8% and 2.2%,
respectively, of the capital stock of IMETRIX pursuant to an investment
agreement entered into in December 1996. These rights are protected from
dilution in certain circumstances in the event of an investment in the company
reflecting a company valuation of less than $1.5 million (pre-offering). In an
initial public offering, each of these investors is permitted to sell up to 60%
of its share holdings, and the company will undertake to increase the number of
shares available for sale, provided such increase is acceptable to the
underwriters of the offering.
2. Pursuant to an Agreement between IMETRIX and Almagor dated December
31, 1996, Almagor is entitled to $250,000 in market value of common stock of
IMETRIX prior to an initial public offering, and Almagor shall have the same
registration rights as the investors in the company. At the time of the first
closing of the private placement by GII, Almagor will give up his rights to this
stock in exchange for a stock option to purchase 50,000 shares of GII common
stock.
<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>
<CIK> 0000798122
<NAME> XOX CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,024,474
<SECURITIES> 0
<RECEIVABLES> 240,924
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,526,112
<PP&E> 549,059
<DEPRECIATION> 393,460
<TOTAL-ASSETS> 1,829,326
<CURRENT-LIABILITIES> 177,858
<BONDS> 0
0
0
<COMMON> 73,823
<OTHER-SE> 12,289,704
<TOTAL-LIABILITY-AND-EQUITY> 1,829,326
<SALES> 0
<TOTAL-REVENUES> 674,531
<CGS> 0
<TOTAL-COSTS> 2,096,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,011
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,349,408)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> 0
</TABLE>
