<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BITSTREAM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 04-2744890
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE IDENTIFICATION NO.)
NUMBER)
</TABLE>
------------------------
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 497-6222
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
C. RAYMOND BOELIG
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BITSTREAM INC.
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 497-6222
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PAUL A. GAJER, ESQ. GORDON H. HAYES, JR., ESQ.
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN TESTA, HURWITZ & THIBEAULT, LLP
30 ROCKEFELLER PLAZA HIGH STREET TOWER
NEW YORK, NY 10112 125 HIGH STREET
TELEPHONE: (212) 698-7700 BOSTON, MASSACHUSETTS 02110
FACSIMILE: (212) 698-7825 TELEPHONE: (617) 248-7000
FACSIMILE: (617) 248-7100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
==================================================================================================================
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
BE REGISTERED BE REGISTERED(1) PER SECURITY(2) PRICE(2) REGISTRATION FEE(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock................. 3,450,000 $10.00 $34,500,000 $11,897
==================================================================================================================
</TABLE>
(1) Includes 450,000 shares which the Underwriters have the option to purchase
from the Company and certain stockholders of the Company, respectively, to
cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE> 2
BITSTREAM INC.
CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY PART I ITEMS OF FORM
S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND CAPTION LOCATION IN PROSPECTUS
---------------------------------------- ----------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front and Outside Back Cover Pages;
Additional Information
3. Summary Information and Risk Factors.... Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution................................ Risk Factors; Dilution
7. Selling Security Holders................ Principal and Selling Stockholders
8. Plan of Distribution.................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered.............................. Description of Capital Stock
10. Interests of Named Experts and
Counsel................................. Not Applicable
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page of Prospectus;
Prospectus Summary; The Company; Risk Factors;
Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business;
Management; Certain Transactions; Principal
and Selling Stockholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 6, 1996
3,000,000 SHARES
[BITSSTREAM LOGO]
CLASS A COMMON STOCK
------------------------
Of the 3,000,000 shares of Class A Common Stock offered hereby (the
"Offering"), 2,100,000 shares are being offered by Bitstream Inc. ("Bitstream"
or the "Company") and 900,000 shares are being offered by selling stockholders
(the "Selling Stockholders"). The Company will not receive any proceeds from the
sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders." Prior to this Offering, there has been no public market for the
Company's Class A Common Stock. The Company has two classes of authorized common
stock, the Class A Common Stock offered hereby and the Class B Common Stock.
Shares of the Class B Common Stock are non-voting and are convertible into the
same number of shares of Class A Common Stock. It is currently estimated that
the initial public offering price will be between $8.00 and $10.00 per share of
Class A Common Stock. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. Application has
been made to have the Class A Common Stock quoted on the Nasdaq National Market
under the symbol "BITS."
------------------------
THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5-9.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
=========================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDERS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Total(3).................. $ $ $ $
=========================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, payable by the Company, estimated at $950,000.
(3) The Company and certain Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 450,000 additional shares of Class A Common
Stock on the same terms and conditions as set forth above solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Class A Common Stock are offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that the certificates for the shares of Class A Common Stock will be
available for delivery at the offices of Volpe, Welty & Company, One Maritime
Plaza, San Francisco, California, on or about , 1996.
VOLPE, WELTY & COMPANY ADVEST, INC .
The date of this Prospectus is , 1996
<PAGE> 4
GRAPHIC ON INSIDE FRONT COVER PAGE OF THE PROSPECTUS
Superimposed on a picture of a relief map of the world is a graphic
illustration setting forth some of the Company's computer software products for
existing and new markets. On the northern edge of the map under a long
rectangular box containing the phrase "Software Solutions for Bitstream's
Existing Markets" are four rectangular boxes each of which lists existing
markets for the Company's products. On the southern edge of the map under a long
rectangular box containing the phrase "Software Available for New Markets" are
three boxes each listing a potential new market for the Company's products.
Beneath each box containing an existing or a potential new market for the
Company's products is a rectangular box listing the types of products the
Company offers or expects to offer to address such markets. Across the middle of
the map are seven horizontal boxes containing illustrations that are intended to
depict uses for, or evoke images associated with, the Company's software
products and the markets they serve. Each box containing products serving the
Company's existing markets on the northern edge of the map and each box
containing a potential new market on the southern edge of the map is connected
by a dotted line to the appropriate illustration.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Prospective
investors should consider carefully the information discussed under "Risk
Factors." Except as otherwise indicated, all information in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) reflects
the automatic conversion of all shares of Class A Preferred Stock and all shares
of Class B Preferred Stock into an equal number of shares of Class A Common
Stock and Class B Common Stock, respectively, on the date of this Prospectus,
(iii) reflects a two-for-three conversion of shares as part of the
reincorporation of the Company in Delaware in May 1996, see
"Business -- Delaware Reincorporation," and (iv) reflects a change in the
Company's fiscal year, effective December 31, 1995 from a fiscal year end of
September 30 to a fiscal year end of December 31. All references to fiscal years
ended in 1995 and earlier refer to the fiscal year ended September 30.
THE COMPANY
Bitstream develops and markets software products and technologies to
enhance the creation, transport, viewing and printing of electronic documents.
The Company's products and technologies consist of (i) type products, such as
libraries of type designs (fonts) and custom type products; (ii) enabling
technologies, which deliver typographic capabilities to hardware output devices
and software applications; and (iii) TrueDoc, a portable type technology
providing for the efficient distribution of text, with fidelity, in a highly
compressed format. In addition, beginning in the first half of 1997, the Company
expects to market a family of TrueDoc-enhanced portable document products that
are based upon Novell, Inc.'s portable document technology, Envoy. The Company
has obtained from Novell, Inc. ("Novell") certain rights to market and
distribute Envoy. Bitstream primarily licenses its products and technologies to
original equipment manufacturers ("OEMs") and independent software vendors
("ISVs") for inclusion in their output devices, embedded systems, applications,
Internet authoring tools, World Wide Web browsers and other products.
The rapid growth in the use of personal computers, advanced software
applications and laser printers has dramatically transformed the document
creation, production and distribution process, giving rise to the widespread use
of word processing and desktop publishing applications. However, these
technologies generally operate as stand-alone systems utilizing unique and often
competing standards. The problems presented by such competing standards have
been further complicated by the adoption of multi-vendor client/server network
architectures and the advent of new distribution media, including the Internet,
corporate intranets and new classes of information appliances.
Currently, techniques used to present text and graphics are based on
existing desktop publishing technologies and, when used in new distribution
media, often result in a loss of visual integrity, degraded system performance
or both. To efficiently deliver digital information that retains the author's
intended visual impression, it is necessary to utilize enabling technologies
that reduce file size, minimize bandwidth consumption and operate reliably
across heterogeneous computing environments.
The Company's enabling technologies and TrueDoc allow text-based digital
information to retain its intended appearance without regard to the specific
computing platforms, operating systems or resident applications used to create
the original document. In addition, with products based upon TrueDoc-enhanced
Envoy technology, the Company expects to offer a portable document solution that
addresses both text and graphics in a simplified and resource-efficient
application.
The Company markets its products to OEM and ISV customers worldwide through
its direct sales force. Outside North America, the Company distributes software
products to corporations and end users through a distributor network. The
Company's customers include Accent Software International Ltd., Apple Computer,
Inc. ("Apple"), Barco Graphics N.V., Corel Systems Corporation, Interleaf, Inc.,
Kyocera Corp., Macromedia, Inc., Seiko Epson Corporation, Silicon Graphics, Inc.
and Sun Microsystems, Inc. In June 1996, the Company entered into licensing
agreements with Oracle Corporation ("Oracle") and Spyglass, Inc. ("Spyglass") to
provide them with the Company's TrueDoc technology for incorporation into their
World Wide Web browser products or navigation tools.
In fiscal year 1993, the Company decided to curtail product distribution
through the computer software reseller channel and to concentrate the efforts of
the Company on the development and sale of technology and products to OEM and
ISV customers. In conjunction with this shift in strategic focus, the Company
reorganized its operations, reduced its work force, recapitalized its financial
structure, changed senior management and restructured its type design group.
This shift in strategic focus took place over a period from approximately July
1993 through September 1994. See "Business -- Shift in Strategic Focus."
The Company was incorporated in the Commonwealth of Massachusetts in
December 1981 and was reincorporated in the State of Delaware in May 1996. The
Company's executive offices are located at 215 First Street, Cambridge,
Massachusetts 02142 and its telephone number is (617) 497-6222.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by:
The Company................................ 2,100,000 shares
The Selling Stockholders................... 900,000 shares
Class A and Class B Common Stock to be
outstanding after the Offering............. 5,783,689 shares(1)
Use of proceeds.............................. Repayment of indebtedness, working capital
and other general corporate purposes,
including product development and potential
acquisitions.
Proposed Nasdaq National Market symbol....... BITS
</TABLE>
- ---------------
(1) Excludes 1,731,994 shares of Class A Common Stock or Class B Common Stock
issuable upon exercise of outstanding options and warrants. See
"Management -- Stock Plans" and "Description of Capital Stock."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,(1) JUNE 30,
---------------------------------------------- -------------------- ---------------
1991 1992 1993 1994 1995 1995 1995 1996
-------- ------- ------- ------ ------ 1994 ------ ------ ------
-----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues............................... $ 25,093 $20,548 $17,430 $9,832 $8,970 $2,276 $2,355 $4,774 $5,411
Gross profit........................... 17,196 15,115 11,154 7,533 7,391 2,003 1,944 3,980 4,603
Operating income (loss)................ (9,819) (3,339) (4,468) 1,019 1,795 742 250 969 1,002
-------- ------- ------- ------ ------ ------ ------ ------ ------
Net income (loss)...................... $(10,262) $(3,624) $(4,805) $ 846 $1,688 $ 723 $ 738 $ 849 $1,044
======== ======= ======= ====== ====== ====== ====== ====== ======
Pro forma net income per common and
common equivalent share(2)........... $ .38 $ .17 $ .24
====== ====== ======
Pro forma weighted average common and
common equivalent shares
outstanding(2)....................... 4,984 4,705 4,745
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
------ --------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 686 $ 16,440
Working capital........................................................................... 1,729 18,424
Total assets.............................................................................. 5,957 21,570
Long-term obligations..................................................................... 292 23(4)
Stockholders' equity...................................................................... 2,852 19,679
</TABLE>
- ---------------
(1) Effective December 31, 1995, the Company changed its fiscal year end from
September 30 to December 31. The information reflected represents results
for the three months ended December 31, 1994 and December 31, 1995. The
Company's current fiscal year commenced January 1, 1996.
(2) Calculated on the basis described in Note 3 of the Notes to the Consolidated
Financial Statements.
(3) Adjusted to give effect to the sale of 2,100,000 shares of Class A Common
Stock offered by the Company hereby at an assumed initial public offering
price of $9.00 per share, and the application of the net proceeds therefrom
and approximately $200,000 in proceeds to be received by the Company on the
exercise of certain options and warrants by certain Selling Stockholders in
connection with their sale of shares in the Offering. See "Principal and
Selling Stockholders."
(4) Does not include $941,000 of short-term indebtedness outstanding as of June
30, 1996 to be repaid by the Company with a portion of the proceeds of this
Offering. See "Use of Proceeds" and "Capitalization."
------------------------
Except for the historical information contained herein, the discussion in
this Prospectus contains forward-looking statements relating to future events or
future financial performance of the Company that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. Factors which could cause or
contribute to such differences include, but are not limited to, those discussed
in the sections entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as those
discussed elsewhere in this Prospectus.
------------------------
Bitstream(R) and TrueDoc(R) are federally registered trademarks of the
Company; the Company claims trademark rights in Cyberbit.(TM) All other
trademarks, service marks or tradenames referred to in this Prospectus are the
property of their respective owners.
4
<PAGE> 7
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information in this Prospectus before purchasing the shares of Class A
Common Stock offered hereby.
Limited History of Profitability; Business Transition. Bitstream was
founded in 1981, and from the fiscal year ended September 30, 1991 through the
fiscal year ended September 30, 1993, the Company incurred significant losses.
Beginning in fiscal year 1993, the Company reorganized its operations, reduced
its work force, recapitalized its financial structure, changed senior management
and restructured its type design group. In conjunction with its restructuring
initiatives, the Company curtailed its distribution of products through the
computer software reseller channel and focused its business activities on the
sale and licensing of software products and technology to OEMs and ISVs that
integrate the Company's technology into their products. Although the Company
achieved profitability in fiscal years 1994 and 1995, this shift in strategic
focus resulted in a substantial decline in revenues from approximately $17.4
million in fiscal year 1993 to approximately $9.8 million in fiscal year 1994
and to approximately $9.0 million in fiscal year 1995. The Company's transition
to a business focused on OEMs and ISVs is still evolving, and there can be no
assurance that the transition will be successful or that the Company's recent
profitability will continue. The Company's business is affected by numerous
factors, some of which are beyond the Company's control. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview," and "Business -- Shift in Strategic Focus."
Fluctuations in Quarterly Operating Results. The Company has experienced
certain quarter-to-quarter fluctuations in its operating results. The Company's
quarterly operating results may fluctuate as a result of a number of factors
including the timing of new product introductions, announcements of new products
by the Company, its competitors or its customers, slower-than-anticipated growth
rates of emerging markets, slower adoption of new products and technologies into
which the Company's products are incorporated, delays in customer purchases in
anticipation of industry developments, and gross margin fluctuations relating to
variations in product mix involving products with different rates of royalties
payable to third-party licensors. Furthermore, a significant portion of the
Company's expenses are relatively fixed in nature and the Company may not be
able to reduce spending in response to shortfalls or delays in sales. Such
shortfalls or delays may result in a material adverse effect on the Company's
business, financial condition and results of operations. As a result, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as indications of
future performance. Moreover, the Company does not operate with a significant
backlog and often tends to realize a disproportionate share of its revenues in
the last few weeks of a fiscal quarter, thereby impairing the Company's ability
to accurately forecast quarter-to-quarter sales results. Due to the foregoing
factors, it is likely that in one or more future fiscal quarters the Company's
operating results may be below the expectations of public market analysts and
investors. Such an event would have a material adverse effect on the market
price of the Class A Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on OEMs and ISVs. The Company markets its products in large
part to OEMs and ISVs that integrate the Company's products into their own
hardware and software products. The businesses of the Company's OEM and ISV
customers are intensely competitive. The Company is therefore subject to the
risk that the price of or demand for the products sold by its OEM and ISV
customers will decline, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
because the Company generally markets its products through OEMs or ISVs, the
Company is subject to the risk that the ultimate consumers of the products of
OEMs and ISVs will discontinue using such OEMs' or ISVs' products for reasons
unrelated to the quality or price of or demand for the Company's products, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is also subject to the risk
that its OEM and ISV customers will replace the Company's products with products
developed internally by them or will license replacement products from the
Company's competitors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
5
<PAGE> 8
Reliance on TrueDoc. Although the Company's sales of products
incorporating its TrueDoc technology have not generated significant revenues for
the Company to date, Bitstream expects that a substantial portion of the
Company's future revenue will be derived from the sale of products incorporating
TrueDoc technology. The first product incorporating the Company's TrueDoc
technology was released commercially in January 1995. If sales of TrueDoc
technology or pricing levels of products incorporating TrueDoc technology were
to fail to meet projected levels, whether as a result of TrueDoc's failure to
achieve market acceptance, product innovations by others, pricing practices of
competitors or other factors, the Company's business, financial condition and
results of operations would be materially and adversely affected. See
"Business -- Products" and "-- Competition."
Competition. The computer software market is highly competitive and is
characterized by rapid technological change and the adoption of new industry
standards. As the markets in which the Company's products are sold continue to
develop and as the Company enters new markets, the Company expects to continue
to face substantial competition from other software developers and anticipates
that additional competitors will enter those markets. Many of the Company's
competitors or potential competitors have significantly greater financial,
marketing and technical resources than the Company. These competitors may be
able to adapt more quickly to new or emerging technologies and standards or
changes in customer requirements or may be able to devote greater resources to
the promotion and sale of their products than the Company. Many of these
competitors currently market, or can potentially market, their products directly
to the ultimate consumers of such products as part of a broader product
offering. There can be no assurance that the Company will be able to compete
successfully in this industry. Continued investment in research and product
development and in marketing will be required to permit the Company to compete
successfully, and there can be no assurance that the Company will have the
necessary capital resources to fund such investment. Several software
application developers, with financial and technical resources significantly
greater than those of the Company, have recently announced their intentions
jointly to develop type products, enabling technologies and portable document
products that may be similar to those sold by the Company. Currently, the
Company is unable to determine the effect, if any, that such products and
technologies will have on the Company's business. If the products and
technologies contemplated by these arrangements were to generate significant
sales the Company's business, financial condition and results of operations
could be materially and adversely affected. See "Business -- Competition."
Dependence on the Expansion of Corporate Intranets and Workgroup
Technologies. The Company expects to derive significant revenues through the
sale of planned product offerings designed to work with corporate intranets. The
market for products and services designed for use with corporate intranets has
only recently begun to develop, and the success of the Company's portable
document technology and products will depend in large part on the widespread
adoption of intranets for use by corporations. The adoption of intranets for
in-house corporate communication, particularly by those individuals and
enterprises that have historically relied upon alternative means of
communication, generally requires the acceptance of a new model of conducting
business and exchanging information. Enterprises that have already invested
substantial resources in other means of conducting business or exchanging
information may be particularly reluctant or slow to adopt a new strategy that
may make their existing infrastructure obsolete or that require additional
significant capital investment. If the use of intranets and workgroup technology
develops at a rate slower than anticipated by the Company or does not develop in
a meaningful way, the Company's opportunity to sell its products designed for
use in intranets could be limited, and the Company's business, financial
condition and results of operations could be materially and adversely affected.
See "Business -- Industry Background" and "-- Products."
Risks Related to Envoy Technology. The Company expects to derive
significant revenues from the sale of the portable document technology, Envoy.
The Company has obtained an exclusive license from Novell to market and sell
Envoy on a worldwide basis to companies that incorporate Envoy in their own
products, such as OEMs and ISVs, and a nonexclusive license to distribute Envoy
to end users (collectively, the "Envoy License"). Envoy incorporates the
Company's TrueDoc technology pursuant to a separate license from the Company to
Novell. The Envoy License expires on November 1, 2001, and renews on a
year-to-year basis thereafter unless terminated by either party after November
1, 2001 on 90 days' written notice. The Company
6
<PAGE> 9
does not expect to commence marketing TrueDoc-enhanced Envoy portable document
products until the first half of 1997. There can be no assurance that the
marketing of such products by the Company will in fact occur at such time or at
any time, or that such products will achieve market acceptance. Any of such
events would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Products."
Dependence on the Internet and Internet Infrastructure Development. The
Company expects to derive revenues through the Internet primarily from licensing
a component of its TrueDoc technology to companies developing Internet-based
applications. The market for products and services designed for the Internet has
only recently begun to develop, and the success of products incorporating the
Company's technology will depend on increased commercial use of the Internet.
Because global commerce and on-line exchange of information over the Internet is
new and still evolving, it is difficult to predict with any certainty whether
the Internet will prove to be a viable marketplace for commercial transactions.
Significant commercial use of the Internet has not developed to date. Failure of
the Internet to develop as a viable means of commerce or interchange generally
or the failure of the Company's technology to gain acceptance among Internet
software developers specifically could have a material adverse affect on the
Company's business, financial condition and results of operations. There can be
no assurance that the infrastructure or complementary products necessary to make
the Internet a viable commercial marketplace will be developed. Continued
evolution of the Internet may be expected, including evolution in directions
unforeseen by the Company, some of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Rapid Technological Change. The Company's future financial performance
will depend upon its ability to enhance its current products, to develop and
introduce new products that keep pace with technological developments, respond
to evolving customer requirements, meet the technical requirements of the
Company's OEM and ISV customers and achieve market acceptance for such products.
Any failure by the Company to anticipate or respond to new technological
developments and customer requirements, or any significant delays in product
development or introduction, could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
several of the markets addressed by the Company's current and planned products
are rapidly evolving and are characterized by emerging standards and competing
technological platforms. There can be no assurance that products designed by the
Company for sale into these markets will adequately address the requirements
dictated by evolving standards or that the Company will be able to adapt its
products to changes in technology. Accordingly, the Company may invest in
products and technologies which never gain market acceptance. Such investments
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, new products, when first released by the Company, may contain
undetected errors that, despite quality control measures employed by the
Company, are discovered only after a product has been integrated into the OEM
and ISV product and used by customers. Such errors may cause delays in product
introduction and delivery or may require design modifications which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
International Operations; Seasonality. Sales to OEM and ISV customers
outside the United States represented 44.5% of the Company's revenues for the
fiscal year ended September 30, 1995. These revenues do not include revenues
derived from products sold into the international market by the Company's
domestic OEM and ISV customers. The Company expects that its international
business will continue to account for a significant portion of its future
revenues. Substantially all of the Company's international sales are denominated
in U.S. currency. An increase in the value of the U.S. dollar relative to
foreign currencies could make the Company's products more expensive and
therefore less competitive in foreign markets. Additional risks inherent in the
Company's international business activities generally include unexpected changes
in regulatory requirements, tariffs and other trade barriers, longer accounts
receivable payment cycles, potentially adverse tax consequences, and the burdens
of complying with a wide variety of foreign laws. There can be no assurance that
such factors will not have an adverse effect on the Company's future
international revenues and the Company's results of operations. In addition, the
Company's European business is significant and has historically been negatively
affected during the three months ended September 30 due to the summer closing or
slowdown of several European customers. These seasonal factors have affected and
may continue to affect
7
<PAGE> 10
the Company's quarterly results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results."
Risks Associated with Managing a Changing Business. Beginning in fiscal
1993 through fiscal 1994, the Company effected a shift in its strategic focus to
an OEM- and ISV-based business model. Although the Company's senior management
has been associated with the Company for several years, such management has
little experience in managing a business which is undergoing rapid change.
Additionally, the Company's ability to manage its shift in strategic focus
effectively will require it to continue to improve its infrastructure and to
attract, train, and retain key employees. If the Company's management is unable
to manage such change effectively, the Company's business, financial condition
and results of operations could be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview," "Business -- Shift in Strategic Focus" and
"Management."
Dependence on Key Personnel. The Company's performance depends to a
significant extent on the continued service of its senior management and certain
key technical employees, including C. Raymond Boelig, the Company's President
and Chief Executive Officer and John S. Collins, its Vice President of
Engineering. None of the Company's employees is bound by employment agreements.
The Company's future results will depend upon its ability to attract and retain
highly skilled technical, managerial, and marketing personnel. Competition for
such personnel in the software industry is intense. There can be no assurance
that the Company will be successful in attracting and retaining the personnel
required to sustain its business. Failure to attract and retain such personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Employees" and
"Management."
Intellectual Property and Proprietary Rights. The Company regards its
software as proprietary and attempts to protect it with a combination of
copyright, patent, trademark, and trade secret laws, employee and third-party
nondisclosure agreements and other methods of protection. There can be no
assurance that these measures will be adequate or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technologies. It may be possible for unauthorized
third parties to copy or reverse engineer portions of the Company's products or
otherwise obtain and use information that the Company regards as proprietary.
Furthermore, the laws of certain foreign countries in which the Company's
products are or may be developed, manufactured or sold may not protect the
Company's products or intellectual property rights to the same extent as do the
laws of the United States and thus make the possibility of unauthorized use of
the Company's technologies and products more likely. Significant and protracted
litigation may be necessary to protect the Company's intellectual property
rights. Such litigation would likely result in significant expenditures and the
diversion of management's attention. Any such litigation involving the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Intellectual Property."
Concentration of Share Ownership; Control by Existing Stockholders. Upon
completion of this Offering, the directors, executive officers, principal
stockholders and their respective affiliates will beneficially own approximately
46.5% of the shares of Class A Common Stock outstanding or immediately issuable
upon conversion of Class B Common Stock or exercise of outstanding options or
warrants held by such persons. These stockholders will be able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
Such concentration of ownership may also have the effect of delaying or
preventing a change in control of the Company. See "Principal and Selling
Stockholders."
Shares Eligible for Future Sale; Possible Adverse Effect on Future Market
Prices. Sales of substantial numbers of shares of Class A Common Stock in the
public market could have an adverse affect on the market price of the Class A
Common Stock. Upon completion of this Offering, the Company will have 5,783,689
shares of Class A Common Stock outstanding or issuable upon the conversion of
outstanding Class B Common Stock (assuming no exercise of outstanding options or
warrants other than options and warrants for 190,442 shares of Class A Common
Stock exercised by certain Selling Stockholders in connection with this
Offering). Of these shares, the 3,000,000 shares of Class A Common Stock sold in
this Offering will generally be freely tradeable without restriction or further
registration under the Securities Act, as amended (the "Securities Act"). Of the
remaining 2,783,689 shares of Class A Common Stock outstanding or issuable on
8
<PAGE> 11
conversion of outstanding Class B Common Stock, 48,846 shares of Class A Common
Stock are not subject to the lock-up agreements described in "Shares Eligible
for Future Sale -- Lock-Up Agreements" (the "Lock-Up Agreements"), and will be
eligible for immediate sale in the public market pursuant to Rule 144(k) under
the Securities Act ("Rule 144(k)"). 164,879 shares of Class A Common Stock which
are issuable on the exercise of certain outstanding options and warrants at
exercise prices below the assumed initial public offering price of $9.00 per
share and which are not subject to the Lock-Up Agreements, will be eligible for
resale in the public market in accordance with Rule 701 under the Securities Act
("Rule 701") beginning 90 days after the date of this Prospectus. Upon the
expiration of the Lock-Up Agreements, or earlier in the sole discretion of
Volpe, Welty & Company, approximately 2,734,843 additional shares of Class A
Common Stock, outstanding or issuable upon the conversion of Class B Common
Stock, will become eligible for immediate sale in the public market pursuant to
the provisions of Rule 144(k). Approximately 180 days after the date of this
Prospectus, the Company will file a registration statement under the Securities
Act covering the shares issuable on the exercise of options and warrants granted
under its Stock Plans. See "Shares Eligible for Future Sale."
No Prior Public Market; Determination of Public Offering Price; Possible
Volatility of Stock Price. Prior to this Offering, there has been no public
market for the Class A Common Stock. There can be no assurance that an active
trading market will develop or be sustained after this Offering. The initial
public offering price will be determined through negotiations between the
Company and the representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The public offering price may not be indicative of the market
price for the Class A Common Stock that may prevail following this Offering. In
recent years, the stock market in general, and the prices of stock of technology
companies in particular, have experienced extreme price fluctuations, sometimes
without regard to the operating performance of particular companies. Factors
such as quarterly variations in actual or anticipated operating results, the
failure of the Company to achieve earnings estimates projected by market
analysts or changes in earnings estimates by such analysts, market conditions in
the industry, announcements by competitors, regulatory actions and general
economic conditions may have a significant effect on the market price of the
Class A Common Stock.
Immediate and Substantial Dilution; Dilutive Effect of Outstanding Options
and Warrants. Purchasers of the Class A Common Stock offered hereby will suffer
an immediate and substantial dilution, in the amount of $5.54 per share in net
tangible book value per share as of June 30, 1996, based on an assumed initial
public offering price of $9.00 per share. Such dilution computation does not
take into account the further dilutive effect resulting from the exercise of
outstanding options and warrants. As of June 30, 1996, there were 1,826,438
shares of Class A Common Stock and Class B Common Stock issuable upon the
exercise of options and warrants outstanding on that date at exercise prices
below the assumed offering price of $9.00 per share. If all of such outstanding
options and warrants were exercised in full, the amount of dilution per share in
net tangible book value per share to new investors would be $6.15. See
"Dilution."
Certain Anti-Takeover Provisions. The Board of Directors of the Company
(the "Board") has the authority to issue up to 6,000,000 additional shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of shares of Preferred Stock could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no present intention to
issue additional shares of Preferred Stock. Additionally, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or
preventing a change-in-control of the Company. This provision may also reduce
the likelihood of an acquisition of the Company at a premium price by another
person or entity. See "Description of Capital Stock -- Preferred Stock" and
"-- Delaware Law and Certain Provisions of Charter and By-Laws."
9
<PAGE> 12
THE COMPANY
The Company was incorporated in December 1981 in the Commonwealth of
Massachusetts and was reincorporated in the State of Delaware in May 1996 (the
"Delaware Reincorporation"). All of the business activities described herein are
conducted by the Company and its wholly-owned direct and indirect subsidiaries,
and when used in this Prospectus, unless the context requires otherwise, the
terms "Bitstream" and "Company" refer to Bitstream Inc. and all of its
subsidiaries. The Company's executive offices are located at 215 First Street,
Cambridge, Massachusetts 02142 and its telephone number is (617) 497-6222.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,100,000 shares of
Class A Common Stock offered by the Company hereby, at an assumed initial public
offering price of $9.00 per share are estimated to be approximately $16,627,000,
after deducting the underwriting discounts and commissions and estimated
offering expenses ($19,452,000 if the Underwriter's over-allotment option is
exercised in full). The Company will not receive any proceeds from the sale of
shares of Class A Common Stock by the Selling Stockholders. See "Principal and
Selling Stockholders."
The Company currently intends to use a portion of the net proceeds of this
Offering for the repayment of certain indebtedness described below, for working
capital and other corporate purposes, including expansion of sales and marketing
and customer support activities, investments in research and development and for
acquisitions of complementary technologies, products or businesses that broaden
or enhance the Company's current technology or product offerings. However, the
Company has no specific commitments with respect to any such acquisitions.
Pending such uses, the net proceeds will be invested in short-term,
interest-bearing, investment grade securities.
A portion of the proceeds of the Offering, totalling approximately
$1,200,000, will be used to repay all of the Company's outstanding long-term and
short-term borrowings and capitalized leases. As of June 30, 1996, such
indebtedness included (i) a bank line of credit with $150,000 outstanding,
bearing interest at a per annum rate equal to BayBank's "prime rate" ("Prime")
+1.50% and maturing on June 15, 1997; (ii) an equipment line with $191,000
outstanding, bearing interest at a per annum rate of Prime +1.50% and maturing
on March 18, 1999, the proceeds of which were used to purchase computer
equipment and software; (iii) an equipment term loan with $83,000 outstanding,
bearing interest at a per annum rate of Prime +2.00% and maturing on July 14,
1998; (iv) three capital leases with $3,000, $41,000 and $111,000 outstanding,
respectively, bearing interest at a per annum rate of 8.00%, 8.64% and 9.00%,
respectively, and expiring on August 1, 1996, February 10, 1997 and December 15,
2000, respectively; and (v) loans (the "Bridge Loans") from certain entities,
including certain directors and principal stockholders of the Company
(collectively, the "Bridge Lenders"), with $626,000 outstanding, including
accrued interest, bearing interest at a per annum rate of 12.00% and maturing on
October 22, 1996. See "Certain Transactions--Bridge Loans."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain earnings, if any, to support its growth
strategy and does not anticipate paying cash dividends on its capital stock in
the foreseeable future.
10
<PAGE> 13
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of June 30, 1996 (i) on an actual basis, and (ii) as adjusted to
reflect the estimated net proceeds from the sale of 2,100,000 shares of Class A
Common Stock offered by the Company hereby at an assumed initial public offering
price of $9.00 per share and the application of the net proceeds therefrom. This
table should be read in conjunction with the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED(1)(2)
-------- -----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Short-term debt.................................................... $ 916 $ --
======== ========
Long-term debt..................................................... $ 292 $ 23
Stockholders' equity:
Preferred stock, $.01 par value, no shares authorized, issued or
outstanding; 6,000,000 shares authorized, no shares issued or
outstanding, as adjusted...................................... -- --
Convertible preferred stock, $.01 par value(1) --
Class A -- 3,000,000 shares authorized, 2,782,575 shares
issued and outstanding; 3,000,000 shares authorized, no
shares issued or outstanding, as adjusted.................... 28 --
Class B -- 1,000,000 shares authorized, 391,162 shares issued
and outstanding; 1,000,000 shares authorized, no shares
issued or outstanding, as adjusted........................... 4 --
Common Stock, $.01 par value --
Class A -- 20,000,000 shares authorized, 288,646 shares issued
and outstanding; 30,000,000 shares authorized, 5,361,663
shares issued and outstanding, as adjusted................... 3 54
Class B -- 1,333,333 shares authorized, 30,864 shares issued
and outstanding; 500,000 shares authorized, 422,026 shares
issued and outstanding, as adjusted.......................... -- 4
Additional paid-in capital....................................... 14,454 31,258
Accumulated deficit.............................................. (11,586) (11,586)
Cumulative translation adjustment................................ (51) (51)
-------- --------
Total stockholders' equity............................... 2,852 19,679
-------- --------
Total capitalization..................................... $ 3,144 $ 19,702
======== ========
</TABLE>
- ---------------
(1) After giving effect to the automatic conversion of all outstanding shares of
Class A Preferred Stock and Class B Preferred Stock into 2,782,575 shares of
Class A Common Stock and 391,162 shares of Class B Common Stock,
respectively, on the date of this Prospectus. See "Description of Capital
Stock."
(2) Includes 190,442 shares of Class A Common Stock issuable upon the exercise
of options or warrants by certain Selling Stockholders immediately prior to
this Offering, in connection with the sale of shares by them in the
Offering, which exercise will result in approximately $200,000 of proceeds
to the Company. Excludes 666,667 shares reserved for issuance pursuant to
the 1996 Stock Plan. See "Management -- 1996 Stock Plan," "Principal and
Selling Stockholders" and "Description of Capital Stock."
11
<PAGE> 14
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996
was approximately $2,711,000, or $0.78 per share of Class A Common Stock and
Class B Common Stock (collectively, the "Common Stock"). Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities divided by the number of shares of Common Stock
then outstanding, determined after giving effect to (i) the conversion of each
three shares of stock into two shares of the same class in connection with the
Delaware Reincorporation (the "2-for-3 Conversion"), and (ii) the conversion of
all outstanding shares of Class A Preferred Stock and Class B Preferred Stock
into 2,782,575 shares of Class A Common Stock and 391,162 shares of Class B
Common Stock, respectively, upon effectiveness of the registration statement of
which this Prospectus is a part (the "Effective Date"). See "Description of
Capital Stock" and Notes 1 and 10 to "Notes to Consolidated Financial
Statements." After giving effect to the sale of shares of Class A Common Stock
offered hereby at an assumed initial public offering price of $9.00 per share,
and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, the Company's pro forma net tangible
book value as of June 30, 1996 would have been approximately $19,338,000, or
$3.46 per share. This represents an immediate increase in pro forma net tangible
book value of $2.68 per share to existing stockholders and an immediate dilution
of $5.54 per share to new investors purchasing shares of Class A Common Stock in
this Offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $9.00
Pro forma net tangible book value per share before Offering........ $0.78
Increase in pro forma net tangible book value per share
attributable to new investors................................... 2.68
-----
Pro forma net tangible book value per share after Offering........... 3.46
-----
Pro forma net tangible book value dilution per share to new
investors.......................................................... $5.54
=====
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price paid per share by existing
stockholders and by the new investors purchasing shares of Class A Common Stock
from the Company in this Offering at an assumed initial offering price of $9.00
per share (before deducting underwriting discounts and commissions and estimated
offering expenses), after giving effect to (i) the 2-for-3 Conversion, and (ii)
the conversion of all outstanding shares of Class A Preferred Stock and Class B
Preferred Stock into 2,782,575 shares of Class A Common Stock and 391,162 shares
of Class B Common Stock, respectively, upon the Effective Date.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 3,493,247 62.5% $15,201,000 44.6% $4.35
New investors......................... 2,100,000 37.5 18,900,000 55.4% 9.00
--------- ----- ---------- -----
Total................................. 5,593,247 100.0% $34,101,000 100.0%
========= ===== ========== =====
</TABLE>
As of June 30, 1996, there were 1,826,438 shares of Class A Common Stock
issuable upon the exercise of options and warrants outstanding on that date at
exercise prices below the assumed offering price of $9.00 per share. The
issuance of shares upon exercise of these options and warrants is not reflected
in the preceding tables. If all of these outstanding options and warrants were
exercised in full, the dilution per share to new investors would be $6.15. Such
exercises would increase the number of shares held by existing stockholders to
5,319,685 shares, or 71.7% of the total number of shares of Common Stock to be
outstanding after this Offering, and would (i) decrease the number of shares
held by new investors to 28.3% of the total number of shares of Common Stock to
be outstanding after this Offering, (ii) increase the total consideration paid
to the Company by existing stockholders to $16,984,000 or 47.3% of the total
consideration paid to the Company, and (iii) decrease the average price per
share paid by existing stockholders to $3.19.
12
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of September
30, 1994 and 1995 and December 31, 1995 and for each of the three years in the
period ended September 30, 1995 and for the three months ended December 31,
1995, have been derived from, and are qualified by reference to, the Company's
consolidated financial statements which have been audited by Arthur Andersen
LLP, independent public accountants, whose report thereon is included elsewhere
in this Prospectus. The selected consolidated financial data presented below as
of September 30, 1991, 1992 and 1993 and for each of the two years in the period
ended September 30, 1992 have been derived from, and are qualified by reference
to, the Company's audited financial statements, which are not included in this
Prospectus. The selected consolidated financial data as of June 30, 1996 and for
the six month periods ended June 30, 1995 and June 30, 1996 have been derived
from the unaudited consolidated financial statements of the Company included
elsewhere in this Prospectus. The selected consolidated statement of operations
data for the three months ended December 31, 1994 have been derived from the
unaudited consolidated financial statements of the Company, which are not
included in this Prospectus. In the opinion of management, the unaudited
financial statements of the Company have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of financial position and results of operations for these periods.
Results for the six months ended June 30, 1996 are not necessarily indicative of
results to be expected for the fiscal year ending December 31, 1996 or for any
future period. The selected consolidated financial data set forth below should
be read in conjunction with, and are qualified by reference to, the Consolidated
Financial Statements of the Company and Notes thereto, with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus, and other financial data appearing
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
1991 1992 1993 1994 1995
-------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................... $ 25,093 $20,548 $17,430 $9,832 $8,970
Cost of revenues........................................... 7,897 5,433 6,276 2,299 1,579
-------- ------- ------- ------ ------
Gross profit.............................................. 17,196 15,115 11,154 7,533 7,391
-------- ------- ------- ------ ------
Operating expenses:
Marketing and selling..................................... 12,086 10,530 9,080 3,334 3,264
Research and development.................................. 5,512 5,686 3,536 1,534 1,071
General and administrative................................ 2,799 2,237 3,006 1,281 1,261
Restructuring charge...................................... 6,618 -- -- 365 --
-------- ------- ------- ------ ------
Total operating expenses............................ 27,015 18,454 15,622 6,514 5,596
-------- ------- ------- ------ ------
Operating income (loss).................................... (9,819) (3,339) (4,468) 1,019 1,795
-------- ------- ------- ------ ------
Other income (expense), net................................ (514) (107) (18) (40) 11
-------- ------- ------- ------ ------
Provision for (benefit from) income taxes.................. (71) 178 319 133 118
-------- ------- ------- ------ ------
Net income (loss).......................................... $(10,262) $(3,624) $(4,805) $ 846 $1,688
======== ======= ======= ====== ======
Pro forma net income per common and common equivalent
share(2).................................................. $ .38
======
Pro forma weighted average common and
common equivalent shares outstanding(2)................... 4,984
======
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
---------------------- -----------------
1994(1) 1995(1) 1995 1996
--------- --------- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <<C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................... $ 2,276 $2,355 $4,774 $5,411
Cost of revenues........................................... 273 411 794 808
------- ------ ------ ------
Gross profit.............................................. 2,003 1,944 3,980 4,603
------- ------ ------ ------
Operating expenses:
Marketing and selling..................................... 740 978 1,691 2,145
Research and development.................................. 255 331 547 680
General and administrative................................ 266 385 773 776
Restructuring charge...................................... -- -- -- --
------- ------ ------ ------
Total operating expenses............................ 1,261 1,694 3,011 3,601
------- ------ ------ ------
Operating income (loss).................................... 742 250 969 1,002
------- ------ ------ ------
Other income (expense), net................................ (2) 17 (37) (44)
------- ------ ------ ------
Provision for (benefit from) income taxes.................. 17 (471) 83 (86)
------- ------ ------ ------
Net income (loss).......................................... $ 723 $ 738 $ 849 $1,044
======= ====== ====== ======
Pro forma net income per common and common equivalent
share(2).................................................. $ .17 $ .24
====== ======
Pro forma weighted average common and
common equivalent shares outstanding(2)................... 4,705 4,745
====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------------------------------------
1991 1992 1993 1994 1995
------- ------ ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 1,347 $ 347 $ 1,068 $ 654 $ 523
Working capital (deficit)................................ 2,804 (976) (2,266) (920) 881
Total assets............................................. 11,347 7,895 5,029 2,640 3,194
Long-term obligations.................................... 1,049 566 17 125 124
Stockholders' equity (deficit)........................... 3,760 153 (2,803) (3,041) 1,066
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
1995(1) 1996
------------------ ---------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 390 $ 686
Working capital (deficit)................................ 1,254 1,729
Total assets............................................. 4,328 5,957
Long-term obligations.................................... 210 292
Stockholders' equity (deficit)........................... 1,806 2,852
</TABLE>
- ---------------
(1) Effective December 31, 1995, the Company changed its fiscal year end from a
fiscal year end of September 30 to a calendar year end. The current fiscal
year commenced January 1, 1996. Because of this change in fiscal year, the
Company is presenting certain consolidated statement of operations data for
the three months ended December 31, 1994 and December 31, 1995, as well as
consolidated balance sheet data as of December 31, 1995.
(2) Calculated on the basis described in Note 3 of Notes to the Consolidated
Financial Statements.
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Bitstream develops and markets software products and technologies to
enhance the creation, transport, viewing and printing of electronic documents.
The Company primarily licenses its products and technologies to OEMs and ISVs
for inclusion in their output devices, embedded systems, applications, Internet
authoring tools, World Wide Web browsers and other products.
Prior to July 1993, the Company's principal marketing strategy was to sell
its software products directly to end users through the computer software
reseller channel. Although not its primary focus, prior to this time the Company
also marketed its technology directly to OEMs and ISVs and licensed customized
type products to corporate customers. In fiscal year 1993, the Board decided to
curtail product distribution through the computer software reseller channel and
to concentrate the efforts of the Company on the development and sale of
technology and products to OEM and ISV customers. In conjunction with this shift
in strategic focus, the Board reorganized the Company's operations,
recapitalized the Company's financial structure, changed senior management and
restructured the Company's type design group. This reorganization included,
among other things: (i) the elimination and consolidation of departments, which
resulted in a reduction in the total number of Company employees from
approximately 235 in early 1993 to approximately 60 in late 1994; (ii) the
closing of the Company's disk duplication and distribution facility in Clinton,
Massachusetts; and (iii) a shift in product development and marketing emphasis
away from the design of new type styles to the development of enabling
technologies, such as TrueDoc. The shift in strategic focus took place over a
period from approximately July 1993 through September 1994, and, related
thereto, the Company incurred a restructuring charge of $365,000 during its
fiscal year ended September 30, 1994, principally relating to severance
obligations to terminated employees.
The Company derives revenues principally from the following sources: (i)
licensing fees and royalty payments paid by OEM and ISV customers; (ii) direct
sales of custom and other type products to end users such as graphic artists,
desktop publishers and corporations; and (iii) sales of type products to foreign
customers primarily through distributors. Royalty payments due from OEM and ISV
customers, who generally pay specified minimums or fixed fees for the right to
include the Company's products as a component of a larger product for a
specified time period or volume limit, are generally recognized as revenue at
the time the software is delivered to the OEM or ISV customer. If the royalty
payments are to be received over a period of time greater than one year, the
amount recognized is discounted to the present value of the future minimum
payments. Certain OEM and ISV customers pay royalties only upon the sublicensing
of the Company's products to end users. Royalties due from these OEM and ISV
customers are recognized when such sublicenses are reported to the Company by
the OEM or ISV customer. Revenues from sales to end users and foreign
distributors are generally recognized at the time the software products are
delivered to the customer.
Cost of revenues is comprised of direct costs of licenses and royalties, as
well as direct costs of product sales to end users. Included in cost of licenses
and royalties are fees paid to third parties for the development or license of
rights to technology and/or unique typeface designs and the costs incurred in
the fulfillment of custom orders from OEM and ISV customers. Included in cost of
product sales to end users and distributors are the direct costs associated with
the duplication, packaging and shipping of products.
Operating expenses consist primarily of sales and marketing expenses
(principally sales compensation and commissions), research and development
expense and general and administrative expenses. In accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Cost of Computer
Software to be Sold, Leased or Otherwise Marketed, the Company has, since 1991,
expensed research and development costs as incurred. See Note 1 to Notes to
Consolidated Financial Statements.
Except for the historical information contained herein, the discussion in
this Prospectus contains forward-looking statements relating to future events or
the future financial performance of the Company that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. Factors which could cause or
contribute to such differences include, but are not limited to, those discussed
in this section, the section entitled "Risk Factors" as well as those discussed
elsewhere in this Prospectus.
14
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items reflected in the Company's Statements of Operations Data for the
periods presented.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED DECEMBER ENDED
YEAR ENDED SEPTEMBER 30, 31, JUNE 30,
-----------------------------------------
-------------- --------------
1993 1994 1995 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ 36.0 23.4 17.6 12.0 17.5 16.6 14.9
----- ----- ----- ----- ----- ----- -----
Gross profit.......................... 64.0 76.6 82.4 88.0 82.5 83.4 85.1
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Marketing and selling................. 52.1 33.9 36.4 32.5 41.5 35.4 39.7
Research and development.............. 20.3 15.6 11.9 11.2 14.1 11.5 12.6
General and administrative............ 17.3 13.0 14.0 11.7 16.4 16.2 14.3
Restructuring charge.................. -- 3.7 -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Total operating expenses........... 89.7 66.2 62.3 55.4 72.0 63.1 66.6
----- ----- ----- ----- ----- ----- -----
Operating income (loss)................. (25.7) 10.4 20.1 32.6 10.5 20.3 18.5
----- ----- ----- ----- ----- ----- -----
Other income (expense), net............. (0.10) (0.4) -- (0.1) 0.8 (0.8) (0.8)
----- ----- ----- ----- ----- ----- -----
Provision for (benefit from) income
taxes................................. 1.8 1.4 1.3 0.8 (20.0) 1.7 (1.6)
----- ----- ----- ----- ----- ----- -----
Net income (loss)....................... (27.5)% 8.6% 18.8% 31.7% 31.3% 17.8% 19.3%
===== ===== ===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenues. Revenues for the six months ended June 30, 1996 increased by
$637,000, or 13.3%, to approximately $5.4 million, compared to approximately
$4.8 million for the six months ended June 30, 1995. Revenues from OEM and ISV
customers for the six months ended June 30, 1996 increased by $806,000, or
22.5%, to approximately $4.4 million, from approximately $3.6 million for the
six months ended June 30, 1995, reflecting the continued strengthening of the
Company's OEM and ISV business. Revenues from end users and distributors for the
six months ended June 30, 1996 declined by $168,000, or 14.1%, to approximately
$1.0 million, from approximately $1.2 million for the six months ended June 30,
1995. The Company does not expect sales of products to end users through the
domestic computer software reseller channel to be material in the future.
Gross Profit. Gross profit for the six months ended June 30, 1996
increased by $623,000, or 15.7%, to approximately $4.6 million, compared to
approximately $4.0 million for the six months ended June 30, 1995. Gross profit
as a percentage of revenues for the six months ended June 30, 1996 increased to
85.1%, compared to 83.4% for the six months ended June 30, 1995. The increase in
gross profit as a percentage of revenues reflects the increase in the percentage
of revenues from OEM and ISV sales and a decrease in costs of licensing fees and
royalties. Gross profit and gross profit as a percentage of revenues in the
future may be affected by a variety of factors including third party licensing
fees and royalties, pricing of the Company's products and changes in the product
mix of the Company's revenues.
Marketing and Selling. Marketing and selling expenses for the six months
ended June 30, 1996 increased by $454,000 or 26.8%, to approximately $2.1
million, compared to approximately $1.7 million for the six months ended June
30, 1995. In future periods, the Company believes marketing and selling expenses
may increase in absolute dollars due to higher levels of sales commissions and
higher levels of promotional activities in support of new product introductions.
Research and Development. Research and development expenses for the six
months ended June 30, 1996 increased by $133,000 or 24.3%, to $680,000 from
$547,000 for the six months ended June 30, 1995,
15
<PAGE> 18
reflecting the addition of personnel to support expanded development of the
Company's enabling technologies. Research and development expenses consist
primarily of personnel costs and fees paid for outside software development and
consulting fees. The Company expects to increase research and development
expenditures in absolute dollars in future periods to support development of
current and future products and technologies.
General and Administrative. General and administrative expenses for the
six months ended June 30, 1996 increased slightly to $776,000, compared to
$773,000 for the six months ended June 30, 1995. As a percentage of revenues,
general and administrative expenses declined to 14.3% for the six months ended
June 30, 1996 from 16.2% for the six months ended June 30, 1995.
The Company recorded a tax benefit of $86,000 for the six months ended June
30, 1996. This benefit consisted of a reduction of the valuation allowance for
deferred tax assets by $158,000 partially offset by a current tax provision of
$72,000. The reduction to the valuation allowance is primarily based upon
estimated future utilization of net operating loss carryforwards and federal tax
credits. The Company recorded a tax provision of $83,000, reflecting an
effective tax rate of 8.9%, for the six months ended June 30, 1995. See Note 4
to Notes to Consolidated Financial Statements.
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1994
Revenues. Revenues for the three months ended December 31, 1995 increased
by $79,000, or 3.5%, to approximately $2.4 million, compared to $2.3 million for
the three months ended December 31, 1994. This increase is due to the 18.0%
increase in revenues from product sales to OEM and ISV customers, from
approximately $1.5 million to $1.8 million, offset by a 26.8% decrease in
product sales to end users and distributors to $540,000 from $738,000.
Gross Profit. Gross profit for the three months ended December 31, 1995
decreased by $59,000, or 2.9%, to approximately $1.9 million, compared to
approximately $2.0 million for the three months ended December 31, 1994. Gross
profit as a percentage of revenues for the three months ended December 31, 1995
declined to 82.5%, compared to 88.0% for the three months ended December 31,
1994. The decrease in gross profit as a percentage of revenues reflects an
increase in third party royalties and development fees.
Marketing and Selling. Marketing and selling expenses for the three months
ended December 31, 1995 increased by $238,000, or 32.2%, to $978,000, from
$740,000 for the three months ended December 31, 1994 as a result of additional
sales personnel and marketing programs needed to support new products.
Research and Development. Research and development expenses for the three
months ended December 31, 1995 increased by $76,000, or 29.8%, to approximately
$331,000, from approximately $255,000 for three months ended December 31, 1994.
The increase in research and development costs was due to higher outside
consulting fees and the hiring of an additional person into the Company's
software engineering group.
General and Administrative. General and administrative expenses for the
three months ended December 31, 1995 increased by $119,000, or 44.7%, to
$385,000, from $266,000 for the three months ended December 31, 1994 reflecting
an increase in payroll related costs in the three months ended December 31,
1995.
The Company recorded a tax benefit of $471,000 for the three months ended
December 31, 1995. This benefit consisted of the recognition of a net deferred
tax asset, of $600,000 partially offset by a current tax provision of $129,000.
The recognized deferred tax asset is based primarily upon estimated future
utilization of net operating loss carryforwards and federal tax credits. See
Note 4 to Notes to the Consolidated Financial Statements.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Revenues. Revenues for the fiscal year ended September 30, 1995 decreased
by $862,000, or 8.8%, to approximately $9.0 million, compared to approximately
$9.8 million for the fiscal year ended September 30, 1994. Revenues from product
sales to OEM and ISV customers for the fiscal year ended September 30, 1995
increased by $568,000, or 9.9%, to approximately $6.3 million, from
approximately $5.8 million for the fiscal
16
<PAGE> 19
year ended September 30, 1994, as a result of the continuing acceptance of the
Company's type products and enabling technologies by OEM and ISV customers, as
well as the license by eight OEM and ISV customers of the Company's TrueDoc
technology. Revenues from product sales to end users and distributors for the
fiscal year ended September 30, 1995 declined by approximately $1.4 million, or
35.2%, to $2.6 million, from $4.1 million for the fiscal year ended September
30, 1994, as a result of the Company's withdrawal from the computer software
reseller channel beginning in fiscal year 1993. Revenue from sales to corporate
end users and foreign distributors contributed the majority of revenue in this
category for the first time in the fiscal year ended September 30, 1995.
Gross Profit. Gross profit for the fiscal year ended September 30, 1995
decreased by $142,000, or 1.2%, to approximately $7.4 million, compared to
approximately $7.5 million for the fiscal year ended September 30, 1994. Gross
profit as a percentage of revenues for the fiscal year ended September 30, 1995
increased to 82.4%, compared to 76.6% for the fiscal year ended September 30,
1994. The increase in gross profit as a percentage of revenue reflects the
decline in the costs of product sales to end users and distributors in the
fiscal year ended September 30, 1995 to $500,000, compared to approximately $1.4
million in the fiscal year ended September 30, 1994, arising from a decline in
royalties paid on products sold in the domestic computer software reseller
channel. The Company also realized a reduction in expenses resulting from the
closing of its Clinton, Massachusetts disk duplication and distribution
facility.
Marketing and Selling. Marketing and selling expenses for the fiscal year
ended September 30, 1995 remained relatively constant at approximately $3.3
million, compared to fiscal year ended September 30, 1994, although a greater
percentage of marketing and selling expenses in the fiscal year ended September
30, 1995 were in the area of OEM and ISV sales and marketing activities than in
the fiscal year ended September 30, 1994.
Research and Development. Research and development expenses for the fiscal
year ended September 30, 1995 decreased by $463,000, or 30.2%, to approximately
$1.1 million, compared to approximately $1.5 million for the fiscal year ended
September 30, 1994. The decrease in research and development expenses was due to
the full year impact of the Company's decision to restructure its type design
group in the prior fiscal year. The decrease in research and development
expenses related to the design of new type products was offset in part by an
increase in personnel in the Company's engineering group, which is responsible
for developing software products such as the Company's enabling technologies and
TrueDoc.
General and Administrative. General and administrative expenses for the
fiscal year ended September 30, 1995 decreased by $20,000, or 1.6%, and remained
at approximately $1.3 million for the fiscal year ended September 30, 1995 as
compared to the fiscal year ended September 30, 1994.
The Company's effective tax rate for the fiscal year ended September 30,
1995 was 6.5% compared to 13.6% for the fiscal year ended September 30, 1994,
reflecting foreign withholding taxes and its utilization of available net
operating loss and tax credit carryforwards for federal and state income tax
purposes. At September 30, 1995, the Company had available net operating loss
carryforwards for income tax purposes of approximately $10.3 million and federal
tax credit carryforwards of approximately $2.0 million.
YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO YEAR ENDED SEPTEMBER 30, 1993
Revenues. Revenues for the fiscal year ended September 30, 1994 decreased
by approximately $7.6 million, or 43.6%, to approximately $9.8 million, compared
to approximately $17.4 million for the fiscal year ended September 30, 1993.
Revenues from product sales to OEM and ISV customers for the fiscal year ended
September 30, 1994 decreased by approximately $4.7 million, or 44.8%, to
approximately $5.8 million, from approximately $10.5 million for the fiscal year
ended September 30, 1993, as a result of a sharp decline in typeface prices, as
well as the lack of new product introductions in the area of OEM and ISV
enabling technologies. Revenues from product sales to end users and distributors
for the fiscal year ended September 30, 1994 decreased by approximately $2.8
million, or 41.1%, to approximately $4.1 million, from approximately $6.9
million for the fiscal year ended September 30, 1993, due to the Company's
continuing withdrawal from the computer software reseller channel. In the fiscal
year ended September 30, 1994, the Company continued a shift in strategic focus
which commenced in approximately July 1993 to concentrate the
17
<PAGE> 20
efforts of the Company on the development and sale of technology and products to
OEM and ISV customers and to curtail product distribution through the computer
software reseller channel. In conjunction with this shift in strategic focus,
the Company reorganized its operations, reduced its workforce, changed senior
management and restructured its type design group.
Gross Profit. Gross profit for the fiscal year ended September 30, 1994
decreased by approximately $3.6 million, or 32.5%, to approximately $7.5
million, compared to approximately $11.2 million for the fiscal year ended
September 30, 1993, as a result of the corresponding decrease in revenues. Gross
profit as a percentage of revenues for the fiscal year ended September 30, 1994
increased to 76.6%, compared to 64.0% for the fiscal year ended September 30,
1993, reflecting sales of a substantial amount of end user inventories through
the domestic computer software reseller channel during fiscal 1993 at sharply
discounted levels. The increase in gross profit as a percentage of revenues was
offset, in part, by minimum royalty commitments due to third party licensors in
the fiscal year ended September 30, 1994.
Marketing and Selling. Marketing and selling expenses for the fiscal year
ended September 30, 1994 decreased by approximately $5.7 million, or 63.3%, to
approximately $3.3 million, compared to approximately $9.1 million for the
fiscal year ended September 30, 1993, as a result of the Company's curtailment
of product distribution through the computer software reseller channel, which
had accounted for the majority of sales and marketing personnel, as well as
advertising and promotional costs.
Research and Development. Research and development expenses for the fiscal
year ended September 30, 1994 decreased by approximately $2.0 million, or 56.6%,
to approximately $1.5 million, compared to approximately $3.5 million for the
fiscal year ended September 30, 1993. The decrease in research and development
costs was due to the Company's decision to restructure its type design group as
part of its shift in strategic focus.
General and Administrative. General and administrative expenses for the
fiscal year ended September 30, 1994 decreased by approximately $1.7 million, or
57.4%, to approximately $1.3 million, from approximately $3.0 million for the
fiscal year ended September 30, 1993, reflecting the reduction in the number of
administrative personnel which occurred in connection with the Company's
business reorganization.
During the fiscal year ended September 30, 1994, the Company recorded a
restructuring charge totalling $365,000 relating to the reorganization of its
operations, principally consisting of severance pay for terminated employees,
and a loss of $53,000 recognized on the disposition of certain property and
equipment.
The Company's effective tax rate for the fiscal year ended September 30,
1994 was 13.6% compared to 7.1% for the fiscal year ended September 30, 1993,
reflecting foreign withholding tax and its utilization of available net
operating loss and tax credit carryforwards for federal and state income tax
purposes. At September 30, 1994 the Company had available net operating loss
carryforwards of approximately $12 million, and federal tax credit carryforwards
of approximately $1.9 million.
18
<PAGE> 21
QUARTERLY RESULTS
The following table sets forth certain consolidated statements of
operations data for each of the Company's last ten quarters during the period
ended June 30, 1996. This quarterly information has been prepared on the same
basis as the annual information presented elsewhere in this Prospectus and, in
management's opinion, reflects all adjustments, consisting only of normally
recurring adjustments, necessary for the fair presentation of financial
condition and results of operations for these periods. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------------
MARCH SEPT. MARCH SEPT. MARCH
31, JUNE 30, 30, DEC. 31, 31, JUNE 30, 30, DEC. 31, 31, JUNE 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $2,995 $2,853 $2,222 $2,276 $2,352 $ 2,422 $1,920 $2,355 $2,706 $2,705
Cost of
revenues 732 641 591 273 457 337 512 411 356 452
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross
profit 2,263 2,212 1,631 2,003 1,895 2,085 1,408 1,944 2,350 2,253
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating
expenses:
Marketing
and
selling 753 686 863 740 808 883 833 978 1,106 1,039
Research
and
development 351 294 322 255 264 283 269 331 333 347
General and
administrative 278 349 325 266 369 404 222 385 399 377
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
operating
expenses 1,382 1,329 1,510 1,261 1,441 1,570 1,324 1,694 1,838 1,763
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating
income
(loss) 881 883 121 742 454 515 84 250 512 490
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Other income
(expense),
net (15) (13) (1) (2) (14) (23) 50 17 (9) (35)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Provision for
(benefit
from)
income
taxes 55 7 57 17 40 43 18 (471) (37) (49)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income
(loss) $ 811 $ 863 $ 63 $ 723 $ 400 $ 449 $ 116 $ 738 $ 540 $ 504
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company's European business is significant and has historically been
negatively affected during the three months ended September 30 due to the summer
closing or slowdown of several European customers. In addition, the timing of
OEM and ISV revenues is difficult to forecast and may vary from quarter to
quarter due to a number of factors including new product developments,
announcements of products by the Company, announcements of its competitors, or
its customers, and delays in customer purchases in anticipation of industry
developments. Moreover, the Company does not operate with a significant backlog
and often tends to realize a disproportionate share of its revenues in the last
few weeks of a fiscal quarter, thereby impairing the Company's ability to
accurately forecast quarter-to-quarter sales results. Due to the foregoing
factors, it is likely that in one or more future fiscal quarters the Company's
operating results may be below the expectations of public market analysts and
investors. Such an event would have a material adverse effect on the market
price of the Class A Common Stock.
The Company believes that quarter to quarter comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
19
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through cash flow from
operations, the private sale of equity securities, bank indebtedness and the
Bridge Loans. See "Certain Transactions -- Bridge Loans." The Company's
operating activities used cash of approximately $1.5 million in the fiscal year
ended September 30, 1993, and provided cash of approximately $339,000 and
$248,000 for the fiscal years ended September 30, 1994 and 1995, respectively.
The Company's investing activities used cash of $26,000, $65,000 and $137,000
for the fiscal years ended September 30, 1993, 1994 and 1995, respectively. The
Company's financing activities provided approximately $2.3 million in cash in
fiscal year 1993, primarily from the sale of preferred stock, and used cash of
$688,000 and $242,000 in fiscal years 1994 and 1995, respectively, to fund a net
reduction of outstanding debt. As of June 30, 1996, the Company had cash and
cash equivalents of $686,000 and working capital of approximately $1.9 million.
Additionally, as of June 30 1996, the Company had approximately $1.2 million in
outstanding long and short-term indebtedness, of which $424,000 was outstanding
under its line of credit and equipment loan facilities with a bank, $156,000
constituted outstanding capitalized lease obligations and $626,000 constituted
outstanding indebtedness, including accrued interest under the Bridge Loans. The
bank credit facilities consist of a $1.0 million working capital line, with
availability based on a percentage of accounts receivable, and a $500,000
equipment line. All such indebtedness will be repaid out of the proceeds of the
Offering. See "Use of Proceeds."
At June 30, 1996, the Company recorded a net deferred tax asset of
$758,000, related principally to the Company's federal and state net operating
loss carryforwards. As of June 30, 1996, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately $8.7
million, and federal tax credit carryforwards of approximately $2.2 million.
These loss carryforwards are available to reduce federal and state taxable
income in future years. The Company has established a partial valuation
allowance against its deferred tax assets to reflect uncertainties with respect
to the full realization of such assets. In determining the amount of valuation
allowance required, the Company considers numerous factors including historical
profitability, estimated future taxable income and the volatility of the
industry in which it operates. See Note 4 to Notes to the Consolidated Financial
Statements.
The Company believes that the cash generated from the proceeds of this
Offering, cash from operations and current cash balances will be sufficient to
meet the Company's operating capital requirements for at least the next 12
months. There can be no assurance, however, that the Company will not require
additional financing in the future. If the Company were required to obtain
additional financing in the future, there can be no assurance that sources of
capital will be available on terms favorable to the Company, if at all.
20
<PAGE> 23
BUSINESS
GENERAL
Bitstream develops and markets software products and technologies to
enhance the creation, transport, viewing and printing of electronic documents.
The Company's products and technologies consist of (i) type products, such as
libraries of type designs (fonts) and custom type products; (ii) enabling
technologies, which deliver typographic capabilities to hardware output devices
and software applications; and (iii) TrueDoc, a portable type technology
providing for the efficient distribution of text, with fidelity, in a highly
compressed format. The Company's enabling technologies and TrueDoc allow
text-based digital information to maintain its intended appearance in any
computing environment. In addition, beginning in the first half of 1997, the
Company expects to market a family of TrueDoc-enhanced portable document
products that are based upon Novell's portable document technology, Envoy, and
provide a portable document solution that addresses both text and graphics in a
simplified and resource-efficient application. Pursuant to the Envoy License,
the Company has obtained from Novell certain rights to market and distribute
Envoy. The Company primarily licenses its products and technologies to OEMs and
ISVs for inclusion in their output devices, embedded systems, applications,
Internet authoring tools, World Wide Web browsers and other products.
Bitstream was founded in 1981 as a digital type supplier to computer
hardware and software developers. The Company's library of type products is used
by OEMs, ISVs and end users around the world in the creation of electronic
documents. The Company was also an early developer of typographic enabling
software for hardware and software developers. Its font processor products are
used to provide type scaling functionality to operating systems, network servers
and a wide variety of computer printers and other output devices. Recently, the
Company has focused its product development and marketing efforts on technology
solutions that address the font-related issues of document portability in the
Internet and corporate intranets.
INDUSTRY BACKGROUND
The rapid growth in the use of personal computers, advanced software
applications and laser printers has dramatically transformed the document
creation, production and distribution process, giving rise to the widespread use
of word processing and desktop publishing applications. Underlying the growth in
word processing and desktop publishing were enabling technologies such as page
description languages, printer control languages and outline font technologies.
Adobe Systems Corporation's PostScript Type One format ("Type One"), the
original outline font technology, gained acceptance among graphic artists and
the high-end electronic publishing market due to the technology's close links to
high-resolution output devices used in service bureaus and publishing houses.
TrueType was developed by Apple as an alternative outline font technology to
Type One and is integrated into the Windows and Macintosh operating systems.
While capable of producing high-quality printed images and documents, these
technologies were designed to operate as part of stand-alone systems. As a
result, users were required to invest in expensive hardware and software
combinations to enable competing technologies to co-exist and work together in
the same environment. The problems presented by such competing standards have
been further complicated by the adoption of multi-vendor client/server network
architectures and the advent of new distribution media, including the Internet,
corporate intranets, and new classes of information appliances.
The increased use of distributed client/server network architectures in the
1990s has resulted in complex computing environments comprised of mixed
operating systems and multiple networking protocols. To create, transport, view
and print text-based digital information in such an environment, while
preserving the appearance intended by the document's author, each individual
computer must have resident on it specific font software and hardware drivers to
display or print the document as the author intended. If a user's system should
lack a particular typeface used by the author or attempt to output a document to
a device that differs from the device on which the document was originally
created, the user's end-product often lacks the appearance intended by the
creator. For example, if an output device prints a document with a font used in
substitution of the author's original font, a complete loss of original
pagination or formatting within the document can often result. Such a result
would make it difficult, if not impossible, for multiple users to review and
comment collaboratively on the same document. Difficulties in retaining text
integrity can be further
21
<PAGE> 24
complicated when users try to incorporate non-Latin fonts such as Kanji, Greek
or Hebrew, because font substitution for non-Latin fonts is typically not
available in most operating systems and output devices.
Currently, techniques used to present text and graphics are based on
existing desktop publishing technologies and, when used in new distribution
media, often result in a loss of visual integrity, degraded system performance,
or both. To efficiently deliver digital information that retains the author's
intended visual impression, computer systems must utilize enabling technologies
that reduce file size, minimize bandwidth consumption and operate reliably
across heterogeneous computing environments.
THE BITSTREAM SOLUTION
Bitstream markets products and technologies that provide the ability to
create, view, transport and print documents without regard to the specific
computing platforms, operating systems or resident applications used to create
or view the original document. The Company's enabling technologies and TrueDoc
allow text-based digital information to maintain its intended appearance in any
computing environment. Based upon technology developed over the last six years,
Bitstream's enabling technologies and its TrueDoc portable type technology allow
OEMs and ISVs to embed compact, portable type information into output devices,
embedded systems, applications, Internet authoring tools, World Wide Web
browsers and other products. In addition, with TrueDoc-enhanced Envoy
technology, the Company expects to provide a portable document solution that
addresses both text and graphics in a simplified and resource-efficient
application.
STRATEGY
Bitstream's goal is to become the leading supplier of type products,
enabling technologies and portable document products for the creation,
transport, viewing and printing of electronic documents. Key elements of the
Company's strategy include the following:
Maintain Technology Leadership. Since its founding over 15 years ago,
Bitstream has played a leading role in the development of industry-standard type
products and enabling technologies (e.g. font processing software). Recently,
Bitstream has been actively developing font portability and compression
technology. The Company has built substantial expertise in digital type design
and production, technical font formats, and font portability and compression
software. Bitstream intends to continue to develop or acquire technology to
support its leadership position in these areas.
Expand OEM and ISV Distribution Channels. In fiscal year 1993, the Board
decided to curtail product distribution through the computer software reseller
channel and to concentrate the efforts of the Company on the development and
sale of technology and products to OEM and ISV customers. The Company believes
that marketing to OEMs and ISVs provides it with the opportunity to build a base
of revenue and to minimize production, marketing and inventory costs. The
Company plans to continue to place significant emphasis on building its OEM and
ISV customer base.
Extend Technology to New Markets. The Company believes that certain
features of its products such as their small file and application size, high
typographic quality, performance, system scalability and cross-platform
portability will facilitate their adaptation to new and emerging markets. These
markets include the Internet, corporate intranets, embedded systems,
multi-function devices (e.g. combined printer/fax/copiers) and information
appliances. Bitstream is currently developing, adapting and marketing its
enabling technologies and type products to third parties whose products address
these new and developing markets.
Promote and Expand the Use of Portable Documents. As the use of the
Internet and corporate intranets grows, the Company believes that the need for
efficient portable document technology will increase. The Company intends to
promote the use of TrueDoc-enhanced Envoy technology in a variety of
communications and electronic publishing-related applications and to seek to
establish Envoy as a preferred portable document solution.
Support Industry Standards. Bitstream's products have been designed to
support existing typographic standards, such as TrueType and Type One, and to be
embedded within full-featured products produced by OEMs and ISVs. The Company's
products have also been designed to function in multi-platform computing
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environments, including Windows, UNIX and Macintosh. The Company plans to
continue to promote the use of its products in multi-vendor configurations and
is a member of the World Wide Web Consortium and the Unicode Consortium.
PRODUCTS
The Company's products and technologies consist of (i) type products, such
as libraries of type designs (fonts) and custom type products; (ii) enabling
technologies, which deliver typographic capabilities to hardware output devices
and software applications; and (iii) TrueDoc, portable type technology providing
for the efficient distribution of text, with fidelity, in a highly compressed
format. In addition, beginning in the first half of 1997, the Company expects to
market a family of TrueDoc-enhanced portable document products that are based
upon Novell's portable document technology, Envoy, and provide a portable
document solution that addresses both text and graphics in a simplified and
resource-efficient application.
Type Products
Bitstream has developed a library of over 1,400 digital typefaces
deliverable in industry-standard font formats (such as TrueType or Type One).
Approximately 1,200 of these typefaces are for use with English or other western
European language-based computer systems. This large number of typefaces is
necessary to support OEMs and ISVs focused on the graphic arts market, who are
accustomed to having a wide variety of type designs to choose from. The
remainder of the Company's type designs are non-western language typefaces such
as Kanji, Greek, Chinese, Korean, Russian, Hebrew and Arabic that are marketed
only to OEM and ISV customers. In addition to typefaces, the Company also offers
custom type services to its customers. Depending on the needs of the client, the
Company can digitize corporate logos, modify existing typeface designs, add
special characters to typefaces and create new typefaces. The Company's custom
type services are marketed to its OEM, ISV and large corporate customers.
Bitstream has developed its own proprietary type product design software
tools. These tools enable the Company's type product engineers to develop and
expand the Company's library of type products and to generate custom type
products in an efficient and cost-effective manner. By using its own tools,
Bitstream can largely avoid licensing or paying royalties for the use of third
party development tools. In addition, the Company believes that its design tools
improve its competitive position in the marketplace by assisting the Company in
adapting its products rapidly to the specific requirements of its customers.
In May 1996, the Company introduced a new multi-lingual type product called
Cyberbit. Cyberbit consists of a group of typefaces deliverable in TrueType
format that contain characters from the majority of the world's languages.
Cyberbit allows for the authoring, distributing, viewing and printing of
multi-lingual electronic documents on computer systems that typically do not
incorporate non-Western language fonts.
Enabling Technologies
The Company's enabling technologies consist of font processors (also known
as type scalers or rasterizers) in a modular architecture that provide OEM and
ISV customers with a complete type processing subsystem for integration into
their hardware or software products. Font processors are a necessary component
in laser printers and operating systems because they interpret type information
stored within a document and generate the indicated characters in the required
size and resolution as determined by the application, the output device or
user-defined specifications.
The modular architecture of the Company's "4-in-1" enabling technology
provides software hooks to allow OEMs and ISVs to incorporate font scaling
technologies into their products. The four font scaling technologies provided
for are the two industry standard font formats (TrueType and Type One), the
resident fonts used in Hewlett-Packard Company LaserJet laser printers, and a
Bitstream TrueDoc-based type rasterizer that processes Bitstream-supplied
resident font sets. In addition, this 4-in-1 architecture includes software that
routes incoming typeface data to the appropriate processor, and prepares the
final rasterized characters for imaging by an output device or computer screen.
The Company markets this technology, under the name "Bitstream 4-in-1 TrueDoc
Printing System," to OEM printer manufacturers and also markets a slightly
modified version, the "Bitstream 4-in-1 TrueDoc Imaging System," to ISV software
developers.
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TrueDoc
TrueDoc is a portable type compression technology designed for electronic
document distribution. OEMs and ISVs license and incorporate TrueDoc into their
document creation and viewing products to achieve the reliable, compact and
efficient recording, transport, viewing and printing of typographic information
regardless of whether the fonts used for the original creation of the document
are resident on the recipient's system. TrueDoc has been engineered to be small
in file and application size, to comply with all industry font standards, and to
be cross-platform compatible.
TrueDoc is composed of two main software components. The TrueDoc Character
Shape Recorder, approximately 55 kilobytes in size, captures character shapes
from a font processor, such as TrueType or Type One, and creates a portable font
resource ("PFR") that is transportable across networks or the Internet.
TrueDoc's Character Shape Player, approximately 45 kilobytes in size, recreates
the type shapes stored in the PFR and displays the text in a manner that
maintains the integrity of the original type shapes. The Company believes that
TrueDoc's small file size and efficient playback capabilities present advantages
in applications where limitations on bandwidth and memory are significant
factors.
As of June 30, 1996, TrueDoc was licensed to 17 OEMs and ISVs. In June
1996, the Company entered into a licensing agreement with Spyglass pursuant to
which Spyglass licensed the TrueDoc Character Shape Player (viewing component)
from the Company. The Company anticipates that Spyglass will integrate TrueDoc's
Character Shape Player into the browser component of Spyglass' Web Technology
Kit. In addition, in June 1996, the Company entered into a licensing agreement
with Oracle pursuant to which Oracle licensed the Company's TrueDoc technology.
The Company anticipates that Oracle will incorporate TrueDoc into its World Wide
Web navigation tool, Power Browser, which Oracle markets for publishing and
viewing data on corporate intranets and on the Internet. Although the Company
expects that it will receive no or only nominal royalty payments under these
agreements, the inclusion of TrueDoc viewing technology into Spyglass' and
Oracle's World Wide Web browser products or navigation tools will create an
installed TrueDoc user base of these two companies' customers. The Company
believes that this will stimulate demand by ISVs to license the recording
component of TrueDoc, the Character Shape Recorder, for use in their Internet
and corporate intranet applications on a royalty basis. There can, however, be
no assurance that Spyglass or Oracle will include TrueDoc in its products or
that the Company will achieve any commercial benefit from the inclusion of
TrueDoc in such products. The Company is also pursuing similar arrangements with
other developers of World Wide Web browser products or navigation tools.
Portable Document Products
Portable document products are software applications that provide users
with the ability to create electronic documents that can be shared, viewed,
annotated, indexed, searched and printed by other users regardless of the
computer system or application used to create the documents. Pursuant to the
Envoy License, Bitstream has obtained certain rights to market and distribute
Novell's portable document technology, Envoy. Through a separate license with
Tumbleweed Software Corporation ("Tumbleweed"), the Company has obtained certain
rights to market and distribute Tumbleweed's Envoy enhancement products,
including Tumbleweed Publishing Essentials.
Envoy enables a user to transport, view and print digital documents that
combine text and graphics. These documents can contain photographs, graphic
elements, color and detailed text, which historically have been difficult to
disseminate across networks due to large file size and inability to be
transmitted with full integrity. Pursuant to a separate license from the Company
to Novell, Envoy incorporates TrueDoc for type recording, transport and display,
regardless of whether the typefaces used to create that document are available
on the user's workstation. Through the use of the Envoy "driver" application,
Envoy allows document creators to quickly and easily convert existing electronic
documents (from word processing software, graphics software, spreadsheets, etc.)
into Envoy format. These documents can then be distributed throughout the
enterprise and viewed by other users, through the use of the Envoy "viewer"
application, with the original formatting intact. The Envoy viewer also allows
users to annotate, print and redistribute Envoy documents. The Envoy driver and
viewer applications are available to both the Microsoft Windows and
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<PAGE> 27
Macintosh platforms. Thus, users can create Envoy documents on a Macintosh and
share them with Windows 3.1 or Windows 95 users or vice versa.
Tumbleweed's Publishing Essentials is a set of enhancements to Envoy that
provides advanced document publishers and viewers with more sophisticated
document processing, formatting and navigation capabilities. These include the
ability to (i) generate indices for the content of Envoy documents; (ii) perform
searches through Envoy documents; (iii) automatically generate outlines of Envoy
documents; (iv) convert other portable documents to Envoy format; and (v)
generate hypertext links between Envoy documents and to Hypertext Markup
Language ("HTML") documents that allow viewers to navigate through them.
The Envoy License grants the Company the exclusive right to distribute
Envoy portable document technology to companies that incorporate Envoy in their
own products, such as OEMs and ISVs (other than Corel Systems Corporation, as to
which Novell also has the rights to distribute Envoy). The Envoy License also
grants the Company non-exclusive rights to distribute Envoy to end users.
The Envoy License expires on November 1, 2001, and renews on a year-to-year
basis thereafter unless terminated by either party after November 1, 2001 on 90
days' written notice. The Envoy License is subject to earlier termination in the
event of breach by the Company, if the Company develops, markets or sells a
software product that directly competes with Envoy, if there is a "change of
control" (as defined in the Envoy License) of the Company, or in the event that
Novell determines that Envoy infringes another party's patent, trademark or
copyright rights. Bitstream pays Novell a royalty based on a percentage of
revenues, with a required annual minimum royalty. In addition, the Envoy License
may be terminated upon one year prior written notice given after Novell sells
Envoy or determines to discontinue the Envoy product. In the event, however,
that Novell determines to sell or discontinue Envoy it must make a proposal to
the Company to purchase Envoy, which must remain open for 10 business days. If
the Company does not accept such proposal to purchase within such period, Novell
shall be free to offer Envoy to other parties. However, if Novell offers to sell
or engages in discussions to sell Envoy to other parties on terms materially
different than those set forth in the original proposal made to the Company,
Novell is obligated to engage the Company in good faith negotiations regarding
the purchase by the Company of Envoy.
The Company is responsible for funding required future development costs
for Envoy. The Company expects to commence commercial shipments of Envoy in the
first half of 1997, although there can be no assurance in this regard.
In June 1996, the Company obtained a non-exclusive license from Tumbleweed
to market and distribute Tumbleweed Publishing Essentials and several other
products and technologies which enhance Envoy-based applications (the
"Tumbleweed License"). The Tumbleweed License is for a term of three years and
provides for an initial minimum royalty payment, which is credited against
future royalties. Royalties are based in part on revenues generated from sales
of Envoy by the Company to OEM and ISV customers. The Tumbleweed License can be
terminated by either party on 30 days' prior notice.
Future Products
The Company has identified other emerging and complementary areas for which
it believes its products will be well suited. Bitstream is currently developing
products to enhance the performance of text-based document creation, transport,
viewing and printing within such markets. Products under development and future
markets being addressed include:
- Server-based products that supply typefaces and enabling technologies to
network devices including workstations and printers. Such products are
being developed to simplify network maintenance, improve application and
network performance and help simplify copyright compliance. The first of
these products, expected to commence shipment in late 1997, is the
Bitstream Advanced Font Services for Networks ("AFSN") product. This
product is expected to work with the Netware Direct Print Services
("NDPS") features of the "Green River" release of Novell's Netware
network operating system. Green River is expected to ship in late 1996.
NDPS is expected to ship in mid 1997.
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- TrueDoc-based utilities for the graphic arts market that address font
portability issues in the electronic delivery of desktop publishing
documents.
- Type products, enabling technologies and versions of TrueDoc for
integration into new products and applications such as set-top boxes,
personal digital assistants and other information applications based on
new programming languages or operating systems, such as Sun Microsystems,
Inc.'s Java.
The Company has not determined the approximate time when such future products,
if completed, may be released for future sale, if at all. There can be no
assurance that any of the Company's planned or contemplated products will reach
commercialization or, if released for sale, will gain market acceptance, or that
the markets targeted by the Company will develop as anticipated.
MARKETING AND SALES
The principal objective of the Company's marketing strategy is to continue
to expand the sale of the Company's products and technologies to OEMs and ISVs
who integrate the Company's software into their own products. OEM and ISV
relationships range from the license of a small group of typefaces to agreements
whereby an entire range of type products and/or technologies are incorporated
into the customer's hardware or software products. As new opportunities arise,
particularly in the newly emerging areas of corporate intranets and portable
document software, the Company intends to evaluate other marketing approaches.
This may include marketing through the value added reseller channel serving the
networking market or increased direct corporate and international marketing.
The Company's sales organization, as of June 30, 1996, consisted of 10
people focused on OEM and ISV sales and six people focused on corporate direct
sales. The Company's sales efforts are managed from its corporate headquarters
in Cambridge, Massachusetts. In addition, the Company maintains a European sales
headquarters in Amsterdam, The Netherlands and sales offices in Burlingame,
California, Beaune, France and Reading, England. Finally, the Company has a
sales agent based in Tokyo to facilitate OEM sales to Japanese hardware
manufacturers. The Company's direct sales personnel receive a base salary plus
commissions based on meeting annual sales targets, with additional commissions
for sales in excess of annual targets.
The Company seeks to enhance its relationships with existing customers
through a four-person technical support team that works with customers or
prospects to support sales and to facilitate the implementation and use of the
Company's software products and technologies. Marketing activities are carried
out by a team of six people located at the Company's headquarters in Cambridge,
Massachusetts. In addition, the Company promotes its products through attendance
and exhibition at major industry trade shows. The Company intends to expand its
sales and marketing efforts in the future.
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CUSTOMERS
The Company licenses type products, enabling technologies and TrueDoc to a
wide variety of OEM and ISV customers. In addition, the Company sells custom and
other type products directly to corporate customers. No single Bitstream
customer accounted for 10% or more of the Company's revenues for any of the
three fiscal years ended September 30, 1995, except for one customer which
accounted for approximately 13% of revenues in fiscal 1993. From time to time,
product sales to large customers during a single fiscal quarter may constitute
more than 10% of Company revenues for such quarter. In the future, the Company
intends to broaden its customer base through expanded product offerings and
increased marketing efforts of current and planned products. Customers which are
representative of the various industry groups served by the Company include
those listed below.
<TABLE>
<CAPTION>
<S> <C> <C>
---------------------------------------------------------------------------------------------
ISVS
Application Developers Graphic Arts Operating Systems
Accent Software International Ltd. Barco Graphics N.V. Apple Computer, Inc.
Corel Systems Corporation DaiNippon Screen QNX Software
Hummingbird Communications Inc. Manufacturing Co., Systems Ltd.
Macromedia, Inc. Ltd. Intergraph Silicon Graphics, Inc.
Corporation Sun Microsystems, Inc.
Interleaf, Inc.
---------------------------------------------------------------------------------------------
OEMS
Printer Companies Broadcast Television
Hewlett-Packard Company Seiko Epson Corporation Victor Company of Japan (JVC)
Kyocera Corp. Sharp Electronics Corporation The Walt Disney Company
------------------------------------------------------------------------------------------------
CORPORATE END USERS
CNA Insurance Company Kemper Financial Services TV Guide
Deluxe Corporation Price Waterhouse L.L.P.
---------------------------------------------------------------------------------------------
</TABLE>
RESEARCH AND PRODUCT DEVELOPMENT
Bitstream is committed to developing innovative software to enhance
electronic document creation, transport, viewing and printing. To accomplish
this goal, the Company has invested, and expects to continue to invest,
significant resources in research and development. The Company's research and
development activities are centered around advancing the Company's software
products for its OEM, ISV and corporate customers. The Company maintains
specific expertise in the areas of font formats, multi-lingual fonts, font
portability, font compression and font processing technology.
The Company emphasizes cross-platform portability, small file and
application size and extensibility to new technologies in its software
development. To support these design objectives, the Company employs advanced
software development techniques. For example, the Company is developing software
using the Java programming language to adapt its products to devices and
software applications written to take advantage of Java's advanced structure and
cross-platform portability.
As of June 30, 1996, the Company employed 16 individuals who engage in
research and development activities. Of these, 11 focus on type product
development and five work on developing enabling technologies and TrueDoc. For
the fiscal years ended September 30, 1993, 1994 and 1995, the Company's research
and development expenditures were $3.5 million, $1.5 million, and $1.1 million,
respectively.
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COMPETITION
The markets in which the Company participates are intensely competitive,
evolving and subject to rapid technological change. The Company expects
competition to persist and increase in the future. Certain of the Company's
competitors, including Adobe Systems Corporation ("Adobe") and Agfa Division,
Miles Inc. ("Agfa"), have greater name recognition, a larger customer base and
significantly greater financial, technical and marketing resources than the
Company. The Company's products compete with the solutions offered by a variety
of companies, including other suppliers of enabling technologies, software
application developers, and vendors of computer operating systems. Moreover, the
market for the Company's enabling technologies and products may be adversely
impacted to the extent that computer hardware, operating system and application
software vendors incorporate similar functionality or bundle competitive
offerings with their products and thereby reduce the market for the Company's
technology or products. The Company's markets are the subject of intense
industry activity, and it is likely that a number of software developers are
devoting significant resources to developing and marketing technology and
products that may compete with the Company's technology and products.
The competition for the Company's sales of type products to OEM and ISV
customers generally comes from a number of comparably sized or smaller companies
offering their own type libraries and custom type services. Competition to the
Company's enabling technologies principally comes from Agfa with its Universal
Font Scaling Technology ("UFST"). UFST has a similar architecture to the
Company's 4-in-1 enabling technology product.
The competition for TrueDoc includes software from Ares Software Corp.,
recently acquired by Adobe, and Agfa, which offer compression features for
platform-independent electronic documents. When Bitstream begins to market
TrueDoc-enhanced Envoy portable document products, the Company expects that it
will face competition from Adobe's Acrobat products.
The Company also faces competition in its efforts to have TrueDoc accepted
and supported by Internet-browser companies. In March 1995, Adobe and Netscape
Communications Corporation ("Netscape") announced their intention to integrate
Adobe technology into Netscape products, including plans for a future version of
Netscape's Internet browser product, Netscape Navigator, that will include the
capability to view documents created by Adobe's Acrobat portable document
software product.
Future sales of the Company's products will depend upon the Company's
ability to develop or acquire, on a timely basis, new products or enhanced
versions of its existing products that compete successfully with products
offered by developers of competing technologies. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition and results of
operations.
SHIFT IN STRATEGIC FOCUS
Following development of the Company's first font scaling technology in
1990, the Company pursued a strategy of initially licensing such technology for
relatively nominal initial cost to OEMs and ISVs with the goal of establishing
it as a standard in DOS-based software applications. The Company's principal
marketing strategy at that time was to sell font products as well as
enhancements and extensions, directly to end-users, through the computer
software reseller channel. However, due principally to intense competition, the
Company experienced a significant buildup of retail inventories that had been
shipped to domestic distributors during 1992 and 1993 and later were returned to
the Company.
In fiscal year 1993, the Board decided to curtail product distribution
through the computer software reseller channel and to concentrate the efforts of
the Company on the development and sale of technology and products to OEM and
ISV customers. In conjunction with this shift in strategic focus, the Board
reorganized the Company's operations, changed senior management and restructured
the Company's type design group. The reorganization of operations included,
among other things: (i) the elimination and consolidation of departments, which
resulted in a reduction in the total number of Company employees from
approximately 235 in early 1993 to approximately 60 in late 1994; (ii) the
closing of the Company's disk duplication and
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distribution facility in Clinton, Massachusetts; (iii) the recapitalization of
its financial structure; and (iv) a shift in product development and marketing
emphasis away from the design of new type styles to the development of enabling
technologies, such as TrueDoc. This shift in strategic focus took place over a
period from approximately July 1993 through September 1994.
In connection with this shift in strategic focus, on October 28, 1994, the
Company entered into an Agreement and Plan of Recapitalization (the "Plan") with
certain existing stockholders who forfeited certain liquidation preferences and
redemption rights pursuant to the terms of the Plan. Pursuant to the Plan, the
Company converted three classes of old common stock and five classes of old
preferred stock into the Class A Common Stock and the Class B Common Stock and
four classes of old preferred stock into the Class A Preferred Stock and the
Class B Preferred Stock (collectively, these transactions are hereinafter
referred to as "the Recapitalization"). See "Certain Transactions -- The 1994
Recapitalization."
INTELLECTUAL PROPERTY
The Company relies on a combination of trade secret, copyright, patent, and
trademark laws and contractual restrictions to establish and protect proprietary
rights in its technology. The Company has entered into confidentiality and
invention assignment agreements with its employees, and when obtainable, enters
into non-disclosure agreements with its suppliers, distributors and others so as
to limit access to and disclosure of its proprietary information. There can be
no assurance that these statutory and contractual arrangements will prove
sufficient to deter misappropriation of the Company's technologies or that the
Company's competitors will not independently develop non-infringing technologies
that are substantially similar to or superior to the Company's technology. The
laws of certain foreign countries in which the Company's products are or may be
developed, manufactured or licensed may not protect the Company's products or
intellectual property rights to the same extent as do the laws of the United
States and thus make the possibility of piracy of the Company's technology and
products more likely. The Company believes that, because of the rapid pace of
technological change in the software and electronic commerce markets, legal
protection for its products will be a less significant factor in the Company's
future success than the knowledge, ability and experience of the Company's
employees, the frequency of product enhancements and the ability of the Company
to satisfy its OEM and ISV customers.
The Company's policy is to apply for U.S. patents with respect to its
technology and seek copyright registration of its technology or trademark
registration of its marks from time to time when management determines that it
is competitively advantageous and cost effective to do so. The Company has
rights in three patent applications now pending before the United States Patent
and Trademark Office and each is directed to certain aspects or applications of
the Company's TrueDoc technology. Additionally, the Company has sought foreign
patent rights to certain aspects of its TrueDoc technology by filing an
International Application under the Patent Cooperation Treaty.
EMPLOYEES
As of June 30, 1996, the Company employed 62 persons, including 26 in sales
and marketing, 16 in research and development and 20 in general administrative
functions. Of the Company's 62 employees, 61 are full time and one is part time.
The Company also retains consultants from time to time to assist it with
particular projects for limited periods of time. The Company believes that its
future success will depend in part on its ability to attract, motivate and
retain highly qualified personnel. None of the Company's employees is
represented by a labor union and the Company has not experienced any work
stoppages. The Company considers its employee relations to be good.
FACILITIES
The Company's corporate headquarters is located in Cambridge, Massachusetts
where it currently leases approximately 20,000 square feet under a lease
expiring in 1998, with the right to renew for an additional five years.
Management believes that these facilities are adequate for the Company's current
needs and that
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suitable additional space, should it be needed, will be available to accommodate
expansion of the Company's operations on commercially reasonable terms.
LEGAL PROCEEDINGS
On May 26, 1995, The Friends of the Museum of Printing, Inc. ("the Museum")
filed a lawsuit in the Middlesex County Superior Court of Massachusetts against
the Company in connection with a letter dated July 23, 1992 (the "Letter") from
the Company to the Museum concerning the storage of certain font materials for
the Museum. The Letter provided that the Company would store and maintain the
font materials for a period of two years from the date of the Letter and that
the Company would have no liability to the Museum, over and above the proceeds
of insurance, for damage or loss of any of the font materials, and that neither
the Company nor the Museum would incur any liability to the other for any loss
or damage arising out of their respective rights and obligations set forth in
the Letter. The Museum alleges that after the two year storage period had
expired, the Company disposed of the font materials and that such conduct by the
Company breached the terms of the Letter and violated Chapter 93A of the
Massachusetts General Laws ("Chapter 93A"), which provides, among other things,
that persons found to have engaged in any unfair or deceptive act in the conduct
of a trade or business may be liable for double or treble damages and attorneys
fees (the "93A Claim"). The Museum further demanded an accounting of royalties
the Museum claims are due from the Company for use of the font materials.
The Company believes that its available insurance will cover liability, if
any, incurred by the Company in connection with the above-referenced lawsuit,
except for any liability in respect of the 93A Claim, up to a maximum of $1.01
million, subject to a $10,000 deductible. The Company further believes that its
available insurance will cover one half of any liability incurred by the Company
in excess of $1.01 million to a maximum of $1.8 million. The Company's insurer
is currently paying all of the costs incurred by the Company in defending this
lawsuit. The Company has established a reserve in the amount of its deductible
of $10,000 against any liability resulting from the lawsuit.
The Company cannot ensure that current reserves and insurance coverage will
be sufficient to cover any liability incurred by the Company in connection with
this lawsuit.
Pursuant to a letter dated May 6, 1996, a former director and officer of
the Company asserted that the Company has breached certain obligations he
alleges are due to him under a severance agreement dated May 22, 1991 (the
"Severance Agreement") between him and the Company. The former director and
officer claims that a provision in the Severance Agreement entitles him to
additional shares of Class A Common Stock and a reduction in the exercise price
of options to purchase Class A Common Stock held by him. The Company believes
that these claims are without merit and intends vigorously to contest their
validity. As of August 15, 1996, this former director and officer has not
commenced an action in any court in respect of the claims he has asserted
against the Company under the Severance Agreement.
Except as set forth above, as of the date hereof, the Company is not party
to any material legal proceedings and is not aware of any material threatened
litigation.
DELAWARE REINCORPORATION
The Company was reincorporated in Delaware on May 21, 1996 by merging
Bitstream Inc., a Massachusetts corporation ("Bitstream-Massachusetts") into the
Company, which was a wholly-owned subsidiary of Bitstream-Massachusetts. In
connection with the Delaware Reincorporation, each three outstanding shares of
stock of Bitstream-Massachusetts was converted into two shares of the same class
of stock of the Company. Such conversion is referred to herein as the "2-for-3
Conversion."
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MANAGEMENT
The Company's directors and executive officers and their ages as of June
30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- ---- -------------------------------------------------
<S> <C> <C>
Amos Kaminski(1)....... 67 Chairman of the Board
C. Raymond Boelig...... 42 President, Chief Executive Officer and Director
James D. Hart.......... 38 Vice President, Finance and Administration,
Treasurer and Chief Financial Officer
John S. Collins........ 57 Vice President, Engineering and Development
Geoffrey W. Greve...... 38 Vice President, Type Operations
John S. Seguin......... 41 Vice President, Sales and Marketing
David G. Lubrano(1).... 66 Director
George B. Beitzel(1)... 68 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee and Audit Committee.
Amos Kaminski has been Chairman of the Board since 1991 and a Director of
the Company since 1985. Mr. Kaminski founded Interfid Ltd. ("Interfid"), a
private investment advisory firm, in 1984 and has served as its President and on
its Board of Directors since its formation. Mr. Kaminski is also the founder,
President and Chairman of the Board of Directors of AFA Asset Services, Inc., a
private real estate asset management company.
C. Raymond Boelig has been a director of the Company since May 1, 1996 and
President and Chief Executive Officer of the Company since September 1993. Mr.
Boelig has been employed by the Company since December 1987 and has served most
recently as Chief Operating Officer from July 1993 through September 1993, Vice
President of OEM Sales and Marketing from February 1992 through July 1993 and
Director of OEM Sales and Marketing from January 1990 through February 1992.
James D. Hart has been Vice President, Finance and Administration and Chief
Financial Officer of the Company since May 1, 1996 and Treasurer of the Company
since March 1994. From March 1994 until May 1, 1996, Mr. Hart also served as
Secretary and acting Chief Financial Officer of the Company. Prior to May 1,
1996, Mr. Hart was a Vice President of Interfid and his services were provided
to the Company on an as needed basis by Interfid. Mr. Hart was a Vice President
of Interfid from 1990 until May 1, 1996 and was responsible for selecting,
evaluating, monitoring and negotiating the terms of venture capital investments
made and proposed to be made by Interfid's clients, principally in high
technology areas. See "Certain Transactions -- Interfid."
John S. Collins has been Vice President of Engineering and Development
since 1988. Mr. Collins has been employed by the Company since 1986. Mr. Collins
was the inventor or a co-inventor in respect of a number of the patents held by
the Company relating to font imaging technology. He is the principal inventor of
the Company's TrueDoc technology. Mr. Collins holds a B.Sc. and a PhD in
Electrical Engineering from the University of London.
Geoffrey W. Greve has been Vice President of Type Operations of the Company
since May 1995. Mr. Greve has been employed by the Company since 1987 and
previously served as Director of Production Control from 1990 through May 1995.
John S. Seguin has been Vice President of Sales and Marketing since August
1994. Mr. Seguin served as Vice President and General Manager of XLI Corp., a
corporation engaged in manufacturing printer enhancements, from July 1993
through July 1994, and as Vice President of Sales and Marketing of Howtek, Inc.,
a corporation engaged in manufacturing color imaging products, from November
1987 through July 1993.
David G. Lubrano has been a director of the Company since 1987. Mr. Lubrano
retired in 1985 from Apollo Computer Inc., a corporation engaged in
manufacturing workstations, which he co-founded and where
31
<PAGE> 34
he had been a Senior Vice President of Finance and Administration, Chief
Financial Officer and a director. Mr. Lubrano also serves on the board of
directors of Staples, Inc., a corporation engaged in the retail sale of office
and stationary supplies and products.
George B. Beitzel has been a director of the Company since April 1989. Mr.
Beitzel retired in 1987 from International Business Machines Corporation where
he had been a Senior Vice President and a director. Mr. Beitzel currently serves
on the board of directors of: Bankers Trust New York Corporation, a commercial
bank, Caliber System, Inc., a corporation engaged in providing value-added
transportation, logistics and related information services, Computer Task Group,
Inc., a corporation engaged in providing information technology services,
Datalogix International, Inc., a corporation engaged in providing open,
client/server software solutions, FlightSafety International, Inc., a
corporation engaged in providing training to operators of aircrafts and ships,
Phillips Petroleum Company, a corporation engaged in producing and distributing
petroleum products, Phillips Gas Co., a subsidiary of Phillips Petroleum Company
engaged in natural gas gathering, processing and marketing, Rohm & Haas Co., a
corporation engaged in specialty chemical manufacturing and distribution, TIG
Holdings, Inc., a holding company for a property and casualty insurance group,
and Xillix Technologies Corporation, a corporation engaged in developing and
marketing medical imaging systems for cancer detection.
The Company's By-laws provide that the Board will be elected at the annual
meeting of the stockholders, or at a special meeting of the stockholders in lieu
thereof, and that all directors shall hold office until the next annual meeting
of stockholders, or next special meeting of the stockholders in lieu thereof, or
until their successors are chosen and qualified.
Officers are elected by and serve at the discretion of the Board. There are
no family relationships among the directors or executive officers of the
Company.
BOARD COMMITTEES
The Board has established an Audit Committee and a Compensation Committee.
The Audit Committee reviews the Company's accounting practices, internal
accounting controls and financial results and oversees the engagement of the
Company's independent auditors. The Compensation Committee establishes salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company. The Compensation Committee also administers the
Company's benefit plans and will administer the issuance of stock options and
other awards under the Company's 1996 Incentive Stock Plan to all Company
employees and directors, including the members of such committee. Mr. Lubrano
serves as the Chairman of the Audit Committee and Mr. Beitzel serves as the
Chairman of the Compensation Committee.
DIRECTOR COMPENSATION
For the fiscal year ended September 30, 1995, each director received for
service as director $12,000 in cash compensation, which was payable quarterly in
arrears at the end of each full quarter of service. In addition, on November 30,
1994, each of Messrs. Kaminski, Lubrano and Beitzel was issued (i) 40,000 shares
of Class A Common Stock (as adjusted for the 2-for-3 Conversion) in payment of
$60,000 in accrued and unpaid directors fees due to each of them for services
rendered in fiscal years 1992 through 1994, and (ii) a warrant to purchase
40,000 shares of Class A Common Stock (as adjusted for the 2-for-3 Conversion)
issued under the 1994 Stock Plan (the "Directors' Warrants"). The Directors
Warrants provide that they vest ratably over three years following each full
year of service as director and are exercisable at $0.90 per share, as adjusted.
All such warrants were granted at an exercise price at least equal to the fair
market value of the Class A Common Stock as determined by the Board on the date
of the grant.
For the fiscal year ending December 31, 1996, each director who is not an
employee of the Company will receive $12,000 in cash compensation for service as
a director and Mr. Kaminski will receive additional cash compensation of $50,000
for serving as Chairman of the Board.
32
<PAGE> 35
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid by the Company to its Chief Executive Officer (the "CEO") and
each of the Company's other executive officers who were serving as executive
officers on September 30, 1995 (together with the CEO, the "Named Executive
Officers") whose aggregate salary and bonus exceeded $100,000 for the fiscal
year ended September 30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
---------------------- ------------------- ALL OTHER
NAME AND POSITION SALARY($) BONUS($) OPTIONS/WARRANTS(1) COMPENSATION ($)(2)
- -------------------------------------- --------- -------- ------------------- -------------------
<S> <C> <C> <C> <C>
C. Raymond Boelig..................... 172,692 -- 199,773(3) 1,848
President and Chief Executive
Officer
John S. Collins....................... 114,584 -- 149,830(4) 2,451
Vice President, Engineering and
Development
John S. Seguin........................ 105,000 30,428 66,666(5) 1,530
Vice President, Sales and Marketing
</TABLE>
- ---------------
(1) As adjusted for the 2-for-3 Conversion. Represents options and warrants to
purchase Class A Common Stock with an exercise price of $0.90 per share,
which was the fair market value of the shares at the time of the grant as
determined by the Board, granted on November 30, 1994 pursuant to the 1994
Stock Plan. All options represented expire November 30, 2004 and are fully
vested. All warrants represented expire on November 30, 2001 and are fully
vested. See "-- Option and Warrant Grants in Last Fiscal Year," and
"-- Stock Plans -- 1994 Stock Plan." The Company did not make any restricted
stock awards, grant any stock appreciation rights or make any long-term
incentive plan payouts during the fiscal year ended September 30, 1995.
(2) Represents matching contributions by the Company for the account of the
Named Executive Officer under the Company's 401(k) Plan, and, in the case of
Mr. Collins, deferred compensation of $1,200.
(3) Represents options to purchase 110,000 shares of Class A Common Stock and a
warrant to purchase 89,773 shares of Class A Common Stock. Pursuant to the
Stock Option Agreement entered into by Mr. Boelig with the Company in
connection with the options granted to him under the 1994 Stock Plan, Mr.
Boelig waived all prior rights to purchase stock of the Company including
options to purchase 15,100 shares of Class A Common Stock issued under the
1993 Non Qualified Stock Option Plan.
(4) Represents options to purchase 110,000 shares of Class A Common Stock and a
warrant to purchase 39,830 shares of Class A Common Stock. Pursuant to the
Stock Option Agreement entered into by Mr. Collins with the Company in
connection with the options granted to him under the 1994 Stock Plan, Mr.
Collins waived all prior rights to purchase stock of the Company including
options to purchase 7,581 shares of Class A Common Stock issued under the
1993 Non Qualified Stock Option Plan.
(5) Represents options to purchase Class A Common Stock.
All of the Company's Named Executive Officers are employed on an at will
basis and, except for the compensation arrangements discussed below, none of the
Named Executive Officers is party to any employment agreements with the Company.
Pursuant to an agreement with the Company, for the fiscal year ending December
31, 1996, Mr. Seguin will receive a bonus based on the amount of Company
revenues. Such bonus is set at $12,500 per quarter for revenues meeting the
Company's business plan for the quarter, and will vary based on actual revenues.
In addition, Mr. Seguin will receive additional bonus payments based on a
percentage of annual Company revenues in excess of targeted revenues for the
year. Each of the executive officers may also receive discretionary bonuses as
may be determined by the Compensation Committee. During the three months ended
December 31, 1995, Messrs. Boelig and Collins received discretionary bonuses of
$50,000 and $25,000, respectively.
33
<PAGE> 36
Effective May 1, 1996, James D. Hart entered into an agreement with the
Company pursuant to which he became a full-time employee of the Company, on an
at will basis, and Vice President, Finance and Administration, Treasurer and
Chief Financial Officer. Pursuant to such agreement, Mr. Hart's current annual
salary is $130,000, Mr. Hart received a $15,000 bonus upon accepting employment
with the Company, and he has received a payment of $35,000 to defer the cost of
his relocation from the New York City area to the Boston, Massachusetts area, as
well as a $65,000 loan from the Company. Such loan bears interest at the rate of
6.66% per annum, is payable quarterly, and provides for payment of interest only
until June 30, 1999. The principal balance of such loan is payable in equal
quarterly installments from July 1, 1999 until June 30, 2006, at which time,
such loan is due and payable in full. The principal balance of such loan will be
forgiven by the Company if Mr. Hart's employment is terminated by the Company
without cause or due to his death or disability. Such loan shall become
immediately due and payable if Mr. Hart voluntarily terminates his employment or
his employment is terminated by the Company for cause. Prior to May 1, 1996, Mr.
Hart's services were provided to the Company on an as needed basis by Interfid.
See "Certain Transactions -- Interfid."
OPTION AND WARRANT GRANTS
The following table sets forth certain information regarding options and
warrants granted during the fiscal year ended September 30, 1995 to the
Company's Named Executive Officers.
OPTION AND WARRANT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT
--------------------------------------------------------------- ASSUMED ANNUAL
TOTAL PERCENT OF RATES OF
OPTIONS AND STOCK PRICE
WARRANTS APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS/WARRANTS EMPLOYEES IN BASE PRICE EXPIRATION ----------------
NAME GRANTED(1) FISCAL YEAR(1)(2) (1)(3) DATE 5% ($) 10% ($)
- --------------------------- ---------------- ----------------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
C. Raymond Boelig(5)....... 110,000 $ .90 11/30/04 62,261 157,781
89,773 11.7% .90 11/30/01 32,892 76,652
John S. Collins(6)......... 110,000 .90 11/30/04 62,261 157,781
39,830 8.8% .90 11/30/01 14,593 34,009
John S. Seguin(7).......... 66,666 3.9% .90 11/30/04 37,733 95,624
</TABLE>
- ---------------
(1) As adjusted for the 2-for-3 Conversion. See "Business -- Delaware
Reincorporation." All such options and warrants were granted under the 1994
Stock Plan and are immediately exercisable. See Footnote 1 to table
contained in "-- Executive Compensation" and "-- Stock Plans -- 1994 Stock
Plan."
(2) Based on an aggregate of 1,706,720 shares subject to options and warrants
granted to employees and directors in the fiscal year ended September 30,
1995.
(3) All options and warrants were granted at an exercise price equal to or
greater than the fair market value of the Class A Common Stock as determined
by the Board on the date of grant.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options or warrants if exercised at the end of the term of the
options or warrant. These gains are based on assumed rates of stock
appreciation of 5% and 10% compounded annually from the date the respective
options or warrants were granted to their expiration date and are not
intended to forecast possible future appreciation, if any, in the price of
the Class A Common Stock. The gains shown are net of the option or warrant
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise of the options or warrants or the sale of the
underlying shares. The actual gains, if any, on the stock option or warrant
exercises will depend on the future performance of the Class A Common Stock,
the holder's continued employment through applicable vesting periods and the
date on which the options or warrants are exercised. The potential
realizable value of the foregoing options and warrants is calculated by
assuming
34
<PAGE> 37
that the fair market value of the Class A Common Stock on the date of grant
of such options or warrants equalled the exercise price of such options or
warrants.
(5) See Footnote 3 to table contained in "Executive Compensation."
(6) See Footnote 4 to table contained in "Executive Compensation."
(7) See Footnote 5 to table contained in "Executive Compensation."
The following table sets forth certain information concerning exercisable
and unexercisable options and warrants to purchase Class A Common Stock held by
each of the Named Executive Officers as of September 30, 1995. None of the Named
Executive Officers exercised any stock options during the year ended September
30, 1995.
AGGREGATED OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/WARRANT VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS OPTIONS/WARRANTS
AT SEPTEMBER 30, 1995 AT SEPTEMBER 30, 1995(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
C. Raymond Boelig................................ 110,000 -- $ 891,000 --
89,773 -- 727,162 --
John S. Collins.................................. 110,000 -- 891,000 --
39,830 -- 322,623 --
John S. Seguin................................... 66,666 -- 539,995 --
</TABLE>
- ---------------
(1) There was no public trading market for the Class A Common Stock on September
30, 1995. Accordingly, solely for purposes of this table, the values in this
table have been calculated on the basis of an assumed initial public
offering price of the Class A Common Stock of $9.00 per share, minus the
exercise price of $.90 per share, multiplied by the number of shares
underlying the option or warrant.
STOCK PLANS
1996 Stock Plan
On May 1, 1996, the Board adopted the 1996 Stock Plan, and on July 1, 1996,
the stockholders of the Company approved the 1996 Stock Plan by written consent.
The objectives of the 1996 Stock Plan are to attract and retain qualified
personnel, to provide additional incentives to directors, officers, and
employees of and consultants to the Company. A total of 666,667 shares of Class
A Common Stock have been reserved for issuance under the 1996 Stock Plan. The
1996 Stock Plan authorizes (i) the grant of options to purchase Class A Common
Stock intended to qualify as incentive stock options under Section 422 of the
Code ("Incentive Options"), (ii) the grant of options that do not so qualify
("Non-Qualified Options"), (iii) the grant of warrants that do not so qualify
and (iv) the grant of stock purchase rights ("Stock Rights").
The 1996 Stock Plan is administered by the Compensation Committee. The
Compensation Committee has full power to select the individuals to whom awards
will be granted, to make any combination of awards to such individuals, and to
determine the specific terms of each award, subject to the provisions of the
1996 Stock Plan. Persons eligible to participate in the 1996 Stock Plan are
directors, officers and employees of and consultants to the Company. Any
director who is a member of the Compensation Committee may receive awards under
the 1996 Stock Plan only upon approval of a majority of the disinterested
members of the Compensation Committee.
The option exercise price of each option granted under the 1996 Stock Plan
shall be determined by the Compensation Committee, but shall not be less than
100% of the fair market value of the shares on the date of grant. The term of
each option shall be fixed by the Compensation Committee and may not exceed 10
years from the date of grant. The Compensation Committee determines at what time
or times each option may be exercised and, subject to the provisions of the 1996
Stock Plan, the period of time, if any, after death, disability, or termination
of employment during which options may be exercised. Options may be made
35
<PAGE> 38
exercisable in installments and the exercisability of options may be accelerated
by the Compensation Committee. In addition, the 1996 Stock Plan provides that
options granted thereunder subject to future vesting shall immediately vest upon
the occurrence of certain events, such as the acquisition or merger of the
Company or sale of all or substantially all of the assets of the Company.
1994 Stock Plan
In connection with the Recapitalization, the Company adopted the 1994 Stock
Plan. Pursuant to the 1994 Stock Plan, the Company was authorized to grant
Incentive Options, Non-Qualified Options and warrants to purchase up to
1,833,333 shares of Class A Common Stock. Non-Qualified Options and warrants
granted pursuant to the 1994 Stock Plan have an exercise price of no less than
the lesser of (i) the book value per share of the Class A Common Stock as of the
end of the fiscal year immediately preceding such grant, or (ii) fifty percent
of the fair market value per share of Class A Common Stock on the date of such
grant and expire no later than seven years and one day from the date of the
grant. Incentive Options granted pursuant to the 1994 Stock Plan have an
exercise price of not less than the fair market value of the Class A Common
Stock on the date of such grant, expire no later than ten years from the date of
the grant and vest over a period of up to three years. Employees receiving
grants of Incentive Options under the 1994 Stock Plan waived all rights under
any prior grants of options and warrants to purchase the Class A Common Stock.
As of June 30, 1996 there were Incentive Options, Non-Qualified Options and
warrants to purchase 1,826,438 shares of Class A Common Stock outstanding
pursuant to the 1994 Stock Plan with exercise prices ranging from $0.90 to $3.00
per share, of which 1,674,805 are fully vested.
1993 Non-Qualified Stock Option Plan
In December 1992, the Company adopted the 1993 Non Qualified Stock Option
Plan (the "1993 Stock Plan"). Pursuant to the 1993 Stock Plan, the Company was
authorized to issue Non-Qualified Options to purchase up to 62,222 shares of the
Class A Common Stock (at a price not less than fifty percent of the fair market
value thereof at the time of the grant). Such options expire no later than ten
years from the date of the grant and are all fully-vested. Holders of
Non-Qualified Options granted under the 1987 Non-Qualified Class A Common Stock
Option Plan who were employed by the Company when the 1993 Stock Plan was
adopted were offered the right to cancel and terminate such options in exchange
for options granted under the 1993 Stock Plan. Any options so exchanged have an
exercise price equal to the fair market value of the Class A Common Stock on the
date of grant of the options issued under the 1993 Stock Plan.
Currently, there are Non-Qualified Options to purchase 4,197 shares of
Class A Common Stock outstanding pursuant to the 1993 Stock Plan with an
exercise price of $11.25 per share, all of which are fully vested.
1987 Non-Qualified Class A Common Stock Option Plan
During 1987 the Company adopted the 1987 Non-Qualified Class A Common Stock
Option Plan (the "1987 Stock Plan") pursuant to which the Company was authorized
to grant Non-Qualified Options to purchase up to 80,000 shares of Class A Common
Stock at an exercise price equal to the fair market value per share on the date
of the grant. Options issued pursuant to the 1987 Stock Plan expire no later
than ten years from the date of the grant and are all fully-vested.
Currently, there are Non-Qualified Options to purchase 15,846 shares of
Class A Common Stock outstanding pursuant to the 1987 Stock Plan with exercise
prices ranging from $41.63 to $84.38 per share, all of which are fully vested.
401(K) PLAN
The Company maintains a 401(k) savings and retirement plan (the "401(k)
Plan") which covers substantially all employees of the Company. The 401(k) Plan
allows participants to agree to certain salary deferrals which the Company
allocates to the participant's plan account. These amounts may not exceed
statutorily mandated annual limits set forth in Section 401(k), 404 and 415 of
the Internal Revenue Code.
36
<PAGE> 39
Participants are also eligible to receive from the Company, but the Company is
not obligated to provide, matching contributions each year in an amount up to
20% of the participant's contribution up to a maximum of 5% of such
participant's annual compensation. All contributions to a participant's plan
account are subject to limitations imposed on retirement plans generally and
401(k) plans in particular. The Company's contributions vest 100% when made.
Distribution of a participant's account under the 401(k) Plan may be made at
retirement, death, permanent disability or other termination of employment in a
lump-sum form of payment. Participants may withdraw amounts from their plan
accounts after attainment of age 59 1/2 or in the event of proven financial
hardship, and may also take loans against their plan account balances.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended September 30, 1995, the then members of the
Board fulfilled all functions of the Compensation Committee with regard to
determining compensation of executive officers of the Company. For a description
of the relationship between Mr. Amos Kaminski, Chairman of the Board, Mr. James
D. Hart, Vice-President, Finance and Administration, Treasurer and Chief
Financial Officer, Interfid and certain significant principal stockholders of
the Company, see "Certain Transactions--Interfid." Mr. Amos Kaminski, Mr. David
G. Lubrano, Mr. George B. Beitzel and a trust in which Mr. Beitzel and his
family members are the beneficiaries and in which Mr. Beitzel's wife and
children share voting power (the "Beitzel Family Trust"), were among certain
directors and principal stockholders who made loans to the Company. See "Certain
Transactions--Bridge Loans."
CERTAIN TRANSACTIONS
THE 1994 RECAPITALIZATION
The Company's previously outstanding Old Class H Preferred Stock contained
a mandatory redemption provision obligating the Company to redeem such class of
preferred stock for $2,042,070 on October 31, 1994. Holders of such Old Class H
Preferred Stock had the right to elect a majority of the members of the Board to
enable them to enforce their redemption rights and held irrevocable proxies
representing in excess of two-thirds of the vote of each class of outstanding
voting stock. The holders of the Old Class H Preferred Stock included Messrs.
Kaminski, Beitzel, Lubrano and Collins and BancBoston Ventures Inc., JHI
Development Capital Limited, Privest I N.V., Privest II, N.V., Interfid Ltd. and
the Beitzel Family Trust.
The Company executed an Agreement and Plan of Recapitalization dated as of
October 28, 1994 with the holders of the Old Class H Preferred Stock and certain
other stockholders. The plan of recapitalization eliminated the liquidation
preferences and redemption rights of such stockholders and, among other things,
provided for the conversion of one share of the Old Class H and I Preferred
Stock into three shares of Class A Preferred Stock of the Company, the
conversion of one share of Old Class F and G Preferred Stock into one share of
Class A or B Preferred Stock and the conversion of one share of each other old
class of preferred or common stock into one-fifteenth of a share of Class A or B
Common Stock. Additionally, each warrant and option to purchase shares of stock
was converted into a warrant or option to purchase one-fifteenth of a share of
Class A Common Stock or Class B Common Stock, at an exercise price equal to
fifteen times the original exercise price of such option or warrant. As used
herein, each reference to an "Old Class" of Common Stock or Preferred Stock
refers to such class of Common Stock or Preferred Stock outstanding prior to the
Recapitalization. See "Description of Capital Stock."
BRIDGE LOANS
On February 22, 1996, the Company entered into a Loan Agreement (the
"Bridge Loan Agreement") with certain parties (each a "Bridge Lender"), pursuant
to which the Company borrowed an aggregate amount of $600,000 (the "Bridge
Loan") from the Bridge Lenders. The Bridge Lenders included Messrs. Kaminski
($24,000 Bridge Loan), Lubrano ($18,000 Bridge Loan), Beitzel ($11,500 Bridge
Loan), The Beitzel Family Trust ($11,500 Bridge Loan), JHI Development Capital
Limited ($155,000 Bridge Loan), and BancBoston Ventures, Inc. ($83,000 Bridge
Loan).
37
<PAGE> 40
In connection with the Bridge Loan Agreement, the Company executed a
promissory note in favor of each Bridge Lender, pursuant to which the Company
agreed to pay the principal amount borrowed from such Bridge Lender, plus simple
interest at twelve percent (12%) per annum thereon, on August 22, 1996. On
August 22, 1996, the Company entered into an amendment to the Bridge Loan
Agreement with each Bridge Lender, pursuant to which the maturity date of the
Bridge Loans was extended to October 22, 1996. The Company used the proceeds of
the Bridge Loans for working capital. The proceeds of the Offering will be used
to repay all amounts due to the Bridge Lenders under the Bridge Loan Agreement.
See "Use of Proceeds." As of June 30, 1996, the outstanding balance of the
Bridge Loans (including accrued interest) was $625,644.
INTERFID
As of May 1, 1996, Mr. James D. Hart became a full-time employee of the
Company. See "Management--Executive Compensation." From July 1, 1993 until April
30, 1996, the services of Mr. Hart, who, prior to May 1, 1996, was a
Vice-President of Interfid, were made available to the Company by Interfid on an
as-needed basis to render financial advisory services to the Company, and, from
March 1994 to May 1, 1996, to serve as Treasurer, Secretary and acting Chief
Financial Officer of the Company. As compensation for the services rendered by
Mr. Hart to the Company, the Company paid to Interfid $10,000 per month, with
respect to the period from January 1, 1996 until April 30, 1996, and $5,000 per
month with respect to the period from July 1, 1993 to December 31, 1995, and
reimbursed Interfid for reasonable out-of-pocket expenses incurred by Interfid
or Mr. Hart in connection with the performance of Mr. Hart's services to the
Company. There was no written agreement between the Company and Interfid in
respect of Mr. Hart's services. During the period prior to May 1, 1996, the
Company was not obligated to pay any compensation directly to Mr. Hart; his
compensation was paid by Interfid. However, the Board awarded Mr. Hart a
discretionary cash award of $20,000 for each of the fiscal years ended September
30, 1994 and September 30, 1995, respectively, and on November 30, 1994, granted
him a warrant to purchase 99,886 shares of Class A Common Stock under the 1994
Plan. Amos Kaminski, Chairman of the Board of the Company, is a director and the
controlling stockholder of Interfid. Interfid renders investment advisory
services to Premier Resources, Ltd., ("Premier"), a Bahamanian corporation.
Premier serves as an investment advisor to each of Privest I N.V. and Privest II
N.V. and may be deemed the beneficial owner of the Company's stock owned of
record by such entities. See "Principal and Selling Stockholders" and note 4 to
the table contained therein. Interfid has rendered investment advice to Premier
in connection with the investments by Privest I N.V. and Privest II N.V. in the
Company.
All future transactions between the Company, and its directors, officers
and principal stockholders, or affiliates of any such persons, including loans
to such persons, will be made for bona fide business purposes and will be on
terms no less favorable than could be obtained from an unaffiliated third party.
38
<PAGE> 41
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Class A Common Stock as of June 30, 1996 and as adjusted to
reflect the sale of shares of Class A Common Stock offered hereby, by (i) each
person or entity known to own beneficially more than 5% of the outstanding
shares of Class A Common Stock, (ii) each of the Company's directors, (iii) each
of the executive officers of the Company, (iv) all directors and executive
officers of the Company as a group, and (v) the other Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO BENEFICIALLY
OFFERING(1) NUMBER OWNED AFTER OFFERING(1)
----------------------- OF SHARES -----------------------
NAME(2) NUMBER PERCENT OFFERED NUMBER PERCENT
------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS
JHI Development Capital Limited(3) 736,616 23.9% 184,040 552,576 10.3%
St. James House,
New St. James Place
St. Helier, Jersey JE4 8WH
Channel Islands..................
Privest I N.V.(4) 668,417 21.7 166,934 501,483 9.3
c/o Caribbean Management Company
14, John B. Gorsiraweg
Curacao, Netherland Antilles.....
Privest II N.V.(4) 665,244 21.6 166,160 499,094 9.3
c/o Caribbean Management Company
14, John B. Gorsiraweg
Curacao, Netherland Antilles.....
BancBoston Ventures, Inc.(5) 390,384 12.7 97,481 292,903 5.5
100 Federal Street
Boston, MA 02110.................
James W. Sole(6)................... 168,397 5.5 42,621 125,776 2.3
DIRECTORS AND EXECUTIVE OFFICERS
C. Raymond Boelig(7)............... 199,773 6.1 0 199,773 3.6
John S. Collins(8)................. 160,829 5.0 0 160,829 2.9
Amos Kaminski(9) 146,263 4.7 0 146,263 2.7
c/o Interfid Ltd.
150 E. 58th Street, 27th Floor
New York, NY 10155-2798..........
George Beitzel(10) 122,263 4.0 0 122,263 2.3
29 King Street
Chappaqua, NY 10514..............
James D. Hart(11).................. 100,996 3.2 0 100,996 1.9
David G. Lubrano(12) 97,375 3.2 0 97,375 1.8
94 Otis Street
Hingham, MA 02043................
Geoffrey W. Greve(13).............. 73,620 2.3 0 73,620 1.4
John S. Seguin(14)................. 66,666 2.1 0 66,666 1.2
All directors and executive 967,785 30.6 0 967,785 17.8
officers
as a group (8 persons)(7)(8)(9)
(10)(11)(12)(13)(14).............
OTHER SELLING STOCKHOLDERS
Morton E. Goulder(15).............. 73,514 2.4 14,703 58,811 1.1
Other Selling Stockholders (41 1,063,043 26.0 228,061 834,982 13.7
persons each holding less than 1%
of the Class A Common
Stock(16)).......................
</TABLE>
- ---------------
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable. In accordance with the rules of the
Securities and
39
<PAGE> 42
Exchange Commission, Common Stock, subject to stock options or warrants
which are currently exercisable or which become exercisable within 60 days
after June 30, 1996, are deemed outstanding for computing the share
ownership and percentage ownership of the person holding such options or
warrants, but are not deemed outstanding for computing the percentage
ownership of any other person. The information set forth assumes the
automatic conversion of all shares of Class A Preferred Stock into an equal
number of shares of Class A Common Stock. The inclusion herein of shares
listed as beneficially owned does not constitute an admission of beneficial
ownership.
(2) Unless otherwise indicated, the address of the officer listed is: c/o
Bitstream Inc., 215 First Street, Cambridge, MA 02142.
(3) Includes 693,744 shares issuable upon conversion of Class A Preferred Stock
held of record by JHI Development Capital Limited and 14,234 shares
issuable to JHI Development Capital Limited upon the exercise of warrants.
(4) Includes 633,333 shares and 633,333 shares of Class A Common Stock issuable
upon conversion of Class A Preferred Stock held of record by Privest I and
Privest II, respectively, and 14,443 shares and 14,443 shares issuable to
Privest I and Privest II, respectively, upon the exercise of warrants.
Premier may be regarded as the beneficial owner of these shares because it
serves as an investment advisor to each of Privest I N.V. and Privest II
N.V. and has at times in the past been delegated, and may from time to time
in the future be delegated, the authority to vote or direct the vote or to
dispose or direct the disposition of these shares. Premier, a corporation
established under the laws of the Commonwealth of the Bahamas, has a
principal place of business at IBM House-East Bay Street, Nassau, Bahamas
and is a wholly owned subsidiary of Gesfid International Ltd., a
corporation established under the laws of the Commonwealth of the Bahamas,
which is a wholly owned subsidiary of Gesfid, S.A., a fiduciary corporation
established under the laws of Switzerland, which has a principal place of
business at Via Adamini, 10a, Lugano, Switzerland.
(5) Includes 366,666 shares issuable upon conversion of Class A Preferred Stock
held of record by BancBoston Ventures, Inc. and 7,776 shares issuable to
BancBoston Ventures, Inc. upon the exercise of warrants.
(6) Includes 160,666 shares issuable upon conversion of Class A Preferred Stock
and 2,176 shares and 1,111 shares issuable upon the exercise of warrants
and options, respectively.
(7) Includes 89,773 shares and 110,000 shares issuable to Mr. Boelig upon the
exercise of warrants and options, respectively. If the over-allotment
option is exercised in full, the Number of Shares Offered by Mr. Boelig and
the Number and Percent of Shares to be Beneficially Owned After Offering
will be 23,220, 176,513 and 3.3%, respectively.
(8) Includes 39,941 shares and 110,000 shares issuable to Mr. Collins upon the
exercise of warrants and options, respectively, and 888 shares and 10,000
shares issuable upon conversion of Class A Preferred Stock held by Mr. and
Mrs. Collins as joint tenants. If the over-allotment option is exercised in
full, the Number of Shares Offered by Mr. Collins and the Number and
Percent of Shares to be Beneficially Owned After Offering will be 18,698,
142,131 and 2.6%, respectively.
(9) Includes 70,666 shares issuable upon conversion of Class A Preferred Stock
held of record by Mr. Kaminski and 14,487 shares issuable to Mr. Kaminski
upon the exercise of warrants. Also includes 20,000 shares issuable upon
conversion of Class A Preferred Stock and 1,110 shares issuable upon the
exercise of warrants held of record by Interfid of which Mr. Kaminski is
President and a director and, therefore, Mr. Kaminski may be deemed to be a
beneficial owner of such shares. If the over-allotment option is exercised
in full, the Number of Shares Offered by Mr. Kaminski and the Number and
Percent of Shares to be Beneficially Owned After Offering will be 17,000,
129,263 and 2.5%, respectively.
(10) Includes 36,666 shares of Class A Common Stock issuable upon conversion of
Class A Preferred Stock held of record by Mr. Beitzel and 14,109 shares
issuable to Mr. Beitzel upon the exercise of warrants. Also includes 888
shares, 29,114 shares issuable upon conversion of Class A Preferred Stock
and 524 shares issuable upon the exercise of warrants, all held of record
by the Beitzel Family Trust. Since Mr. Beitzel and his family are the
beneficiaries of the Beitzel Family Trust and Mr. Beitzel's wife and
children share voting power therein, Mr. Beitzel may be deemed beneficial
owner of such shares. If the over-allotment option is exercised in full,
the Number of Shares Offered by Mr. Beitzel and the Number
40
<PAGE> 43
and Percent of Shares to be Beneficially Owned After Offering will be
14,209, 108,054 and 2.1%, respectively.
(11) Includes 100,996 shares issuable to Mr. Hart upon the exercise of warrants.
If the over-allotment option is exercised in full, the Number of Shares
Offered by Mr. Hart and the Number and Percent of Shares to be Beneficially
Owned After Offering will be 11,745, 89,251 and 1.5%, respectively.
(12) Includes 40,666 shares issuable upon conversion of Class A Preferred Stock
held of record by Mr. Lubrano and 14,020 shares issuable to Mr. Lubrano
upon the exercise of warrants. If the over-allotment option is exercised in
full, the Number of Shares Offered by Mr. Lubrano and the Number and
Percent of Shares to be Beneficially Owned After Offering will be 11,316,
86,059 and 1.5%, respectively.
(13) Includes 73,616 shares issuable to Mr. Greve upon the exercise of options.
If the over-allotment option is exercised in full, the Number of Shares
Offered by Mr. Greve and the Number and Percent of Shares to be
Beneficially Owned After Offering will be 8,561, 65,059 and 1.2%,
respectively.
(14) Includes 66,666 shares issuable to Mr. Seguin upon the exercise of options.
If the over-allotment option is exercised in full, the Number of Shares
Offered by Mr. Seguin and the Number and Percent of Shares to be
Beneficially Owned After Offering will be 7,751, 58,915 and 1.1%,
respectively.
(15) Includes 70,341 shares issuable upon conversion of Class A Preferred Stock
and 1,676 shares issuable upon the exercise of warrants.
(16) Includes 17,380 shares issuable upon conversion of Class A Preferred Stock
held by such Selling Stockholders, in aggregate, and 1,023,942 shares
issuable to such Selling Stockholders, in aggregate, upon the exercise of
options and warrants. Ms. Susan Johnson, a stockholder who beneficially
owns 17,380 shares, was Chief Financial Officer of the Company from
February 1, 1993 through February 4, 1994. Mr. Lawrence Oppenberg, a
stockholder who beneficially owns 4,440 shares, was Vice President of Type
Operations from July 5, 1993 through June 30, 1994.
41
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this Offering, the authorized capital stock of the
Company will consist of 30,500,000 shares of Common Stock, $0.01 par value,
(30,000,000 of which are authorized shares of Class A Common Stock and 500,000
of which are authorized shares of Class B Common Stock), and 10,000,000 shares
of preferred stock, $0.01 par value, (6,000,000 shares of which are authorized
shares of Preferred Stock, 3,000,000 of which are authorized shares of Class A
Preferred Stock, and 1,000,000 shares of which are authorized shares of Class B
Preferred Stock).
COMMON STOCK
As of June 30, 1996, there were 288,646 shares of Class A Common Stock and
30,864 shares of Class B Common Stock outstanding and held of record by 33
stockholders and one stockholder, respectively, and 2,782,575 shares of Class A
Common Stock and 391,162 shares of Class B Common Stock, issuable upon the
conversion of outstanding shares of Class A Preferred Stock and Class B
Preferred Stock, respectively. Upon the closing of this Offering, assuming no
exercise of outstanding stock options and warrants (other than those to be
exercised and sold by Selling Stockholders pursuant to this Offering), the
Company will have outstanding 5,361,663 shares of Class A Common Stock and
422,026 shares of Class B Common Stock. The holders of Class A Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders and do not have cumulative voting rights. Holders of
Class A Common Stock that are subject to the provisions of the Bank Holding
Company Act of 1956 and Regulation Y promulgated thereunder and which hold
shares of Class B Common Stock or Class B Preferred Stock issued in connection
with the Reincorporation Merger have the option, at any time, to convert any or
all shares of Class A Common Stock into an equal number of shares of Class B
Common Stock. Holders of Class B Common Stock have identical rights to holders
of Class A Common Stock except that holders of Class B Common Stock are not
entitled to vote on matters upon which stockholders of the Company are entitled
to vote, except as provided by law or as specifically set forth in the
certificate of incorporation of the Company. Additionally, any holder of Class B
Common Stock has the option to convert their respective shares of Class B Common
Stock into an equal number of shares of Class A Common Stock to the extent such
holder and its affiliates shall be permitted to own control or have the power to
vote such Class A Common Stock under any law, rule or regulation at the time
applicable to such holder or its affiliates.
Subject to any preference that may be applicable to then outstanding
preferred stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding preferred stock. There are no redemption or
sinking fund provisions applicable to Common Stock. All outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this Offering will be, fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The outstanding shares of Class A Preferred Stock and the Class B Preferred
Stock automatically convert into an equal number of shares of Class A Common
Stock and Class B Common Stock, respectively, upon the effectiveness of an
underwritten public offering on a firm commitment basis pursuant to an effective
registration statement covering the offer and sale of Common Stock with the
proceeds to the Company of at least $5 million and a minimum price per share of
$3.00. Upon the effectiveness of the registration statement filed in connection
with this Offering, the outstanding shares of Class A Preferred Stock and Class
B Preferred Stock will, therefore, convert into an equal number of shares of
Class A Common Stock and Class B Common Stock, respectively, and the Company
will have no shares of Class A or Class B Preferred Stock outstanding. As of the
Effective Date, the Company will have 217,425 shares of Class A Preferred Stock
available for issuance, none of which will be outstanding, and 608,838 shares of
Class B Preferred Stock available for
42
<PAGE> 45
issuance, none of which will be outstanding. The Company intends to file an
amendment to the Company's Certificate of Incorporation immediately after the
Effective Date to eliminate the authorized shares of Class A Preferred Stock and
Class B Preferred Stock, which would leave the Preferred Stock described below
as the only authorized preferred stock.
Under the Company's certificate of incorporation, the Board has the
authority, without further action by the stockholders, to issue up to 6,000,000
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any such series. The
issuance of Preferred Stock could adversely affect the rights and powers,
including voting rights, of holders of Common Stock and the availability of
earnings and assets for dividends, other distributions and payments upon
liquidation to the holders of Common Stock. The issuance of Preferred Stock
could have the effect of delaying, deferring or preventing a change-in-control
of the Company. In certain circumstances, such issuances could have the effect
of decreasing the market price of the Common Stock.
WARRANTS
As of June 30, 1996, there were outstanding warrants to purchase 62,917
shares of Class A Common Stock and 13,038 shares of Class B Common Stock,
respectively (other than warrants issued pursuant to the 1994 Stock Plan). Such
warrants have exercise prices ranging from $22.50 to $111.15 per share, and
expire commencing October 30, 1998 through October 30, 2005. The warrants are
subject to certain antidilution provisions.
REGISTRATION RIGHTS
The holders of substantially all of the outstanding shares of Common Stock
and the holders of the outstanding warrants and options issued under the 1994
Stock Plan are entitled to certain rights with respect to the registration of
such shares under the Securities Act. Under the terms of certain registration
rights agreements, if the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
securityholders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include such shares of Common
Stock in the registration. The rights are subject to certain conditions and
limitations, among them, the right of the Underwriters of an offering subject to
the registration to limit the number of shares included in such registration.
Holders of Common Stock benefiting from these rights may also require the
Company to file a registration statement under the Securities Act at its expense
with respect to their shares of Common Stock, and the Company is required to use
its best efforts, to effect such registration, subject to certain conditions and
limitations. Furthermore, certain of such holders may require the Company to
file additional registration statements on Form S-3 subject to certain
conditions and limitations. In connection with this Offering, the rights of
substantially all such holders to have shares of Common Stock registered under
the Securities Act as part of this Offering either were waived or shares held by
such holders were included in the Offering pursuant to the exercise of such
rights by such holders. All fees, costs and expenses of such registrations will
be borne by the Company, with certain exceptions, provided that such holders
will be required to bear their pro rata share of underwriting discounts and
commissions.
DELAWARE LAW AND CERTAIN PROVISIONS OF CHARTER AND BY-LAWS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"), an anti-takeover law. Subject to certain
exceptions, Section 203 prevents an "interested stockholder" (as defined below)
in a publicly-held Delaware corporation from engaging in a "business
combination" (as defined below) with such corporation for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or at the time of attaining such status or
thereafter, the board of directors approves the same and holders of at least
two-thirds of the outstanding shares of voting stock not owned by the interested
stockholder approve such business combination at a meeting of stockholders. A
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit
43
<PAGE> 46
to the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior to the proposed business combination, did own) 15% or
more of the Company's voting stock. The existence of this provision would be
expected to have an anti-takeover effect, including attempts that might result
in a premium over the market price for the shares of the Common Stock held by
stockholders.
The Company's bylaws also require that, special meetings of the
stockholders may be called only by the Chairman of the Board or the Board. These
provisions may have the effect of deterring hostile takeovers or delaying,
deferring or preventing changes in control or management of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the DGCL, the Company's Certificate of Incorporation
provides that no director of the Company will be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the Certificate of Incorporation provides that any director or officer
who was or is a party or is threatened to be made a party to any action or
proceeding by reason of his or her services to the Company will be indemnified
to the fullest extent permitted by the DGCL.
The Company intends to obtain directors' and officers' liability insurance
("D&O Insurance") prior to the effective date of this Offering, and expects to
continue to carry D&O Insurance following this Offering. In addition, the
Company has entered into an indemnification agreement with each of its directors
and certain officers under which the Company has indemnified each of them
against expenses and losses incurred for claims brought against them by reason
of being a director or officer of the Company.
The Company believes that the limitation of liability and indemnification
provisions in its Certificate of Incorporation, the D&O Insurance and the
indemnification agreements will enhance the Company's ability to continue to
attract and retain qualified individuals to serve as directors and officers.
There is no pending litigation or proceeding involving a director, officer or
employee of the Company to which the indemnification provisions would apply.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is Boston EquiServe.
NASDAQ NATIONAL MARKET LISTING
Application has been made to have the Class A Common Stock quoted on the
Nasdaq National Market under the symbol "BITS."
44
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,783,689 shares of
Class A Common Stock outstanding or issuable on the conversion of outstanding
Class B Common Stock (assuming no exercise of outstanding options or warrants
other than options and warrants for 190,442 shares of Class A Common Stock
exercised by certain Selling Stockholders in connection with this Offering). Of
these shares, the 3,000,000 shares of Class A Common Stock sold in this Offering
will generally be freely tradeable without restriction or further registration
under the Securities Act. Of the remaining 2,783,689 shares of Class A Common
Stock outstanding or issuable on the conversion of outstanding Class B Common
Stock, 48,846 shares of Class A Common Stock are not subject to the Lock-Up
Agreements described below, and will be eligible for immediate sale in the
public market pursuant to Rule 144(k). 164,879 shares of Class A Common Stock
which are issuable on the exercise of certain outstanding options and warrants
exercisable at prices no greater than the assumed offering price of $9.00 per
share and which are not subject to the Lock-Up Agreements, will be eligible for
resale in the public market in accordance with Rule 701 beginning 90 days after
the date of this Prospectus. Upon the expiration of the Lock-Up Agreements, or
earlier in the discretion of Volpe, Welty & Company, approximately 2,734,843
additional shares of Class A Common Stock outstanding or issuable upon the
conversion of Class B Common Stock, will become eligible for immediate sale in
the public market pursuant to the provisions of Rule 144(k). The Company intends
to register all shares of Class A Common Stock reserved for issuance under its
stock option plans and pursuant to all outstanding warrants as described below,
thus permitting the sale of such shares in the public market without restriction
under the Securities Act.
SALE OF RESTRICTED SHARES
In general, pursuant to Rule 144 under the Securities Act ("Rule 144"),
beginning 90 days after the date of this Prospectus, a person (or persons whose
shares are aggregated) who has beneficially owned restricted shares ("Restricted
Shares") for at least two years, will be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock (approximately 5,783,689
shares immediately after this Offering) or (ii) the average weekly trading
volume of the Class A Common Stock on the Nasdaq National Market during the four
calendar weeks immediately preceding the date on which notice of such sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are also subject to certain requirements relating to the manner of sale, notice
and the availability of current public information about the Company. A person
(or persons whose shares are aggregated) who is not an Affiliate (as such term
is defined under the Securities Act) and has not been an Affiliate of the
Company at any time during the three months immediately preceding the sale and
who has beneficially owned Restricted Shares for at least three years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the Rule
144 limitations described above.
Rule 701 under the Securities Act provides that the shares of Class A
Common Stock acquired upon the exercise of currently outstanding options may be
resold by persons, other than Affiliates, beginning 90 days after the date of
this Prospectus, subject only to the manner of sale of provisions of Rule 144,
and by Affiliates under Rule 144 without compliance with its two-year minimum
holding period requirement. The Securities and Exchange Commission has proposed
an amendment to Rule 144 which would reduce the holding period for shares
subject to Rule 144 to become eligible for sale in the public market. This
proposal, if adopted, would increase the number of shares of Common Stock
eligible for immediate sale following the expiration of any
applicable lock-up period.
As of June 30, 1996, options and warrants to purchase a total of 1,922,436
shares of Common Stock were outstanding, of which options and warrants to
purchase 1,674,805 shares were currently exercisable at prices ranging from
$0.90 to the assumed offering price of $9.00 per share; substantially all of the
shares issuable on exercise of options and warrants exercisable at prices no
greater than the assumed offering price of $9.00 per share are subject to
Lock-Up Agreements. Additionally, 666,667 shares of Class A Common Stock are
reserved for issuance in connection with future grants of options and warrants
under the Company's 1996 Stock Plan. See "Management -- Stock Plans."
45
<PAGE> 48
Approximately 180 days after the date of this Prospectus the Company will
file a registration statement under the Securities Act covering the shares
issuable on the exercise of options or warrants granted under its stock plans.
The Company expects that this registration will automatically become effective
upon filing. Accordingly, shares registered under such registration statement
will immediately thereafter be available for sale in the public market, subject
to Rule 144 volume limitations applicable to Affiliates, and subject to any
applicable vesting restrictions.
LOCK-UP AGREEMENTS
Each of the Company's directors and officers, and certain other employees
and security holders of the Company, have agreed not to offer, sell, contract to
sell, make any short sale, pledge, or otherwise dispose of, directly or
indirectly, any of the shares of Class A Common Stock or other securities
convertible into or exchangeable for, or any rights to purchase or acquire,
Class A Common Stock (each, a "Transfer") beneficially owned by them (the
"Lock-Up Securities"), or enter into any swap or other agreement with respect to
Lock-Up Securities that transfers, in whole or part any of the economic
consequences of ownership (each, a "Swap") for a period of 180 days following
the Effective Date, without the prior written consent of Volpe, Welty & Company,
except for the sale of shares of Class A Common Stock in connection with this
Offering, including any shares sold in respect of the Underwriters'
overallotment option, the sale of shares purchased in the open market after the
Effective Date or the conversion of outstanding options, warrants or convertible
securities. The Company also has agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Class A Common Stock or any securities
convertible into or exchangeable for, or any rights to purchase or acquire,
Class A Common Stock for a period of 180 days following the Effective Date
without the prior written consent of Volpe, Welty & Company except for the
granting of options or the sale of stock pursuant to the Company's existing
stock option plans, or the issuance of shares upon the exercise of presently
outstanding options or warrants. Volpe, Welty & Company, in its discretion, may
waive the foregoing restrictions in whole or in part, with or without a public
announcement of such action.
46
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of such Underwriters,
for whom Volpe, Welty & Company and Advest, Inc. are acting as representatives
(the "Representatives"), has severally agreed to purchase from the Company and
the Selling Stockholders the respective number of shares of Class A Common Stock
set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Volpe, Welty & Company....................................................
Advest, Inc. .............................................................
---------
Total........................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Class A Common Stock to the
public at the offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession of not in excess of
$ per share, of which $ may be reallocated to other dealers.
After the Offering, the public offering price, concession and reallowance to
dealers may be reduced by the Representatives. No such reduction shall change
the amount of proceeds to be received by the Company and the Selling
Stockholders as set forth on the cover page of this Prospectus.
The Company and certain of the Selling Stockholders have granted the
Underwriters an option for thirty days after the date of this Prospectus to
purchase, at the offering price, less the underwriting discounts and commissions
as set forth on the cover page of this Prospectus, up to 337,500 and 112,500
additional shares of Class A Common Stock, respectively, at the same price per
share as the Company and the Selling Stockholders receive for the 3,000,000
shares of Class A Common Stock offered hereby, solely to cover over-allotments,
if any. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Class A
Common Stock to be purchased by each of them, as shown in the foregoing table,
bears to the 3,000,000 shares of Class A Common Stock offered hereby. The
Underwriters may exercise such option only to cover the over-allotments in
connection with the sale of the 3,000,000 shares of Class A Common Stock offered
hereby.
Each of the Company's directors and officers, and certain other security
holders of the Company, have agreed not to Transfer any of their Lock-Up
Securities or enter into any Swap for a period of 180 days following the
Effective Date, without the prior written consent of Volpe, Welty & Company
except for the sale of shares of Class A Common Stock in connection with this
Offering, including shares sold in respect of the Underwriters' over-allotment
option, or except in connection with the conversion of presently outstanding
convertible securities. The Company also has agreed not to offer, sell, contract
to sell or otherwise dispose of any shares of Class A Common Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Class A Common Stock for a period of 180 days following the Effective
Date without the prior written consent of Volpe, Welty & Company, except for the
granting of options or the sale of stock pursuant to the Company's existing
stock and option plans, or the issuance of shares upon the exercise of
47
<PAGE> 50
presently outstanding options or warrants or the conversion of presently
outstanding convertible securities. Volpe, Welty & Company, in its discretion,
may waive the foregoing restrictions in whole or in part, with or without a
public announcement of such action.
Prior to this Offering, there has been no public market for the Class A
Common Stock. The initial public offering price of the Class A Common Stock will
be determined by negotiations between the Company and the Representatives. Among
the factors that will be considered in determining the initial public offering
price of the Class A Common Stock, in addition to prevailing market conditions,
are the Company's historical performance, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuations of
companies in related businesses.
The Offering of the shares of Class A Common Stock is made for delivery
when, as and if accepted by the Underwriters and subject to prior sale and to
withdrawal, cancellation or modification of the Offering without notice. The
Underwriters reserve the right to reject an order for the purchase of shares in
whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
this Offering, including liabilities under the Securities Act, or to contribute
payments that the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock offered
by the Company and certain of the Selling Stockholders will be passed upon by
Rubin Baum Levin Constant & Friedman, New York, New York. Certain legal matters
relating to the shares of Class A Common Stock offered hereby will be passed
upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements and the financial statement schedule
of the Company as of September 30, 1994 and 1995 and December 31, 1995, for the
years ended September 30, 1993, 1994 and 1995 and for the three month period
ended December 31, 1995, included in this prospectus and elsewhere in this
Registration Statement, have been audited by Arthur Andersen LLP, independent
accountants, as indicated in their reports with respect thereto and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Class A Common Stock. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. The
Company intends to furnish to its stockholders annual reports containing audited
financial statements examined by its independent certified public accountants
and quarterly reports containing unaudited consolidated financial data for the
first three quarters of each fiscal year. For further information with respect
to the Company and such Class A Common Stock, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules filed therewith,
may be inspected without charge at the Commission's principal offices at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its Regional Offices
located at Citicorp Center, Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite
48
<PAGE> 51
1400, Chicago, Illinois 60661-2511. Copies of such materials may be obtained
upon written request from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding the Company; the address of such site is
http://www.sec.gov.
49
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF BITSTREAM INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of September 30, 1994 and 1995, December 31, 1995 and
June 30, 1996 (Unaudited)........................................................ F-3
Consolidated Statements of Operations for Each of the Three Years in the Period
Ended September 30, 1995 and for the Three Months Ended December 31, 1995 and for
the Six Months Ended June 30, 1995 and 1996 (Unaudited).......................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for Each of the Three
Years in the Period Ended September 30, 1995 and for the Three Months Ended
December 31, 1995 and for the Six Months Ended June 30, 1996 (Unaudited)......... F-5
Consolidated Statements of Cash Flows for Each of the Three Years in the Period
Ended September 30, 1995 and for the Three Months Ended December 31, 1995 and for
the Six Months Ended June 30, 1995 and 1996 (Unaudited).......................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bitstream Inc.:
We have audited the accompanying consolidated balance sheets of Bitstream
Inc. (a Massachusetts corporation) and subsidiaries as of September 30, 1994 and
1995 and December 31, 1995, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended September 30, 1995 and for the three-month period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bitstream
Inc. and subsidiaries as of September 30, 1994 and 1995 and December 31, 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1995 and for the three-month period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
We have also audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets as of September 30, 1991, 1992 and
1993, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years ended September 30, 1991 and 1992
(none of which are presented herein), and have expressed an unqualified opinion
on those financial statements. In our opinion, the information set forth in the
selected consolidated financial data for each of the five years in the period
ended September 30, 1995 and for the three months ended December 31, 1995,
appearing on page 13, is fairly stated, in all material respects, in relation to
the financial statements from which it has been derived.
Arthur Andersen LLP
Boston, Massachusetts
April 30, 1996 (except with respect
to the matters discussed in Note 1(k)
and Note 10(d), as to which the date
is May 21, 1996)
F-2
<PAGE> 54
BITSTREAM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- DECEMBER 31, JUNE 30,
1994 1995 1995 1996
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 654,000 $ 523,000 $ 390,000 $ 686,000
Accounts receivable, net of allowance for
doubtful accounts....................... 479,000 1,233,000 1,846,000 2,145,000
Current portion of long-term accounts
receivable and extended plan accounts
receivable, net of allowance for
doubtful accounts....................... 1,008,000 969,000 536,000 826,000
Deferred income taxes...................... -- -- 600,000 758,000
Other current assets....................... 184,000 160,000 194,000 127,000
----------- ------------ ------------ ------------
Total current assets............... 2,325,000 2,885,000 3,566,000 4,542,000
----------- ------------ ------------ ------------
Property and equipment, net.................. 253,000 304,000 530,000 851,000
----------- ------------ ------------ ------------
Other assets:
Long-term accounts receivable, net of
current portion......................... 57,000 -- 228,000 354,000
Other assets............................... 5,000 5,000 4,000 210,000
----------- ------------ ------------ ------------
62,000 5,000 232,000 564,000
----------- ------------ ------------ ------------
Total assets....................... $ 2,640,000 $ 3,194,000 $ 4,328,000 $ 5,957,000
=========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable.............................. $ -- $ -- $ 300,000 $ 150,000
Current maturities of long-term debt....... 156,000 -- -- --
Current maturities of capital lease
obligations............................. 83,000 112,000 134,000 166,000
Subordinated notes payable to
stockholders............................ -- -- -- 600,000
Accounts payable........................... 1,252,000 799,000 466,000 403,000
Accrued expenses........................... 1,754,000 1,093,000 1,412,000 1,494,000
----------- ------------ ------------ ------------
Total current liabilities.......... 3,245,000 2,004,000 2,312,000 2,813,000
----------- ------------ ------------ ------------
Capital lease obligations, less current
maturities................................. 111,000 108,000 184,000 269,000
----------- ------------ ------------ ------------
Other long-term liabilities.................. 14,000 16,000 26,000 23,000
----------- ------------ ------------ ------------
Commitments and contingent liabilities (Notes
7 and 8)
Mandatorily redeemable convertible preferred
stock, $.01 par value (Note 9)............. 2,311,000 -- -- --
----------- ------------ ------------ ------------
Stockholders' equity (deficit):
Convertible preferred stock................ 31,000 32,000 32,000 32,000
Common stock............................... 18,000 3,000 3,000 3,000
Additional paid-in capital................. 12,277,000 14,449,000 14,449,000 14,454,000
Accumulated deficit........................ (15,056,000) (13,368,000) (12,630,000) (11,586,000)
Cumulative translation adjustment.......... (50,000) (50,000) (48,000) (51,000)
Treasury stock, at cost -- 309,067 shares
of
Class A common stock at September 30,
1994.................................... (247,000) -- -- --
Notes receivable........................... (14,000) -- -- --
----------- ------------ ------------ ------------
Total stockholders' equity
(deficit)........................ (3,041,000) 1,066,000 1,806,000 2,852,000
----------- ------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit)................. $ 2,640,000 $ 3,194,000 $ 4,328,000 $ 5,957,000
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 55
BITSTREAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED SEPTEMBER 30, ENDED SIX MONTHS ENDED
------------------------------------- DECEMBER 31, -----------------------
1993 1994 1995 1995 1995 1996
----------- ---------- ---------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $17,430,000 $9,832,000 $8,970,000 $2,355,000 $4,774,000 $5,411,000
Cost of revenues.................... 6,276,000 2,299,000 1,579,000 411,000 794,000 808,000
----------- ---------- ---------- ---------- ---------- ----------
Gross profit...................... 11,154,000 7,533,000 7,391,000 1,944,000 3,980,000 4,603,000
----------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Marketing and selling............. 9,080,000 3,334,000 3,264,000 978,000 1,691,000 2,145,000
Research and development.......... 3,536,000 1,534,000 1,071,000 331,000 547,000 680,000
General and administrative........ 3,006,000 1,281,000 1,261,000 385,000 773,000 776,000
Restructuring charge.............. -- 365,000 -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses................ 15,622,000 6,514,000 5,596,000 1,694,000 3,011,000 3,601,000
----------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)... (4,468,000) 1,019,000 1,795,000 250,000 969,000 1,002,000
----------- ---------- ---------- ---------- ---------- ----------
Other income (expense), net......... (18,000) (40,000) 11,000 17,000 (37,000) (44,000)
----------- ---------- ---------- ---------- ---------- ----------
Income (loss) before provision
for (benefit from) income
taxes........................ (4,486,000) 979,000 1,806,000 267,000 932,000 958,000
Provision for (benefit from) income
taxes............................. 319,000 133,000 118,000 (471,000) 83,000 (86,000)
----------- ---------- ---------- ---------- ---------- ----------
Net income (loss)......... $(4,805,000) $ 846,000 $1,688,000 $ 738,000 $ 849,000 $1,044,000
=========== ========== ========== ========== ========== ==========
Pro forma net income per common and
common equivalent share........... $ .38 $ .17 $ .24
========== ========== ==========
Pro forma weighted average common
and common equivalent shares
outstanding....................... 4,983,678 4,704,805 4,745,292
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 56
BITSTREAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
--------------------- ---------------------- ADDITIONAL CUMULATIVE
NUMBER $.01 NUMBER $.01 PAID-IN ACCUMULATED TRANSLATION TREASURY
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT ADJUSTMENT STOCK
--------- --------- ---------- --------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30,
1993.................... 3,052,647 $31,000 1,759,163 $18,000 $13,391,000 $(15,902,000) $(32,000) $ (17,000)
Exercise of stock
options............... -- -- 67 -- -- -- -- --
Accretion of Series H
and Series I
mandatorily redeemable
convertible preferred
stock to redemption
value................. -- -- -- -- (1,107,000) -- -- --
Transfer of notes
receivable into
treasury stock........ -- -- -- -- -- -- -- (230,000)
Reduction of notes
receivable............ -- -- -- -- -- -- -- --
Cancellation of notes
receivable and Series
H convertible
preferred
stock................. -- -- -- -- (7,000) -- -- --
Cumulative translation
adjustment............ -- -- -- -- -- -- (18,000) --
Net income.............. -- -- -- -- -- 846,000 -- --
--------- ------- --------- ------- ----------- ----------- -------- --------
<CAPTION>
TOTAL
STOCKHOLDERS'
NOTES EQUITY
RECEIVABLE (DEFICIT)
---------- ------------
<S> <C> <C>
BALANCE, SEPTEMBER 30,
1993.................... $ (292,000) $ (2,803,000)
Exercise of stock
options............... -- --
Accretion of Series H
and Series I
mandatorily redeemable
convertible preferred
stock to redemption
value................. -- (1,107,000)
Transfer of notes
receivable into
treasury stock........ 230,000 --
Reduction of notes
receivable............ 41,000 41,000
Cancellation of notes
receivable and Series
H convertible
preferred
stock................. 7,000 --
Cumulative translation
adjustment............ -- (18,000)
Net income.............. -- 846,000
--------- -----------
BALANCE, SEPTEMBER 30,
1994.................... 3,052,647 31,000 1,759,230 18,000 12,277,000 (15,056,000) (50,000) (247,000)
Accretion of Series H
and Series I
mandatorily redeemable
convertible preferred
stock to redemption
value................. -- -- -- -- (133,000) -- -- --
Net adjustment to
reflect the
recapitalization of
the Company........... 121,090 1,000 (1,446,553) (15,000) 2,305,000 -- -- 247,000
Cumulative translation
adjustment............ -- -- -- -- -- -- -- --
Net income.............. -- -- -- -- -- 1,688,000 -- --
--------- ------- --------- ------- ----------- ----------- -------- --------
BALANCE, SEPTEMBER 30,
1995.................... 3,173,737 32,000 312,677 3,000 14,449,000 (13,368,000) (50,000) --
Cumulative translation
adjustment............ -- -- -- -- -- -- 2,000 --
Net income.............. -- -- -- -- -- 738,000 -- --
--------- ------- --------- ------- ----------- ----------- -------- --------
BALANCE, DECEMBER 31,
1995.................... 3,173,737 32,000 312,677 3,000 14,449,000 (12,630,000) (48,000) --
Exercise of stock
options and
warrants.............. -- -- 6,833 -- 5,000 -- -- --
Cumulative translation
adjustment............ -- -- -- -- -- -- (3,000) --
Net income
(unaudited)........... -- -- -- -- -- 1,044,000 -- --
--------- ------- --------- ------- ----------- ----------- -------- --------
BALANCE, JUNE 30, 1996
(UNAUDITED)............. 3,173,737 $32,000 319,511 $ 3,000 $14,454,000 $(11,586,000) $(51,000) $ --
========= ======= ========= ======= =========== =========== ======== ========
<CAPTION>
BALANCE, SEPTEMBER 30,
Accretion of Series H
and Series I
mandatorily redeemable
convertible preferred
stock to redemption
value................. -- (133,000)
Net adjustment to
reflect the
recapitalization of
the Company........... 14,000 2,552,000
Cumulative translation
adjustment............ -- --
Net income.............. -- 1,688,000
--------- -----------
BALANCE, SEPTEMBER 30,
1995.................... -- 1,066,000
Cumulative translation
adjustment............ -- 2,000
Net income.............. -- 738,000
--------- -----------
BALANCE, DECEMBER 31,
1995.................... -- 1,806,000
Exercise of stock
options and
warrants.............. -- 5,000
Cumulative translation
adjustment............ -- (3,000)
Net income
(unaudited)........... -- 1,044,000
--------- -----------
BALANCE, JUNE 30, 1996
(UNAUDITED)............. $ -- $ 2,852,000
========= ===========
<CAPTION>
1994.................... (14,000) (3,041,000)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 57
BITSTREAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------------------- DECEMBER 31, ----------------------
1993 1994 1995 1995 1995 1996
----------- ----------- ---------- ------------ --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss).............................. $(4,805,000) $ 846,000 $1,688,000 $ 738,000 $ 849,000 $1,044,000
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities --
Depreciation and amortization................ 780,000 476,000 214,000 36,000 115,000 108,000
Deferred income tax benefit.................. -- -- -- (600,000) -- (158,000)
Net loss (gain) on disposal of property and
equipment.................................. 50,000 51,000 (14,000) (22,000) -- --
Issuance of common stock for services
rendered................................... -- -- 108,000 -- 108,000 --
Changes in assets and liabilities --
Accounts receivable........................ 714,000 1,272,000 (754,000) (613,000) (604,000) (299,000)
Long-term and extended plan accounts
receivable............................... 139,000 (277,000) 96,000 205,000 (238,000) (416,000)
Other assets............................... 1,930,000 554,000 24,000 (34,000) 65,000 (139,000)
Accounts payable........................... 187,000 (2,553,000) (453,000) (333,000) (161,000) (63,000)
Accrued expenses........................... (524,000) (30,000) (661,000) 319,000 (139,000) 82,000
----------- ----------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities............................... (1,529,000) 339,000 248,000 (304,000) (5,000) 159,000
----------- ----------- --------- --------- --------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment, net........ (272,000) (68,000) (197,000) (140,000) (76,000) (453,000)
Proceeds from sale of property and equipment... -- -- 60,000 24,000 -- 23,000
Decrease in other assets....................... 246,000 3,000 -- 1,000 -- --
----------- ----------- --------- --------- --------- ---------
Net cash used in investing activities.... (26,000) (65,000) (137,000) (115,000) (76,000) (430,000)
----------- ----------- --------- --------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from long-term debt................... -- -- -- 300,000 -- --
Payments on line of credit..................... (606,000) (194,000) -- -- -- (150,000)
Payments of long-term debt and capital lease
obligations.................................. (353,000) (496,000) (244,000) (26,000) (63,000) (74,000)
Proceeds from debt to stockholders............. -- -- -- -- -- 600,000
Increase in capital lease obligations.......... 178,000 -- -- -- 191,000
Change in other long-term liabilities.......... (4,000) (3,000) 2,000 12,000 4,000 (5,000)
Proceeds from the issuance of convertible and
mandatorily redeemable preferred stock....... 3,058,000 -- -- -- -- --
Receipts of payments on notes receivable....... 3,000 5,000 -- -- -- --
Proceeds from the exercise of stock options and
warrants..................................... -- -- -- -- -- 5,000
----------- ----------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities............................. 2,276,000 (688,000) (242,000) 286,000 (59,000) 567,000
----------- ----------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................... 721,000 (414,000) (131,000) (133,000) (140,000) 296,000
Cash and Cash Equivalents, beginning of period... 347,000 1,068,000 654,000 523,000 652,000 390,000
----------- ----------- --------- --------- --------- ---------
Cash and Cash Equivalents, end of period......... $ 1,068,000 $ 654,000 $ 523,000 $ 390,000 $ 512,000 $ 686,000
=========== =========== ========= ========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest......................... $ 275,000 $ 72,000 $ 16,000 $ 6,000 $ 18,000 $ 29,000
=========== =========== ========= ========= ========= =========
Cash paid for income taxes..................... $ 2,000 $ -- $ 5,000 $ 93,000 $ 40,000 $ 91,000
=========== =========== ========= ========= ========= =========
Supplemental Disclosure of Noncash Transactions:
Increase in property and equipment and capital
lease
obligations.................................. $ 15,000 $ -- $ 114,000 $ 124,000 -- $ 191,000
=========== =========== ========= ========= ========= =========
Decrease in additional paid-in capital due to
accretion of mandatorily redeemable preferred
stock........................................ $ 404,000 $ 1,107,000 $ 133,000 $ -- $ 66,000 $ --
=========== =========== ========= ========= ========= =========
Retirement of fully depreciated property and
equipment.................................... $ 270,000 $ 5,193,000 $ 25,000 $ 6,000 $ -- $ 2,000
=========== =========== ========= ========= ========= =========
Transfer of equipment under capital lease to
property and equipment owned by the
Company...................................... $ -- $ -- $ 374,000 $ -- $ -- $ --
=========== =========== ========= ========= ========= =========
Transfer of notes receivable into treasury
stock........................................ $ -- $ 230,000 $ -- $ -- $ -- $ --
=========== =========== ========= ========= ========= =========
Cancellation of notes receivable in exchange
for return of mandatorily redeemable
preferred stock.............................. $ -- $ 7,000 $ -- $ -- $ -- $ --
=========== =========== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 58
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Bitstream Inc. and subsidiaries (the "Company") develops and markets
software products and technologies to enhance the creation, transport, viewing
and printing of electronic documents.
The Company primarily licenses its products and technologies to OEMs and
ISVs for inclusion in their output devices, embedded systems, applications,
Internet authoring tools, World Wide Web browsers and other products. The
Company generally enters into a license with such customers and charges a
combination of licensing fees and royalty payments. In addition, Bitstream sells
custom and other type products directly to end users such a graphic artists,
desktop publishers and corporations.
In fiscal year 1993, the Company decided to curtail product distribution
through the computer software reseller channel and to concentrate the efforts of
the Company on the development and sale of technology and products to OEM and
ISV customers. In conjunction with this shift in strategic focus, the Company
reorganized its operations, changed its senior management and restructured the
Company's type design group. During November 1994 the Company consummated a plan
of recapitalization (see Note 10(a)).
The Company is subject to risks common to technology-based companies,
including dependence on key personnel, the ability to raise equity capital,
rapid technological change, competition from alternative product offerings and
larger companies, and challenges to the development and marketing of commercial
products and services.
The accompanying consolidated financial statements reflect the application
of certain accounting policies as described in this note and elsewhere in the
accompanying consolidated financial statements and notes. The preparation of the
accompanying consolidated financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Bitstream World Trade, Inc. (a
Delaware corporation), a holding company for Bitstream, B.V. (a Dutch
corporation); Bitstream S.A.R.L. (a French corporation); Bitstream Pacific Pty.
Ltd. (an Australian corporation); and Bitstream B.V. France (a French
corporation). All material intercompany transactions and balances have been
eliminated in consolidation.
(b) Interim Financial Presentation
The accompanying consolidated balance sheet as of June 30, 1996, the
accompanying consolidated statements of operations and cash flows for the six
months ended June 30, 1995 and 1996 and the accompanying consolidated statement
of stockholders' equity (deficit) for the six months ended June 30, 1996 are
unaudited but, in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
results for these interim periods. The results of operations for the six months
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the entire fiscal year.
(c) Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1 (SOP 91-1), Software Revenue Recognition. The
Company generates revenue from licensing the rights to include its software
products in the products and software of original equipment manufacturers
("OEMs"), and independent software vendors ("ISVs") as well as the licensing of
its software products to end users through direct and indirect sales channels.
Certain OEM and ISV customers irrevocably contract to pay a
F-7
<PAGE> 59
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
minimum royalty amount over a defined period in exchange for the right to
sublicense a certain number of the Company's software products over a specified
period. Other OEMs and ISVs elect to pay royalties on a pay-as-you-go basis
based on the sublicensing of the Company's software products to end users.
Revenue from guaranteed minimum royalty licenses is recognized upon
delivery of the software, while revenue on pay-as-you-go licenses is recognized
in the period when sublicenses to end users are reported to the Company by the
OEM or ISV customer. In certain guaranteed minimum royalty licenses, the Company
will enter into extended payment programs with creditworthy customers. If the
payments from the customer are to be received over a period greater than one
year, revenue is discounted to the present value of future minimum payments. To
date, the Company has not experienced any material collection difficulties with
the extended payment program receivables.
Revenue from end user product sales is recognized upon delivery of the
software, net of estimated returns and allowances, if there are no significant
postdelivery obligations and if collection is probable.
Cost of revenues consists of costs to distribute the product, including the
cost of the media on which it is delivered, internal production costs incurred
in the fulfillment of custom orders and fees paid to third parties for the
development of unique typeface designs.
(d) Research and Development Expenses
The Company has evaluated the establishment of technological feasibility of
its products in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, Accounting for the Costs of Computer Software To Be Sold, Leased
or Otherwise Marketed. The Company sells products in a market that is subject to
rapid technological change, new product development and changing customer needs.
The time period during which costs could be capitalized from the point of
reaching technological feasibility until the time of general product release is
very short, and consequently, the amounts that could be capitalized are not
material to the Company's financial position or results of operation. Therefore,
the Company has charged all such costs to research and development in the period
incurred.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less at the time of acquisition to be cash
equivalents and records such investments at cost. Effective October 1, 1994, the
Company adopted SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The adoption of this pronouncement did not have a material
impact on the Company's financial position or operations.
F-8
<PAGE> 60
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(f) Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- DECEMBER 31, JUNE 30,
1994 1995 1995 1996
---------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Equipment and computer software......... $1,328,000 $1,876,000 $2,047,000 $ 2,106,000
Equipment and computer software under
capital lease......................... 636,000 262,000 292,000 433,000
Furniture and fixtures.................. 187,000 239,000 239,000 236,000
Leasehold improvements.................. 200,000 200,000 200,000 432,000
---------- ---------- ---------- ----------
2,351,000 2,577,000 2,778,000 3,207,000
Less -- Accumulated depreciation and
amortization.......................... 2,098,000 2,273,000 2,248,000 2,356,000
---------- ---------- ---------- ----------
$ 253,000 $ 304,000 $ 530,000 $ 851,000
========== ========== ========== ==========
</TABLE>
Depreciation is provided on a straight-line basis over the estimated useful
lives of the related assets principally as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
--------------------------------------------------------------- --------------
<S> <C>
Equipment and computer software................................ 3 Years
Equipment and computer software under capital lease............ Life of lease
Furniture and fixtures......................................... 5 Years
Leasehold improvements......................................... Life of lease
</TABLE>
(g) Financial Instruments
The estimated fair value of the Company's financial instruments, which
include cash equivalents, accounts receivable and long-term debt, approximates
their carrying value. The accounts receivable balances in the accompanying
consolidated financial statements are presented net of the following allowances
for doubtful accounts and sales returns:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- DECEMBER 31, JUNE 30,
1994 1995 1995 1996
-------- -------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accounts receivable.................. $452,000 $247,000 $137,000 $ 322,000
Current portion of long-term accounts
receivable and extended plan
accounts receivable................ 32,000 31,000 31,000 53,000
-------- -------- -------- --------
$484,000 $278,000 $168,000 $ 375,000
======== ======== ======== ========
</TABLE>
(h) Foreign Currency Translation
The financial statements of the Company's foreign operations are translated
in accordance with SFAS No. 52, Foreign Currency Translation.
F-9
<PAGE> 61
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(i) Postretirement Benefits
The Company had no obligations under SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, as it does not currently offer
such benefits.
(j) Concentration of Credit Risk
The Company has no significant off-balance-sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements.
For the fiscal year ended September 30, 1993, one customer represented
approximately 13% of revenues. No single customer represented 10% or greater of
revenues for fiscal years ended September 30, 1994 or 1995. For the three-month
period ended December 31, 1995, one customer represented 16% of revenues. For
the six-month period ended June 30, 1996, one customer accounted for 10% of the
Company's revenues.
(k) Delaware Reincorporation
On May 21, 1996, Bitstream Inc. was reincorporated in the State of
Delaware. Every three shares of common and convertible preferred stock of the
Massachusetts company were exchanged for two shares of common and convertible
preferred stock, respectively, of the Delaware company. The authorized capital
stock of the Company consists of 30,500,000 shares of Common Stock, $0.01 par
value, (30,000,000 of which are authorized shares of Class A Common Stock and
500,000 of which are authorized shares of Class B Common Stock), and 10,000,000
shares of preferred stock, $0.01 par value, (6,000,000 shares of which are
authorized shares of Preferred Stock, 3,000,000 of which are authorized shares
of Class A Preferred Stock, and 1,000,000 shares of which are authorized shares
of Class B Preferred Stock). All share and per share information has been
restated to reflect this transaction.
(l) Restructuring Charge
In the first quarter of fiscal 1994, the Company undertook a plan of
reorganization and recorded a restructuring charge of $365,000 in the
accompanying consolidated statement of operations for the year ended September
30, 1994. The restructuring charge consists of severance pay for terminated
employees and loss recognized on the disposition of certain property and
equipment. Except for the recapitalization discussed in Note 10(a), the plan of
reorganization was completed by September 30, 1994.
(m) New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, which is effective for fiscal
1996. The Company has determined that it will elect the disclosure-only
alternative for employee stock-based compensation. The Company will be required
to disclose the pro forma net income or loss and per share amounts in the notes
to financial statements using the fair-value-based method for fiscal years
beginning in fiscal 1996, with comparable disclosures for fiscal 1995. The
Company has not determined the impact of these pro forma adjustments.
F-10
<PAGE> 62
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) FISCAL YEAR CHANGE
Effective December 31, 1995, the Company changed its financial reporting
year-end from September 30 to December 31.
The condensed consolidated statements of operations for the three months
ended December 31, 1994 and 1995 are presented in the following table for
comparative purposes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1994 1995
----------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $2,276,000 $2,355,000
Gross profit................................................ 2,003,000 1,944,000
Operating expenses.......................................... 1,261,000 1,694,000
Income before provision for (benefit from) income taxes..... 740,000 267,000
Income tax provision (benefit).............................. 17,000 (471,000)
---------- ----------
Net income........................................ $ 723,000 $ 738,000
========== ==========
</TABLE>
(3) PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Pro forma net income per common and common equivalent share for the year
ended September 30, 1995, the three months ended December 31, 1995, and the six
months ended June 30, 1996 have been determined in accordance with the modified
treasury stock method by dividing (i) net income increased by the effect of
reduced interest expense associated with the assumed repayment of certain
indebtedness as of the beginning of the period and by the effect of increased
interest income associated with the assumed investment in U.S. Government
securities as of the beginning of the period with the assumed proceeds from the
exercise of outstanding options and warrants by (ii) the pro forma weighted
average number of common and common equivalent shares outstanding, including the
dilutive effect of options and warrants and the number of shares of common stock
issuable upon conversion of Class A and Class B preferred stock and Class B
common stock. As required by the rules promulgated by the Securities and
Exchange Commission, shares, options or warrants issued at prices below the
offering price in the year before the Company's initial public offering have
been included in the calculation as if outstanding for all periods presented
using the treasury stock method.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, JUNE 30,
1995 1995 1996
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Preferred stock, convertible........................ 3,155,496 3,173,737 3,173,737
Common stock, Class A............................... 471,052 281,813 283,062
Common stock, Class B convertible................... 26,213 30,864 30,864
Common stock, Class C convertible................... 33,398 -- --
Mandatorily redeemable convertible preferred
stock............................................. 79,129 -- --
---------- ---------- ----------
Pro forma weighted average common shares
outstanding during the period........... 3,765,288 3,486,414 3,487,663
Dilutive effect of options granted within one year
of filing initial public offering registration
statement......................................... 34,841 34,841 34,841
Dilutive effect of common stock options and warrants
granted prior to one year from filing of initial
public offering registration statement............ 1,183,550 1,183,550 1,222,788
---------- ---------- ----------
</TABLE>
F-11
<PAGE> 63
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, JUNE 30,
1995 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Pro forma weighted average common and
common equivalent shares outstanding.... 4,983,678 4,704,805 4,745,292
========== ========== ==========
Net income, adjusted for assumed interest expense
savings and incremental interest income........... $ 1,918,000 $ 796,000 $1,131,832
========== ========== ==========
Pro forma net income per common and common
equivalent share.................................. $ 0.38 $ 0.17 $ 0.24
========== ========== ==========
</TABLE>
(4) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. A reconciliation between the provision for income
taxes computed at statutory rates and the amount reflected in the accompanying
consolidated statements of operations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
----------------------------------- DECEMBER 31, ---------------------
1993 1994 1995 1995 1995 1996
----------- --------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Computed expected federal tax
(benefit) provision.............. $(1,525,000) $ 333,000 $ 614,000 $ 91,000 $ 317,000 $ 326,000
State income taxes, net of federal
benefit.......................... (219,000) 96,000 112,000 29,000 80,000 78,000
State net operating loss
carryforwards.................... 228,000 (97,000) (102,000) (23,000) (75,000) (71,000)
Foreign losses not benefited....... 282,000 209,000 19,000 71,000 137,000 119,000
Foreign withholding taxes.......... 310,000 134,000 108,000 92,000 77,000 42,000
Domestic net operating loss
carryforwards.................... 1,243,000 (542,000) (633,000) (131,000) (453,000) (422,000)
Change in valuation allowance...... -- -- -- (600,000) -- (158,000)
----------- --------- --------- --------- --------- ---------
$ 319,000 $ 133,000 $ 118,000 $ (471,000) $ 83,000 $ (86,000)
=========== ========= ========= ========= ========= =========
</TABLE>
F-12
<PAGE> 64
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The following is a summary of the provision for (benefit from) income
taxes.
<TABLE>
<CAPTION>
THREE
MONTHS SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------ DECEMBER 31, -------------------
1993 1994 1995 1995 1995 1996
-------- -------- -------- ------------ ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Federal --
Current......................... $ 7,000 $ -- $ 8,000 $ 31,000 $26,000 $ 23,000
Deferred........................ -- -- -- (510,000) (22,000) (134,000)
---------- --------
- -
--------- --------- --------- ---------
7,000 -- 8,000 (479,000) 4,000 (111,000)
---------- --------
- -
--------- --------- --------- ---------
State --
Current......................... 2,000 (1,000) 2,000 6,000 8,000 7,000
Deferred........................ -- -- -- (90,000) (6,000) (24,000)
---------- --------
- -
--------- --------- --------- ---------
2,000 (1,000) 2,000 (84,000) 2,000 (17,000)
---------- --------
- -
--------- --------- --------- ---------
Foreign --
Current......................... 310,000 134,000 108,000 92,000 77,000 42,000
Deferred........................ -- -- -- -- -- --
---------- --------
- -
--------- --------- --------- ---------
310,000 134,000 108,000 92,000 77,000 42,000
---------- --------
- -
--------- --------- --------- ---------
$319,000 $133,000 $118,000 $ (471,000) $83,000 $ (86,000)
=========== ========= ========= ========= ========= =========
</TABLE>
The significant items comprising the deferred tax asset are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER
-------------------------- 31, JUNE 30,
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Assets --
Net operating loss carryforwards...... $ 4,876,000 $ 4,135,000 $ 3,873,000 $ 3,341,000
Tax credit carryforwards.............. 1,940,000 2,047,000 2,131,000 2,173,000
Other temporary differences........... 445,000 470,000 404,000 475,000
----------- ----------- ----------- -----------
Gross deferred tax asset...... 7,261,000 6,652,000 6,408,000 5,989,000
Valuation allowance................... (7,261,000) (6,652,000) (5,808,000) (5,231,000)
----------- ----------- ----------- -----------
Net deferred tax asset........ $ -- $ -- $ 600,000 $ 758,000
=========== =========== =========== ===========
</TABLE>
F-13
<PAGE> 65
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
At December 31, 1995, the Company has available federal and state net
operating loss carryforwards for income tax purposes and federal tax credit
carryforwards to reduce future federal income taxes, if any. These net operating
loss and tax credit carryforwards are subject to review and possible adjustment
by the Internal Revenue Service and expire as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
CREDIT NOLS
---------- ----------
<S> <C> <C>
1996......................................................... $ -- $ --
1997......................................................... 65,000 --
1998......................................................... 2,000 --
1999......................................................... 4,000 --
2000......................................................... 40,000 --
2001......................................................... 96,000 --
2002......................................................... 192,000 --
2003......................................................... 250,000 --
2004......................................................... 265,000 --
2005......................................................... 101,000 --
2006......................................................... 366,000 402,000
2007......................................................... 113,000 834,000
2008......................................................... 311,000 7,340,000
2009......................................................... 135,000 1,075,000
2010......................................................... 107,000 --
2011......................................................... 84,000 --
---------- ----------
$2,131,000 $9,651,000
========== ==========
</TABLE>
The Tax Reform Act of 1986 (the Reform Act) limits the amount of net
operating loss and credit carryforwards which companies may utilize in any one
year in the event of cumulative changes in ownership over a three-year period in
excess of 50%. The Company has assessed its status with respect to these
ownership changes which have occurred over the last three years, as well as the
change of ownership interests to be experienced with the proposed initial public
offering, and believes that its ability to utilize its existing net operating
loss and credit carryforwards will not be limited as a result of these changes
in ownership interests.
The Company has established a valuation allowance against its deferred tax
asset to the extent that it believes it is more likely than not these assets
will not be realized. In determining the amount of valuation allowance required,
the Company considers numerous factors, including historical profitability,
estimated future taxable income and the volatility of the industry in which it
operates.
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ DECEMBER 31, JUNE 30,
1994 1995 1995 1996
---------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accrued royalties................... $1,018,000 $ 569,000 $ 592,000 $ 561,000
Payroll and other compensation...... 460,000 123,000 357,000 304,000
Commissions......................... 90,000 79,000 91,000 122,000
Other............................... 186,000 322,000 372,000 507,000
---------- ---------- ---------- ----------
$1,754,000 $1,093,000 $1,412,000 $ 1,494,000
========== ========== ========== ==========
</TABLE>
F-14
<PAGE> 66
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) DEBT
(a) Line of Credit
On March 18, 1996, the Company amended its July 14, 1995 working capital
line-of-credit agreement with a bank to provide for borrowings up to $1,000,000
based on a percentage of qualified accounts receivable, as defined. This line
bears interest at various per annum rates between the prime rate (8.25% as of
June 30, 1996) plus 1% to 2%, depending on the occurrence of certain events, as
defined. As a component of this agreement, the Company can obtain up to $250,000
in letters of credit. Substantially all of the Company's assets are
collateralized under this agreement. The balance outstanding under this line was
$300,000 and $150,000, respectively as of December 31, 1995 and June 30, 1996.
The Company also amended and increased its $400,000 equipment term loan
agreement to $500,000 on March 18, 1996. This term loan bears interest at the
prime rate (8.25% as of June 30, 1996) plus 1.5% per annum or, if the Company so
chooses prior to September 1996, at a fixed rate based on the lender's current
market rate. The assets purchased with the use of these funds are collateralized
under this agreement. As of June 30, 1996, the Company has approximately
$274,000 outstanding under this term loan agreement, with 30 equal monthly
payments of principal and interest scheduled to be made beginning in October
1996.
(b) Capital Leases
The Company leases certain equipment under capital leases expiring through
fiscal 1998. These capital lease payments are due in equal monthly installments
and bear interest at rates ranging from 8% to 10.75%. Future minimum lease
payments under the capital lease obligations as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
1996............................................................ $153,000
1997............................................................ 86,000
1998............................................................ 58,000
1999............................................................ 31,000
2000............................................................ 39,000
--------
Total minimum lease payments............................ 367,000
Less -- Amount representing interest......................... 49,000
--------
Capital lease obligations............................ 318,000
Less -- Current portion...................................... 134,000
--------
$184,000
========
</TABLE>
(c) Subordinated Notes Payable to Stockholders
On February 22, 1996, the Company entered into agreements with certain
parties including certain directors and principal stockholders, pursuant to
which the Company borrowed an aggregate amount of $600,000. In connection with
these note payable agreements, the Company agreed to pay the principal amount
borrowed plus simple interest at 12% per annum on August 22, 1996. On August 22,
1996, the Company entered into an amendment to the notes pursuant to which the
maturity date was extended to October 22, 1996. These notes are subordinate to
all other debt facilities.
F-15
<PAGE> 67
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) OPERATING LEASES
The Company conducts its operations in leased facilities and is obligated
to pay monthly rent plus real estate taxes and certain operating expenses
through October 1998. Rent expense charged to operations for the years ended
September 30, 1993, 1994 and 1995 and the three months ended December 31, 1995
and the six months ended June 30, 1996 was approximately $704,000, $229,000,
$244,000, $54,000 and $134,000, respectively. Future minimum annual rent
commitments as of December 31, 1995 under the Company's leased facilities are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996.............................................................. $189,000
1997.............................................................. 189,000
1998.............................................................. 142,000
--------
$520,000
========
</TABLE>
(8) CONTINGENT LIABILITIES
On May 26, 1995, The Friends of the Museum of Printing, Inc. (the
plaintiff) filed a lawsuit in the Middlesex County Superior Court of
Massachusetts against the Company in connection with a letter agreement dated
July 23, 1992 from the Company to the Museum concerning storage of certain font
materials for the Museum. The letter provided that the Company would store and
maintain the font materials for a period of two years from the date of the
letter and that the Company would have no liability to the Museum, over and
above the proceeds of insurance, for damage or loss of any of the font
materials, and that neither the Company nor the Museum would incur any liability
to the other for any loss or damage arising out of their respective rights and
obligations set forth in the letter. The Museum alleges that after the two-year
storage period had expired, the Company disposed of the font materials.
The Company believes that its available insurance will cover any liability
incurred by the Company in connection with the lawsuit, except for certain
potential liabilities, up to a maximum of $1.01 million, subject to a $10,000
deductible. The Company further believes that its available insurance will cover
one-half of any liability incurred by the Company in excess of $1.01 million to
a maximum of $1.8 million. The Company's insurer is currently paying all of the
costs incurred by the Company in defending this lawsuit.
The Company has reserved the $10,000 deductible in the accompanying
consolidated financial statements as of June 30, 1996.
Pursuant to a letter dated May 6, 1996, a former director and officer of
the Company asserted that the Company has breached certain obligations he
alleges are due to him under a severance agreement dated May 22, 1991 (the
"Severance Agreement") between him and the Company. The former director and
officer claims that a provision in the Severance Agreement entitles him to
additional shares of Class A Common Stock and a reduction in the exercise price
of options to purchase Class A Common Stock held by him. The Company believes
that these claims are without merit and intends vigorously to contest their
validity. As of June 30, 1996, this former director and officer has not
commenced an action in any court in respect of the claims he has asserted
against the Company under the Severance Agreement.
F-16
<PAGE> 68
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Mandatorily redeemable convertible preferred stock at September 30, 1994
consisted of the following:
<TABLE>
<S> <C>
Mandatorily redeemable convertible preferred stock, Class H, $.01
par value --
Authorized -- 666,667 shares
Issued and outstanding -- 453,793 shares....................... $2,022,000
Mandatorily redeemable convertible preferred stock,
Class I, $.01 par value --
Authorized, issued and outstanding -- 66,667 shares............ 289,000
----------
Total mandatorily redeemable convertible preferred
stock................................................ $2,311,000
==========
</TABLE>
As of October 31, 1994, the Company was required to pay $2,042,000 to the
Class H preferred stockholders but was unable to meet its payment obligation.
The Class H stockholders ultimately agreed to exchange their mandatorily
redeemable convertible preferred stock in the Company's plan of recapitalization
(see Note 10(a)).
(10) STOCKHOLDERS' EQUITY
(a) Recapitalization
As a result of the reorganization of the Company's operations (see Note 1),
on November 21, 1994, the Company filed an amendment to its articles of
incorporation pursuant to a recapitalization plan approved by the Company's
Board of Directors and stockholders. Pursuant to the recapitalization, the
Company authorized 20,000,000 shares of Class A convertible common stock (Class
A Common Stock), 1,333,333 shares of Class B convertible common stock (Class B
Common Stock), 2,792,580 shares of Class A convertible preferred stock (Class A
Preferred Stock) and 391,162 shares of Class B convertible preferred stock
(Class B Preferred Stock) all having a par value of $.01 per share. In
connection with this recapitalization, (i) all outstanding shares of existing
Class A Common Stock, Class B Common Stock and Class A, B, C and D Convertible
Preferred Stock were converted into 281,813 shares of Class A Common Stock; (ii)
all outstanding shares of Class C Convertible Common Stock and Class E
Convertible Preferred Stock were converted into 30,864 shares of Class B Common
Stock; (iii) all outstanding shares of Class F Convertible Preferred Stock and
Class H and I Mandatorily Redeemable Convertible Preferred Stock were converted
into 2,782,575 shares of Class A Preferred Stock; and (iv) all outstanding
shares of Class G Convertible Preferred Stock were converted into 391,162 shares
of Class B Preferred Stock. In addition, the Board of Directors received 120,000
shares of Class A Common Stock valued at $108,000. These shares were issued as
compensation for prior services performed, and the value of the shares was
expensed to general and administrative expense in the accompanying consolidated
statement of operations for the year ended September 30, 1994.
F-17
<PAGE> 69
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Upon consummation of an underwritten public offering of common stock which
results in aggregate net cash proceeds to the Company of not less than
$5,000,000 and a minimum per share price of $3.00, all shares of Class A and B
Preferred Stock will be automatically converted into an equal number of shares
of Class A Common Stock and Class B Common Stock, respectively. The number of
common shares issuable upon conversion is as follows:
<TABLE>
<CAPTION>
AS
OUTSTANDING CONVERTED
----------- ---------
<S> <C> <C>
Class A Common....................................... 288,646 3,071,221
Class B Common....................................... 30,864 422,026
Class A Preferred.................................... 2,782,575 --
Class B Preferred.................................... 391,162 --
</TABLE>
(b) Convertible Preferred Stock
Class A Preferred Stockholders are entitled to the number of votes
equivalent to the number of shares of Class A Common Stock into which their
stock is convertible. The Class B Preferred Stock has rights similar to Class A
Preferred Stock, except it is nonvoting. Class A and B Preferred Stock may be
converted at the option of the holder into an equal number of shares of Class A
and B Common Stock, respectively.
The Class A and B Preferred Stockholders have a preference in liquidation
of $0.94 per share over Class A and B Common Stockholders. The Class A and B
Preferred Stockholders have the right to participate in dividends, if and when
declared by the Board of Directors, as though their shares had been converted
into common stock.
Convertible preferred stock consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- DECEMBER 31, JUNE 30,
1994 1995 1995 1996
------- ------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Convertible preferred stock, Class A, $.01 par
value -- Authorized -- 2,792,580 shares at
June 30, 1996
Issued and outstanding -- 636,787 shares in
1994 and 2,782,575 shares in 1995 and
1996....................................... $ 6,000 $28,000 $ 28,000 $28,000
Convertible preferred stock, Class B, $.01 par
value --
Authorized -- 391,162 shares at June 30, 1996
Issued and outstanding -- no shares in 1994
and 391,162 shares in 1995 and 1996........ -- 4,000 4,000 4,000
Convertible preferred stock, Class C, $.01 par
value --
Authorized -- no shares at June 30, 1996
Issued and outstanding -- 459,301 shares in
1994 and no shares in 1995 and 1996........ 5,000 -- -- --
Convertible preferred stock, Class D, $.01 par
value --
Authorized -- no shares at June 30, 1996
Issued and outstanding -- 102,881 shares in
1994 and no shares in 1995 and 1996........ 1,000 -- -- --
Convertible preferred stock, Class E, $.01 par
value --
Authorized -- no shares at June 30, 1996
Issued and outstanding -- 241,322 shares in
1994 and no shares in 1995 and 1996........ 3,000 -- -- --
Convertible preferred stock, Class F, $.01 par
value --
Authorized -- no shares at June 30, 1996
Issued and outstanding -- 1,221,200 shares in
1994 and no shares in 1995 and 1996........ 12,000 -- -- --
</TABLE>
F-18
<PAGE> 70
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, JUNE 30,
1994 1995 1995 1996
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Convertible preferred stock, Class G, $.01 par
value --
Authorized -- no shares at June 30, 1996
Issued and outstanding -- 391,163 shares in
1994 and no shares in 1995 and 1996........ 4,000 -- -- --
------- ------- ------- -------
$31,000 $32,000 $ 32,000 $32,000
======= ======= ======= =======
</TABLE>
(c) Common Stock
Class A Common Stockholders have full voting rights and vote together with
the holders of Class A Preferred Stock. Class A Common Stockholders have the
option, at any time, to convert any or all shares of Class A Common Stock held
into an equal number of shares of Class B Common Stock. The Class B Common Stock
has rights similar to Class A Common Stock, except it is nonvoting. The Class B
Common Stockholders have the option to convert any or all shares of Class B
Common Stock held into an equal number of shares of Class A Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------------------
CLASS A CLASS B CLASS C
---------------------- --------------------- ---------------------
NUMBER $.01 NUMBER $.01 NUMBER $.01
OF SHARES PAR VALUE OF SHARES PAR VALUE OF SHARES PAR VALUE
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1993................. 1,537,522 $ 15,000 -- $-- 221,641 $ 3,000
Exercise of stock options........ 67 -- -- -- -- --
---------- -------- ------ --- -------- -------
September 30, 1994................. 1,537,589 15,000 -- -- 221,641 3,000
Net adjustment to reflect the
recapitalization of the
Company....................... (1,255,776) (12,000) 30,864 -- (226,641) (3,000)
---------- -------- ------ --- -------- -------
September 30, 1995, December 31,
1995............................. 281,813 3,000 30,864 -- -- --
Exercise of stock options........ 6,833 -- -- -- -- --
---------- -------- ------ --- -------- -------
June 30, 1996 (unaudited).......... 288,646 $ 3,000 30,864 $-- -- $ --
========== ======== ====== === ======== =======
</TABLE>
(d) Stock Option Plans
On December 7, 1992, the Company adopted the 1993 Nonqualified Stock Option
Plan (the 1993 Plan). Options outstanding under the 1993 Plan as of June 30,
1996 are exercisable immediately, expire no later than 10 years from the date of
grant and were granted at no less than the fair market value on the date of
grant, as determined by the Board of Directors. Since the date of the
recapitalization, the Company has not granted, and does not intend to grant, any
additional options under the 1993 Plan.
In connection with the recapitalization, the Board of Directors approved
the 1994 Stock Plan (the 1994 Plan) under which the Company is authorized to
grant incentive stock options and nonqualified stock options (including
warrants) to purchase up to 1,833,333 shares of Class A Common Stock. Incentive
stock options granted under the 1994 Plan must be granted at no less than fair
market value of the shares at the date of grant, expire no later than 10 years
from the date of grant and vest over periods of up to three years.
As a result of the recapitalization, certain former employees holding stock
options for the purchase of an aggregate of 300,645 shares of Class A Common
Stock, at a price range of $.75 to $5.63 per share, had their existing options
adjusted to purchase an aggregate of 20,043 shares of Class A Common Stock, at a
price range of $11.25 to $84.38 per share. In addition, certain then current
employees who held stock options agreed
F-19
<PAGE> 71
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
to cancel their options to purchase 221,188 shares of Class A Common Stock at
$.75 per share, in exchange for the issuance of new options to purchase
1,371,811 shares of Class A Common Stock at $.90 per share.
Information concerning activity under these plans is as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES OPTION PRICE
--------- ---------------
<S> <C> <C>
Outstanding, September 30, 1993........................ 779,319 $ 1.75
Exercised............................................ (67) .75
Canceled............................................. (257,219) .75
--------- ----------------
Outstanding, September 30, 1994........................ 522,053 .75
Decrease for adjusted options........................ (300,845) .75 -- 5.63
Increase for adjusted options........................ 20,043 11.25 -- 84.38
Canceled............................................. (221,188) .75
Granted.............................................. 1,425,811 .90 -- 1.50
--------- ----------------
Outstanding, September 30, 1995........................ 1,445,854 .90 -- 84.38
Canceled............................................. (7,627) 1.50
Granted.............................................. 21,000 3.00
--------- ----------------
Outstanding, December 31, 1995......................... 1,459,227 .90 -- 84.38
Exercised............................................ (1,333) .90
Canceled............................................. (3,333) 1.50 -- 84.38
Granted.............................................. 21,266 3.00
--------- ----------------
Outstanding, June 30, 1996 (Unaudited)................. 1,475,827 $ .90 -- $84.38
========= ================
Exercisable, June 30, 1996 (Unaudited)................. 1,415,303 $ .90 -- $84.38
========= ================
</TABLE>
As of June 30, 1996 the Company had available for issuance stock options
and warrants to purchase 62 shares of Class A Common Stock pursuant to the 1994
Stock Plan.
On May 1, 1996, the Board of Directors adopted the 1996 Stock Plan under
which the Company is authorized to grant incentive stock options and
nonqualified stock options to purchase shares of Class A Common Stock. Options
granted under this plan shall be no less than 100% of the fair market value of
the shares on the date of grant and expire no later than 10 years from the date
of grant. In addition, the 1996 Stock Plan provides that options granted
thereunder, subject to future vesting, shall immediately vest upon the
occurrence of certain events, such as the sale of all or substantially all of
the assets of the Company or a change in control of the Company. To date, no
options have been granted under the 1996 Stock Plan. A total of 666,667 shares
of Class A Common Stock has been reserved for issuance under the 1996 Stock
Plan.
F-20
<PAGE> 72
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(e) Warrants
All warrants issued prior to the recapitalization remained outstanding,
subject to their initial vesting and expiration terms. Shares purchasable upon
the exercise of these warrants have been adjusted to reflect the effect of the
recapitalization. Additionally, the Company issued new warrants under the 1994
Plan for the purchase of 376,154 shares of Class A Common Stock at $0.90 to
$3.00 per share to several members of the Company's management team and Board of
Directors. Warrants to purchase 229,490 shares of Class A Common Stock were
fully vested upon issuance, and the warrants to purchase the remaining 136,667
shares vest in annual increments over a three-year period. As of June 30, 1996,
warrants to purchase the following classes of stock remained outstanding:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES WARRANTS
STOCK CLASS PURCHASABLE EXERCISABLE EXERCISE PRICE
------------------------------------------- ----------- --------- ----------------
<S> <C> <C> <C>
Class A Common Stock....................... 433,571 342,462 $.90 -- $111.15
Class B Common Stock....................... 13,038 13,038 $22.50
</TABLE>
(11) EMPLOYEE BENEFIT PLAN
The Company has an employee benefit plan under Section 401(k) of the
Internal Revenue Code. The plan allows employees to make contributions up to a
specified percentage of their compensation. Under the plan, the Company may, but
is not obligated to, match a portion of the employee's contribution up to a
defined maximum. The Company contributed $47,000, $16,000, $26,000, $6,000 and
$15,000 during the years ended September 30, 1993, 1994 and 1995, the
three-month periods ended December 31, 1995 and the six months ended June 30,
1996, respectively.
(12) RELATED PARTY TRANSACTIONS
An employee of a company which is an affiliate of the chairman of the
Company's Board of Directors (the Affiliate) rendered financial advisory
services to the Company on an as-needed basis. As compensation for the services
rendered, the Company paid the Affiliate a monthly fee and reimbursed the
Affiliate for reasonable expenses incurred by the Affiliate and/or the employee
in connection with the performance of services to the Company. Effective May 1,
1996, the employee became an employee of the Company. From July 1, 1993 through
December 31, 1995, the Company paid the Affiliate $5,000 per month for such
services; from January 1, 1996 through April 30, 1996, the Company paid $10,000
per month.
(13) OTHER INCOME (EXPENSE), NET
Other income (expense), net, consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31, JUNE 30,
------------------------------- ------------ -------------------
1993 1994 1995 1995 1995 1996
--------- -------- -------- ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Interest income................. $ 39,000 $ 10,000 $ 11,000 $ 2,000 $ 9,000 $ 13,000
Interest expense................ (275,000) (72,000) (16,000) (7,000) (22,000) (54,000)
Other........................... 218,000 22,000 16,000 22,000 (24,000) (3,000)
--------- -------- -------- ------- -------- --------
$ (18,000) $(40,000) $ 11,000 $ 17,000 $(37,000) $(44,000)
========= ======== ======== ======= ======== ========
</TABLE>
F-21
<PAGE> 73
BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(14) GEOGRAPHICAL INFORMATION
The Company's export sales from the United States to customers in foreign
countries are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31, JUNE 30,
---------------------------------------- ------------ -------------------------
1993 1994 1995 1995 1995 1996
---------- ---------- ---------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Europe......... $2,325,000 $2,344,000 $2,407,000 $ 775,000 $1,266,000 $1,606,000
Asia........... 1,951,000 1,485,000 1,177,000 548,000 779,000 344,000
Canada......... -- 149,000 894,000 28,000 597,000 794,000
Other.......... -- 94,000 73,000 7,000 24,000 82,000
---------- ---------- ---------- ---------- ---------- ----------
$4,276,000 $4,072,000 $4,551,000 $1,358,000 $2,666,000 $2,826,000
========== ========== ========== ========== ========== ==========
</TABLE>
F-22
<PAGE> 74
GRAPHIC ON INSIDE BACK COVER PAGE OF THE PROSPECTUS
Beneath a rectangular box containing a general statement of the Company's
business is a graphic illustration of how the Company's TrueDoc technology
operates on the Internet and corporate intranets. In the center of the top half
of the page is a computer screen containing a document created with a web
authoring tool containing a TrueDoc recorder. Each line of the document depicted
has letters and numbers exemplifying a different, and in some cases unusual,
typeface. A brief description of the Company's TrueDoc technology is set forth
to the left of the computer screen and a brief description of how the recorder
component of TrueDoc operates is set forth to the right of the computer screen.
On the bottom half of the page are two computer screens which depict how the
document set forth in the top screen might appear after being transported on the
Internet or corporate intranet. One of the computer screens illustrates how the
document depicted above might appear through a web browser containing the viewer
component of TrueDoc and the other illustrates how the document might appear
through a web browser without the viewer component of TrueDoc. The typefaces
contained on the computer screen without the TrueDoc viewer appear different
from that in the original document, intending to illustrate that a standard web
browser may not have the capability of displaying typefaces contained in the
original document because they are not installed on the viewer's system, and the
typefaces in the screen containing the TrueDoc viewer are, in all material
respects, exactly as they appear in the original document, intending to
illustrate that a browser with a TrueDoc viewer is able to display the typefaces
contained in the original document with true fidelity even when such typefaces
are not installed on the viewer's system. Directly beneath each screen at the
bottom of the page is a brief explanation of what the screen above it is
intending to illustrate.
<PAGE> 75
===============================================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 5
The Company............................... 10
Use of Proceeds........................... 10
Dividend Policy........................... 10
Capitalization............................ 11
Dilution.................................. 12
Selected Consolidated Financial Data...... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 14
Business.................................. 21
Management................................ 31
Certain Transactions...................... 37
Principal and Selling Stockholders........ 39
Description of Capital Stock.............. 42
Shares Eligible for Future Sale........... 45
Underwriting.............................. 47
Legal Matters............................. 48
Experts................................... 48
Additional Information.................... 48
Consolidated Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1996, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=============================================================================
3,000,000 SHARES
[BITSSTREAM LOGO]
CLASS A COMMON STOCK
--------------------
PROSPECTUS
, 1996
--------------------
VOLPE, WELTY & COMPANY
ADVEST, INC.
===============================================================================
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee, the NASD Filing Fee, and the Nasdaq Filing Fee) of
the fees and expanses all of which are payable by the Registrant, other than
underwriting discounts and commissions, in connection with the registration and
sale of the Class A Common Stock being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 11,897
NASD Filing Fee........................................................... 3,950
Nasdaq Filing Fee......................................................... 31,710
Fees of Registrar and Transfer Agent...................................... 5,000
Printing and Engraving.................................................... 125,000
Blue Sky Fees and Expenses................................................ 20,000
Legal Fees................................................................ 425,000
Accounting Fees and expenses.............................................. 175,000
Directors' and Officers' Insurance........................................ 75,000
Miscellaneous............................................................. 77,443
--------
Total........................................................... $950,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL provides that a corporation may indemnify its
directors and officers, with respect to suits or proceedings arising out of
their capacity or status as directors and officers, if such person shall have
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful; provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Company's Certificate of Incorporation provides that to the extent not
prohibited by law, and to the fullest extent authorized by the DGCL, the Company
shall indemnify any person who is or was made, or threatened to be made, a party
to any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Company to
procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Company, or is or was serving in any capacity at the request of
the Company for any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against judgments, fines, penalties,
excise taxes, amounts paid in settlement and costs, charges and expenses
(including attorneys' fees and disbursements. Rights to indemnification and
reimbursement or advancement of expenses shall continue as to a person who has
ceased to be a director or officer (or other person indemnified) and shall inure
to the benefit of the executors, administrators, legatees and distributees of
such person. The Certificate of Incorporation further provides that the right to
indemnification is a contract right and includes the right to be reimbursed or
advanced the funds necessary for payment of expenses, including attorneys' fees
and disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that, if required by
the DGCL, such expenses incurred by or on behalf of any director or officer or
other person may be paid in advance of the final disposition of a Proceeding
only upon receipt by the Company of an undertaking, by or on behalf of such
director or officer (or other person indemnified hereunder), to repay any such
amount so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right of appeal that such director,
officer or other person is not entitled to be indemnified for such expenses.
II-1
<PAGE> 77
The Company has entered into a separate indemnification agreement with each
of its directors which provides for mandatory indemnification arrangements
broader than that specifically provided by current Delaware law, including the
advancement of expenses incurred to defend actions brought against him or her in
his or her capacity as a director or agent of the Company.
Under the form of Underwriting Agreement filed as Exhibit 1.1 hereto, the
Underwriter is obligated, under certain circumstances, to indemnify directors
and officers of the Company against or otherwise certain liabilities, including
liabilities under the Securities Act.
The Company intends to purchase a general liability insurance policy which
covers certain liabilities of directors and officers of the Company arising out
of claims based on acts or omissions in their capacity as directors or officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
From June 1993 to June 30, 1996, the Company granted options and warrants
to purchase an aggregate of 1,833,271 shares of the Company's Class A Common
Stock to employees and directors with exercise prices ranging from $0.90 to
$3.00. During the fiscal quarter ended June 30, 1996, the Company issued an
aggregate of 6,833 shares of Class A Common Stock in connection with the
exercise of 6,833 vested options and warrants issued under the 1994 Stock Plan.
Of such options and warrants granted which remain outstanding, options and
warrants to purchase 1,674,805 shares are fully exercisable as of June 30, 1996,
and the remaining options and warrants to purchase 151,633 shares are subject to
further vesting. Additionally, on November 30, 1994, the Company issued 40,000
shares of Class A Common Stock to each of the three members of the Board in
discharge of $60,000 of unpaid directors fees due to each director for fiscal
years 1992 through 1994. (All numbers of Common Stock and prices per share
listed above have been adjusted for the 2-for-3 conversion effected in
connection with the Delaware Reincorporation.)
Except for the shares issued to the members of the Board, the sales and
issuances of securities in the transactions described above are deemed to be
exempt from registration under the Securities Act by virtue of Rule 701
promulgated thereunder, in that they were issued either pursuant to written
compensatory benefits plans or pursuant to a written contract relating to
compensation, as provided by Rule 701. The issuance of shares to the members of
the Board described above are deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) thereof as transactions by an issuer
not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.
<TABLE>
<C> <S>
1 Underwriting Agreement
1.1 Underwriting Agreement
3 Certificate of Incorporation and Bylaws
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company.
4 Instruments Defining the Rights of Security Holders
4.1 Specimen Common Stock Certificate.
5 Opinion Regarding Legality
*5.1 Opinion of Rubin Baum Levin Constant & Friedman
10 Material Contracts
10.1 1996 Stock Plan
10.2 1994 Stock Plan
10.3 Agreement and Plan of Recapitalization dated October 28, 1994
10.4 Lease between Athenaeum Group and the Registrant dated March 17, 1992
10.4.1 First Lease Amendment between Athenaeum Group and the Registrant dated
September 7, 1993
10.4.2 Second Lease Amendment between Athenaeum Group and the Registrant
dated July 13, 1994
10.4.3 Third Lease Amendment between Athenaeum Group and the Registrant dated
July 15, 1996
</TABLE>
II-2
<PAGE> 78
<TABLE>
<C> <S>
10.5 Bridge Loan Agreement, dated February 22, 1996 among the Registrant
and certain bridge lenders named therein
10.5.1 Amendment to Loan Agreement and to Waiver and Subordination Agreements
dated August 22, 1996 among the Registrant and certain bridge lenders
named therein
*#10.6 Software License Agreement between Novell, Inc. and the Registrant,
dated as of September 6, 1996
*#10.7 Agreement between Tumbleweed Software Corporation and the Registrant
dated as of June 10, 1996
10.8 Agreement dated as of May 1, 1996 among the Registrant and James D.
Hart
*10.9 Form of Indemnification Agreement between the Registrant, its
directors and certain of its officers
21 Subsidiaries of Registrant
21.1 Subsidiaries of the Registrant
23 Consents of Experts and Counsel
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Rubin Baum Levin Constant & Friedman (included in Item 5)
24 Power of Attorney
24.1 Power of Attorney (included on signature page)
27 Financial Data Schedule
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be provided by amendment.
# Confidential treatment to be requested as to certain provisions.
(b) Financial statement schedule.
Schedule I. Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities rising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Certificate of Incorporation, Bylaws, and indemnity
agreements, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement, to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts on this 6th day of September, 1996.
BITSTREAM INC.
By: /S/ C. RAYMOND BOELIG
------------------------------------
C. Raymond Boelig
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints C.
Raymond Boelig and James D. Hart and each of them, with full power of
substitution and resubstitution and full power to act without the other, as his
true and lawful attorney-in-fact and agent to act in his name, place and stead
and to execute in the name and on behalf of each person, individually and in
each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and any
subsequent Registration Statement for the same offering which may be filed under
Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated below on the dated indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/S/ AMOS KAMINSKI Chairman of the Board and September 6, 1996
- ------------------------------------------ Director
Amos Kaminski
/S/ C. RAYMOND BOELIG President, Chief Executive September 6, 1996
- ------------------------------------------ Officer and Director
C. Raymond Boelig (Principal Executive
Officer)
/S/ JAMES D. HART Vice President, Finance September 6, 1996
- ------------------------------------------ and Administration,
James D. Hart Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
/S/ DAVID G. LUBRANO Director September 6, 1996
- ------------------------------------------
David G. Lubrano
/S/ GEORGE B. BEITZEL Director September 6, 1996
- ------------------------------------------
George B. Beitzel
</TABLE>
II-4
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Bitstream Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Bitstream Inc. and subsidiaries
included in this registration statement and have issued our report thereon dated
April 30, 1996 (except with respect to the matters discussed in Note 1(k) and
Note 10(d), as to which the date is May 21, 1996). Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedule for the Valuation and Qualifying Accounts
included herein is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states, in all material respects, the financial data required to be set
forth therein, in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 30, 1996 (except with respect
to the matters discussed in Note 1(k)
and Note 10(d), as to which the
date is May 21, 1996)
S-1
<PAGE> 81
SCHEDULE I
BITSTREAM INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NET
BALANCE, PROVISIONS DEDUCTIONS
BEGINNING OF CHARGED TO FROM BALANCE, END
DESCRIPTION PERIOD OPERATIONS ALLOWANCES OF PERIOD
- ------------------------------------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Year Ended September 30, 1993 --
Bad debt reserve........................ $ 779,000 $ 80,000 $ (676,000) $ 91,000
Sales returns and allowances reserve.... 4,500,000 -- (3,613,000) 887,000
Self-insurance reserve.................. 117,000 588,000 (571,000) 134,000
Year Ended September 30, 1994 --
Bad debt reserve........................ 183,000 302,000 (252,000) 233,000
Sales returns and allowances reserve.... 887,000 -- (636,000) 251,000
Self-insurance reserve.................. 134,000 188,000 (261,000) 61,000
Year Ended September 30, 1995 --
Bad debt reserve........................ 233,000 (25,000) (27,000) 181,000
Sales returns and allowances reserve.... 251,000 -- (154,000) 97,000
Self-insurance reserve.................. 61,000 168,000 (176,000) 53,000
Three Months Ended December 31, 1995 --
Bad debt reserve........................ 181,000 12,000 (60,000) 133,000
Sales returns and allowances reserve.... 97,000 136,000 (198,000) 35,000
Self-insurance reserve.................. 53,000 58,000 (45,000) 66,000
</TABLE>
S-2
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
----- -----
<C> <S> <C>
1 Underwriting Agreement
1.1 Underwriting Agreement
3 Certificate of Incorporation and Bylaws
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4 Instruments Defining the Rights of Security Holders
4.1 Specimen Common Stock Certificate.
5 Opinion Regarding Legality
*5.1 Opinion of Rubin Baum Levin Constant & Friedman
10 Material Contracts
10.1 1996 Stock Plan
10.2 1994 Stock Plan
10.3 Agreement and Plan of Recapitalization dated October 28, 1994
10.4 Lease between Athenaeum Group and the Registrant dated March 17,
1992
10.4.1 First Lease Amendment between Athenaeum Group and the Registrant
dated September 7, 1993
10.4.2 Second Lease Amendment between Athenaeum Group and the
Registrant dated July 13, 1994
10.4.3 Third Lease Amendment between Athenaeum Group and the Registrant
dated July 15, 1996
10.5 Bridge Loan Agreement, dated February 22, 1996 among the
Registrant and certain bridge lenders named therein
10.5.1 Amendment to Loan Agreement and to Waiver and Subordination
Agreements dated August 22, 1996 among the Registrant and
certain bridge lenders named therein
*#10.6 Software License Agreement between Novell, Inc. and the
Registrant, dated as of September 6, 1996
*#10.7 Agreement between Tumbleweed Software Corporation and the
Registrant dated as of June 10, 1996
10.8 Agreement dated as of May 1, 1996 among the Registrant and James
D. Hart
*10.9 Form of Indemnification Agreement between the Registrant, its
directors and certain of its officers
21 Subsidiaries of Registrant
21.1 Subsidiaries of the Registrant
23 Consents of Experts and Counsel
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Rubin Baum Levin Constant & Friedman (included in
Item 5)
24 Power of Attorney
24.1 Power of Attorney (included on signature page)
27 Financial Data Schedule
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be provided by amendment.
# Confidential treatment to be requested as to certain provisions.
<PAGE> 1
EXHIBIT 1.1
Draft Dated 8/30/96
3,000,000 Shares(1)
BITSTREAM INC.
Common Stock
UNDERWRITING AGREEMENT
_________, 1996
Volpe, Welty & Company
Advest, Inc.
As Representatives of the Several Underwriters
c/o Volpe, Welty & Company
One Maritime Plaza, 11th Floor
San Francisco, California 94111
Dear Sirs and Madams:
Bitstream Inc., a Delaware corporation (the "Company"), proposes to issue
and sell 2,100,000 shares of its authorized but unissued Class A Common Stock,
$.01 par value (the "Common Stock"), and the stockholders of the Company named
in Schedule II hereto propose to sell an aggregate of 900,000 shares of Common
Stock of the Company (the "Firm Shares"). The Company and certain of the
stockholders of the Company named in Schedule III hereto (collectively with the
stockholders named in Schedule II, the "Selling Securityholders") propose to
grant to the Underwriters (as defined below) an option to purchase up to 450,000
additional shares of Common Stock (the "Optional Shares" and, with the Firm
Shares, collectively, the "Shares"). The Common Stock is more fully described in
the Registration Statement and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the shares by the several
underwriters, for whom you are acting, named in Schedule I hereto (collectively,
the "Underwriters," which term shall also include any underwriter purchasing
Common Stock pursuant to Section 3(b) hereof). You represent and warrant that
you have been authorized by each of the other Underwriters to enter into this
Agreement on its behalf and to act for it in the manner herein provided.
Amos Kaminski, C. Raymond Boelig, James D. Hart, David G. Lubrano and
George B. Beitzel are hereinafter collectively referred to as the "Principal
Securityholders."
- --------
1 Plus an option to purchase from the Company and certain Selling
Securityholders up to 450,000 additional shares to cover over-allotments.
<PAGE> 2
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
SECURITYHOLDERS. The Company and each of the Principal Securityholders hereby
represent and warrant to the several Underwriters as of the date hereof and as
of each Closing Date (as defined below) that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-_____), including the related preliminary prospectus, for the registration
under the Securities Act of 1933, as amended (the "Securities Act") of the
Shares. Copies of such registration statement and of each amendment thereto, if
any, including the related preliminary prospectus (meeting the requirements of
Rule 430A of the rules and regulations of the Commission) heretofore filed by
the Company with the Commission have been delivered to you and are identical to
the electronically transmitted copies thereof filed with the Commission pursuant
to the Commission's Electronic Data Gathering, Analysis and Retrieval ("EDGAR"),
except to the extent permitted by Regulation S-T.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Shares first filed with the Commission pursuant to Rule 424(b) and Rule 430A
of the rules and regulations of the Commission (or if no such filing is
required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall also
mean (from and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term Preliminary Prospectus as used in this Agreement shall mean each
preliminary prospectus included in such registration statement prior to the time
it becomes effective. For purposes of this Agreement, all references to the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement to any of the foregoing shall be deemed to include the
applicable copy filed with the Commission pursuant to EDGAR.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
(b) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus and as being conducted, and
-2-
<PAGE> 3
is duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary (except
where the failure to be so qualified would not have a material adverse effect on
the business, business prospects, properties, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries, taken as a whole
(a "Material Adverse Effect")).
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 to the Registration Statement. Except as
described in the Prospectus, the Company owns all of the outstanding capital
stock of its subsidiaries free and clear of all claims, liens, charges and
encumbrances. The Company and each of its subsidiaries are in possession of and
operating in compliance with all material authorizations, licenses, permits,
consents, certificates and orders ("Permits") material to the conduct of their
respective businesses as described in the Prospectus, all of which are valid and
in full force and effect, except for any such Permits the absence of which or
the noncompliance with which or the failure to be valid and in full force and
effect could not reasonably be expected to result in a Material Adverse Effect.
(d) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, business prospects, properties,
condition (financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has entered
into any material transaction not referred to in the Registration Statement and
the Prospectus.
(e) The Registration Statement and the Prospectus comply, and
on the Closing Date (as hereinafter defined) and any later date on which
Optional Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Optional Shares are to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (e) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for use
in the Registration Statement or the Prospectus.
(f) The Company has authorized and outstanding capital stock as
set forth under the heading "Capitalization" in the Prospectus. The issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been
-3-
<PAGE> 4
issued in compliance with all federal and state securities laws, and were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities which rights were not waived in writing at
the time of issuance. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
any outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required by the Securities Act and the rules and regulations of the Commission
thereunder to be shown with respect to such plans, arrangements, options and
rights.
(g) The Shares are duly authorized, are (or, in the case of
Shares to be sold by the Company, will be, when issued and sold to the
Underwriters against payment therefor, as provided herein) validly issued, fully
paid and nonassessable and conform to the description thereof in the Prospectus.
No further approval or authority of the stockholders or the Board of Directors
of the Company will be required for the transfer and sale of the Shares to be
sold by the Selling Securityholders or the issuance and sale of the Shares to be
sold by the Company as contemplated herein.
(h) The Shares to be sold by the Selling Securityholders are
listed and duly admitted to trading on the Nasdaq National Market, and prior to
the Closing Date, the Shares to be issued and sold by the Company will be
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
(i) The Shares to be sold by the Company will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, and will conform to the description thereof contained in the
Prospectus. No preemptive right, co-sale right, right of first refusal or other
similar right to subscribe for or purchase securities of the Company which has
not been waived in writing exists with respect to the sale of the Shares by the
Selling Securityholders and the issuance and sale of the Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived, or complied with, to require the Company to register the
sale of any shares owned by such stockholder under the Securities Act in the
public offering contemplated by this Agreement.
(j) The Company has full corporate power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium laws affecting creditors' rights generally and except as
to those provisions relating to indemnity or contribution for liabilities
arising under federal and state securities laws. The making
-4-
<PAGE> 5
and performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby (i) will not violate any provisions of the
Certificate of Incorporation, Bylaws or other organizational documents of the
Company or any of its subsidiaries, and (ii) will not conflict with, result in a
material breach or material violation of, or constitute, either by itself or
upon notice or the passage of time or both, a material default under (A) any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or any of their respective
properties may be bound or affected, or (B) any statute or any authorization,
judgment, decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Company or
any of its subsidiaries or any of their respective properties. No consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body that has not already been
obtained is required for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions contemplated by
this Agreement, except for compliance with the Securities Act, state Blue Sky
laws applicable to the public offering of the Shares by the several Underwriters
and the clearance of such offering with the NASD.
(k) The consolidated financial statements and schedules of the
Company and the related notes thereto included in the Registration Statement and
the Prospectus present fairly on a consolidated basis the financial position of
the Company and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and cash flows of the
Company and its subsidiaries for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified, as certified by the independent accountants
named in subsection 1(ac). No other financial statements or schedules are
required to be included in the Registration Statement. The selected financial
data set forth in the Prospectus under the captions "Capitalization" and
"Selected Consolidated Financial Information" fairly present the information set
forth therein on the basis stated in the Registration Statement.
(l) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance in all material respects with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance in all material respects with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
representations and warranties given by the Company and its officers to its
independent public accountants for the purpose of supporting the letters
referred to in Section 10(f) are true and correct in all material respects.
(m) Neither the Company nor any of its subsidiaries is (i) in
violation or default of any provision of its Certificate of Incorporation,
Bylaws or other organizational documents, or (ii) in a breach of or default with
respect to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound; and
there does not exist any
-5-
<PAGE> 6
state of facts which, with notice or lapse of time or both would constitute such
a breach or default on the part of the Company and its subsidiaries, taken as a
whole, except in the case of clause (ii) for such breaches or defaults which
individually or in the aggregate would not have a Material Adverse Effect.
(n) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations of
the Commission thereunder which have not been described or filed as required.
The contracts so described in the Prospectus are in full force and effect on the
date hereof.
(o) Except as disclosed in the Prospectus, there are no legal
or governmental actions, suits or proceedings pending or, to the knowledge of
the Company, threatened to which the Company or any of its subsidiaries is or,
to the knowledge of the Company, is threatened to be made a party or of which
property owned or leased by the Company or any of its subsidiaries is or, to the
knowledge of the Company, is threatened to be made the subject, which actions,
suits or proceedings could, if determined adversely to the Company or any of its
subsidiaries, individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or result in a material adverse
change in the business, business prospects, properties, condition (financial or
otherwise), or results of operations of the Company and its subsidiaries taken
as a whole; and no labor disturbance by the employees of the Company or any of
its subsidiaries exists or, to the knowledge of the Company, is imminent which
could materially adversely affect the business, business prospects, properties,
condition (financial or otherwise), or results of operations of the Company and
its subsidiaries taken as a whole. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body, administrative agency
or other governmental body. Except as disclosed in the Prospectus, there are no
material legal or governmental actions, suits or proceedings pending or, to the
Company's and the Principal Securityholders' knowledge, threatened against any
executive officers or directors of the Company.
(p) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), (ii) liens to be satisfied or discharged upon repayment of
indebtedness with the proceeds of the Offering as disclosed in the Prospectus
under the caption "Use of Proceeds," or (iii) those which could not reasonably
be expected to have a Material Adverse Effect, and do not materially adversely
affect the use made and proposed to be made of such property by the Company or
its subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases except where the failure of a lease to
be valid and binding could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Except as disclosed in the
Prospectus, the Company owns or leases all such properties as are materially
necessary to its operations as now conducted or as proposed to be conducted.
-6-
<PAGE> 7
(q) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not (A) incurred any material liabilities or obligations,
indirect, direct or contingent, or (B) entered into any oral or written
agreement or other transaction, which in the case of (A) or (B) is not in the
ordinary course of business; (ii) the Company and its subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company and its subsidiaries have not paid
or declared any dividends or other distributions with respect to their
respective capital stock and the Company and its subsidiaries are not in default
in the payment of principal or interest on any outstanding debt obligations
which default could have a Material Adverse Effect; (iv) there has not been any
change in the capital stock of the Company or its subsidiaries (other than upon
the sale of the Shares hereunder or upon the exercise of any options or warrants
or conversion of any convertible securities disclosed in the Prospectus); (v)
there has not been any material increase in the short- or long-term debt of the
Company and its subsidiaries; and (vi) there has not been any material adverse
change or any development involving or which may reasonably be expected to
involve a prospective material adverse change, in the business, business
prospects, condition (financial or otherwise), properties, or results of
operations of the Company and its subsidiaries taken as a whole.
(r) The Company is and its subsidiaries are conducting business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which they are conducting business, except where the failure to
be so in compliance would not have a material adverse effect on the business,
business prospects, properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries taken as a whole.
(s) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns required to have
been filed as of the date hereof, and all such tax returns are complete and
correct in all material respects, and the Company and its subsidiaries have not
failed to pay any taxes which were payable pursuant to said returns or any
assessments with respect thereto other than those being contested in good faith
and for which adequate reserves have been provided or those currently payable
without penalty or interest. The Company has no knowledge of any material tax
deficiency which has been or is likely to be threatened or asserted against the
Company or its subsidiaries.
(t) The Company has not distributed, and will not distribute
prior to the later to occur of (i) completion of the distribution of the Shares,
or (ii) the expiration of any time period within which a dealer is required
under the Securities Act to deliver a prospectus relating to the Shares, any
offering material in connection with the offering and sale of the Shares other
than the Prospectus, the Registration Statement and any other materials
permitted by the Securities Act and consented to by the Underwriters.
(u) Each of the Company and its subsidiaries maintains
insurance of the types and in the amounts generally deemed adequate for its
business, including, but not limited to, directors' and officers' insurance,
insurance covering real and personal property owned or leased by the
-7-
<PAGE> 8
Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect. The Company has not been refused any
insurance coverage sought or applied for, and the Company has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
adversely affect the business, business prospects, properties, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries taken as a whole.
(v) Neither the Company nor any of its subsidiaries nor, to the
best of the Company's or the Principal Securityholders' knowledge, any of their
employees or agents has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
foreign, federal or state governmental officer or official or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(w) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(x) The Company has caused (i) each of its executive officers
and directors as set forth in the Prospectus and (ii) the holders of Common
Stock (including shares issuable upon the exercise or conversion of any option,
warrant or other security) listed on Schedule IV hereto, to furnish to Volpe,
Welty & Company as a representative of the Underwriters an agreement in form and
substance satisfactory to Volpe, Welty & Company pursuant to which each such
party has agreed that without the prior written approval of Volpe, Welty &
Company, such party will not during the period of one hundred eighty (180) days
after the date the Registration Statement becomes effective (A) offer, sell,
contract to sell, make any short sale (including without limitation a short
against the box), pledge or otherwise dispose of, directly or indirectly, any
shares of the Company's Common Stock, or Class B Common Stock, $.01 par value
per share ("Class B Common Stock"), options to acquire Common Stock or Class B
Common Stock or securities convertible into or exchangeable for, or any other
rights to purchase or acquire, the Company's Common Stock or Class B Common
Stock beneficially owned by such persons (as determined in accordance with the
rules and regulations of the Commission) (collectively "Restricted Securities")
or (B) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of Common Stock or Class B
Common Stock, whether any such transaction described in (A) or (B) is to be
settled by delivery of Common Stock or Class B Common Stock or such other
securities, in cash or otherwise. The lock-up restriction of the foregoing
sentence shall not apply to (i) the shares to be sold to the Underwriters
pursuant to this Agreement (including, without limitation, the Optional Shares);
(ii) the sale of shares purchased in the open market after the date the
Registration Statement becomes effective or (iii) the exercise or conversion of
outstanding options, warrants or convertible securities during any such period
(but such lock-up restrictions do apply to any
-8-
<PAGE> 9
subsequent sale of shares received upon such exercise or conversion). The
foregoing lock-up restriction is expressly agreed to preclude the holder of
Restricted Securities from engaging in any hedging or other transaction that is
designed to or could reasonably be expected to lead to, or result in, a
disposition of Restricted Securities during the applicable lock-up period even
if such Restricted Securities would be disposed of by the holder subsequent to
the applicable lock-up period or by someone other than the original holder.
Notwithstanding the foregoing, any transfer of Restricted Securities which
either (i) constitutes a pro rata distribution of a partnership or a corporation
to its partners or its stockholders, respectively, or (ii) constitutes a bona
fide gift of such shares, will not require the consent of Volpe, Welty &
Company; provided, that the transferee enters into a lock-up agreement in
substantially this form covering the remainder of such lock-up period.
(y) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba.
(z) The Company owns or has the right to utilize, pursuant to a
license, a sublicense, an agreement, written permission or otherwise, all
Intellectual Property (as defined below) used in or necessary to conduct its
business as presently conducted and as presently proposed to be conducted in all
material respects; moreover, each item of Intellectual Property owned or used by
the Company in its business as presently conducted or presently proposed to be
conducted, will be owned or available to the Company on identical terms and
conditions immediately subsequent to the closing of the sale of the Shares. The
Company has taken all commercially reasonable action to maintain and protect
each material item of Intellectual Property that the Company owns or uses. As
far as the Company can reasonably foresee, the expiration of any Intellectual
Property or governmental authorizations would not have a Material Adverse
Effect, except that early termination or revocation of, or failure to renew, the
license rights granted from Novell, Inc. could have a Material Adverse Effect on
the Company. Neither the Company nor any Principal Securityholder has any
knowledge of an infringement or misappropriation by the Company or its
subsidiaries of any Intellectual Property rights of third parties. Neither the
Company nor any Principal Securityholder have any knowledge that the continued
operation of the business of the Company as presently conducted or presently
proposed to be conducted, would interfere with, infringe upon or misappropriate
any Intellectual Property rights of third parties; and no claims, charges,
complaints, or notices have been received by the Company or, to the knowledge of
the Company, are threatened against the Company or its subsidiaries regarding
any Intellectual Property rights of any third party. All copyright registrations
material to the Company in conducting its present business and presently
proposed business are valid, in full force and effect except for such instances
as would not have a Material Adverse Effect; all trademark applications and
registrations material to the Company in conducting its present business and
presently proposed business are valid, in full force and effect and the
description of the goods and services specified in such applications and
registrations reflect in all material respects the goods and services provided
by and/or sold by the Company in connection with its use of the applicable
Intellectual Property; all issued patents material to the Company in conducting
its present business and presently proposed business are valid and enforceable;
and all patent, trademark and copyright related
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<PAGE> 10
ownership documents which purport to have been duly recorded have been duly
recorded at and by the appropriate patent, trademark and copyright offices; no
pending patent or trademark application in respect of any patent or trademark
material to the Company is subject to any governmental proceeding regarding
ownership rights, all applicable taxes, annuities and maintenance fees relevant
to the Company's material Intellectual Property have been or can be timely paid.
As used in this Agreement, the term "Intellectual Property"
means (a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, divisions, reissues, revisions, extensions
and reexaminations thereof in any jurisdiction, (b) all trademarks, service
marks, trade dress, logos, trade names, corporate names, together with all
translations, adaptations, derivations and combinations thereof and all
applications, registrations and renewals in connection therewith, (c) all
copyrightable works, all copyrights and all registration applications,
registrations and renewals in connection therewith, (d) all mask works and all
applications, registrations and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, discoveries, know-how, formulas, source code, data structures, font
designs, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information and business and marketing plans and proposals),
(f) all proprietary computer software (including data and related documentation)
except over the counter software, (g) all other proprietary rights, (h) all
copies and tangible embodiments thereof (in whatever form or medium) and all
licenses or agreements in connection with the foregoing.
(aa) Except as disclosed in the Prospectus and except as could not,
singly or in the aggregate, reasonably be expected to have a Material Adverse
Effect, (i) the Company and its subsidiaries are in compliance in all material
respects with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Laws") which are applicable to their business, (ii)
neither the Company nor any of its subsidiaries has received any written notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, (iii) no facts currently exist that will require the Company
or any of its subsidiaries to make future material capital expenditures to
comply with Environmental Laws, and (iv) to the knowledge of the Company and the
Principal Securityholders, no property which is or has been owned, leased or
occupied by the Company or any of its subsidiaries has been designated as a
Superfund site pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(ab) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(ac) Arthur Andersen LLP, which has certified the consolidated
financial statements of the Company filed with the Commission as part of the
Registration Statement, are independent
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<PAGE> 11
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations thereunder.
SECTION 2. REPRESENTATIONS AND WARRANTIES, AND COVENANTS, OF THE SELLING
SECURITYHOLDERS.
Each of the Selling Securityholders, severally and not jointly,
represents and warrants and covenants to the several Underwriters as of the date
hereof and as of each Closing Date hereinafter mentioned that:
(a) Each such Selling Securityholder (other than Principal
Securityholders) has read the representations and warranties of the Company and
the Principal Securityholders and, although such Selling Securityholder has not
independently verified the accuracy of such representations and warranties or
conducted any due diligence investigation of the Company, such Selling
Securityholder has no knowledge that such representations and warranties of the
Company and the Principal Securityholders contained in Section 1 are not true
and correct in all material respects.
(b) Such Selling Securityholder has good and valid title to the Shares
to be sold by such Selling Securityholder hereunder, free and clear of all
voting trust agreements, restrictions on transfer, pledges, liens, encumbrances,
equities, security interests and claims whatsoever, with full right and
authority to deliver the same hereunder, subject, in the case of each Selling
Securityholder, to the rights of _____________ , as Custodian (the "Custodian"),
and that upon the delivery of and payment for such Shares hereunder, the several
Underwriters will receive good and marketable title thereto, free and clear of
all voting trust agreements, restrictions on transfer, pledges, liens,
encumbrances, equities, security interests and claims whatsoever.
(c) Certificates in negotiable form for the Shares to be sold by such
Selling Securityholder have been placed in custody with the Custodian under a
Custody Agreement for delivery under this Agreement; such Selling Securityholder
specifically agrees that the Shares represented by the certificates so held in
custody for such Selling Securityholder are subject to the interests of the
several Underwriters and the Company, that the arrangements made by such Selling
Securityholder for such custody, including the Power of Attorney referred to in
such Custody Agreement, are to that extent irrevocable, and that the obligations
of such Selling Securityholder hereunder and under the Custody Agreement and the
Power of Attorney shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity of
such Selling Securityholder (or, in the case of a Selling Securityholder that is
not an individual, the dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur before the
delivery of the Shares hereunder, certificates for the Shares shall be delivered
by the Custodian in accordance with the terms and conditions of this Agreement
as if such death, incapacity, dissolution, liquidation or other event had not
occurred, regardless of whether the Custodian shall have received notice of such
death, incapacity, dissolution, liquidation or other event.
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<PAGE> 12
(d) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has not
independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder to believe that (i)
on the Effective Date, the Registration Statement contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, (ii) on the Effective Date the Prospectus contained and, on the Closing
Date (and, in the case of Selling Securityholders listed on Schedule III, any
later date on which Optional Shares are to be purchased) contains any untrue
statement of a material fact or omitted or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(e) All information in the Registration Statement or the Prospectus,
or any amendment or supplement thereto, relating to such Selling Securityholder
(including, without limitation, the information relating to the Selling
Securityholder which is set forth in the Prospectus under the caption "Principal
and Selling Stockholders"), and all representations and warranties of such
Selling Securityholder in the Custody Agreement are true and correct in all
material respects and do not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the information in the light of the circumstances under which they were
made not misleading. The sale of the Shares by such Selling Securityholder
pursuant hereto is not prompted by such Selling Securityholder's knowledge of
any material adverse information concerning the Company or any of its
subsidiaries which is not set forth in the Prospectus.
(f) Such Selling Securityholder has full power and authority to enter
into this Agreement and the Custody Agreement and perform the transactions
contemplated hereby and thereby. This Agreement and the Custody Agreement have
been duly authorized, executed and delivered by or on behalf of such Selling
Securityholder and the form of such Securityholder Agreement has been delivered
to you.
(g) The making and performance of this Agreement and the Custody
Agreement and the consummation by such Selling Securityholder of the
transactions contemplated hereby and thereby will not result in a breach or
violation by such Selling Securityholder of any of the terms or provisions of,
or constitute a default by such Selling Securityholder under, any material
indenture, mortgage, deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other material agreement or instrument
to which such Selling Securityholder is a party or by which such Selling
Securityholder or any of its properties is bound, any statute, or any judgment,
decree, order, rule or regulation of any court or governmental agency or body,
domestic or foreign, applicable to such Selling Securityholder or any of its
properties, nor will such action result in any violation of the provisions of
the certificate of incorporation or by-laws of such Selling Securityholder if
such Selling Securityholder is a corporation, the partnership agreement or other
governing documents of such Selling Securityholder if such Selling
Securityholder is a limited or general partnership, or the governing documents
of such Selling Securityholder if such Selling Securityholder is organized as a
limited liability company, limited liability partnership, partnership,
association or other entity.
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<PAGE> 13
(h) Such Selling Securityholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(i) Each such Selling Securityholder agrees that without the prior
written approval of Volpe, Welty & Company, such Selling Securityholder will not
during the period of one hundred eighty (180) days after the date the
Registration Statement becomes effective (A) offer, sell, contract to sell, make
any short sale (including without limitation a short against the box), pledge or
otherwise dispose of, directly or indirectly, any shares of the Company's Common
Stock, Class B Common Stock, options to acquire Common Stock or Class B Common
Stock or securities convertible into or exchangeable for, or any other rights to
purchase or acquire, the Company's Common Stock or Class B Common Stock
beneficially owned by such Selling Securityholder (as determined in accordance
with the rules and regulations of the Commission) or (B) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of Common Stock or Class B Common Stock, whether any
such transaction described in (A) or (B) is to be settled by delivery of Common
Stock, Class B Common Stock or such other securities, in cash or otherwise. The
lock-up restriction of the foregoing sentence shall not apply to (i) the shares
to be sold to the Underwriters pursuant to this Agreement (including, without
limitation, the Optional Shares) (ii) the sale of shares purchased in the open
market after the date the Registration Statement becomes effective or (iii) the
exercise or conversion of outstanding options, warrants or convertible
securities during any such period (but such lock-up restrictions do apply to any
subsequent sale of shares received upon such exercise or conversion). The
foregoing lock-up restriction is expressly agreed to preclude the holder of
Restricted Securities from engaging in any hedging or other transaction that is
designed to or could reasonably be expected to lead to, or result in, a
disposition of Restricted Securities during the applicable lock-up period even
if such Restricted Securities would be disposed of by the holder subsequent to
the applicable lock-up period or by someone other than the original holder.
Notwithstanding the foregoing, any transfer of Restricted Securities which
either (i) constitutes a pro rata distribution of a partnership or a corporation
to its partners or its stockholders, respectively, or (ii) constitutes a bona
fide gift of such shares, will not require the consent of Volpe, Welty &
Company; provided, that the transferee enters into a lock-up agreement in
substantially this form covering the remainder of such lock-up period.
(j) No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body that has not
already been obtained is required for the execution and delivery of this
Agreement by such Selling Securityholder or the consummation by such Selling
Securityholder of the transactions contemplated by this Agreement, the Custody
Agreement or the Power of Attorney except for compliance with the Securities
Act, the Blue Sky laws applicable to the public offering of the Shares by the
several Underwriters and the clearance of such offering with the NASD.
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<PAGE> 14
(k) Such Selling Securityholder has not distributed, and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
SECTION 3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
2,100,000 of the Firm Shares to the several Underwriters, each Selling
Securityholder agrees, severally and not jointly, to sell to the several
Underwriters the number of the Firm Shares set forth in Schedule II opposite the
name of such Selling Securityholder, and each of the Underwriters agrees to
purchase from the Company and the Selling Securityholders the respective
aggregate number of Firm Shares set forth opposite its name in Schedule I. The
price at which such Firm Shares shall be sold by the Company and the Selling
Securityholders and purchased by the several Underwriters shall be $___ per
share. The obligation of each Underwriter to the Company and each of the Selling
Securityholders shall be to purchase from the Company and the Selling
Securityholders that number of Firm Shares which represents the same proportion
of the total number of Firm Shares to be sold by each of the Company and the
Selling Securityholders pursuant to this Agreement as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto represents
of the total number of shares of the Firm Shares to be purchased by all
Underwriters pursuant to this Agreement, as adjusted by you in such manner as
you deem advisable to avoid fractional shares. In making this Agreement, each
Underwriter is contracting severally and not jointly; except as provided in
paragraphs (b) and (c) of this Section 3, the agreement of each Underwriter is
to purchase only the respective number of shares of the Firm Shares specified in
Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 9 or 10 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company or the Selling Securityholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of Shares which each non-defaulting Underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis to absorb the remaining shares and portion which
the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the non-defaulting Underwriters shall not be obligated to purchase
the portion which the defaulting Underwriter or Underwriters agreed to purchase
if the aggregate number of such Shares exceeds 10% of the total number of Shares
which all Underwriters agreed to purchase hereunder. If the total number of
Shares which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Securityholders shall have the right, within 24 hours
next succeeding the 24-hour period above referred to, to make arrangements with
other underwriters or purchasers satisfactory to you for purchase of such Shares
and portion on the terms herein set forth. In any
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<PAGE> 15
such case, either you or the Company and the Selling Securityholders shall have
the right to postpone the Closing Date determined as provided in Section 5
hereof for not more than seven business days after the date originally fixed as
the Closing Date pursuant to Section 5 in order that any necessary changes in
the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company and the Selling Securityholders shall make arrangements within the
24-hour periods stated above for the purchase of all of the Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholders to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or the Selling Securityholders.
Nothing in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company and certain Selling Securityholders listed on Schedule III hereto grant
an option to the several Underwriters to purchase, severally and not jointly, up
to 450,000 Optional Shares from the Company and such Selling Securityholders at
the same price per share as the Underwriters shall pay for the Firm Shares. Said
option may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters and may be exercised in whole or in part at any time
on or before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
Optional Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the Optional Shares, and payment therefor, shall be
made as provided in Section 5 hereof. The number of Optional Shares to be
purchased by each Underwriter shall be the same percentage of the total number
of Optional Shares to be purchased by the several Underwriters as such
Underwriter is purchasing of the Firm Shares, as adjusted by you in such manner
as you deem advisable to avoid fractional shares.
SECTION 4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of
the Shares to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information (insofar as such information relates to the
Underwriters) set forth in the last paragraph on the front cover page and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Shares constitutes the only information furnished by
the Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
SECTION 5. DELIVERY OF AND PAYMENT FOR THE SHARES.
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<PAGE> 16
(a) Delivery of certificates for the Firm Shares and the Optional
Shares (if the option granted by Section 3(c) hereof shall have been exercised
not later than 7:00 A.M., San Francisco time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the offices
of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, at 10:00 a.m., Boston, Massachusetts time, on the [fourth]
business day after the date of this Agreement, or at such time on such other
day, not later than seven full business days after such fourth business day, as
shall be agreed upon in writing by the Company, the Selling Securityholders and
you. The date and hour of such delivery and payment (which may be postponed as
provided in Section 3(b) hereof) are herein called the "Closing Date".
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Optional Shares, and
payment therefor, shall be made at the office of Testa, Hurwitz & Thibeault,
LLP, High Street Tower, 125 High Street, Boston, Massachusetts 02110, at 10:00
a.m., Boston, Massachusetts time, on the third business day after the exercise
of such option.
(c) Payment for the shares purchased from the Company shall be made to
the Company or its order, and payment for the shares purchased from the Selling
Securityholders shall be made, in the discretion of the Underwriters, to them or
to the Custodian, for the account of the Selling Securityholders, in each case
by (i) one or more certified or official bank check or checks in next day funds
(and the Company and the Selling Securityholders agree not to deposit any such
check in the bank on which drawn until the day following the date of its
delivery to the Company or the Custodian, as the case may be) or (ii) federal
funds wire transfer. Such payment shall be made upon delivery of certificates
for the shares to you for the respective accounts of the several Underwriters
(including without limitation by "full-fast" electronic transfer by Depository
Trust Company) against receipt therefor signed by you. Certificates for the
shares to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least one business day
before the Closing Date, in the case of Firm Shares, and at least one business
day prior to the purchase thereof, in the case of the Optional Shares. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of the agent of Volpe, Welty & Company's clearing
agent, Bear Stearns Securities Corp., on the business day prior to the Closing
Date or, in the case of the Optional Shares, by 3:00 p.m., New York time, on the
business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Optional Shares are purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
SECTION 6. COVENANTS OF THE COMPANY AND CERTAIN COVENANTS OF THE SELLING
SECURITYHOLDERS. The Company and, for purposes of paragraphs (i), (j) and (k)
below only, the Selling Securityholders, covenant and agree as follows:
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<PAGE> 17
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Shares for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act. The
copies of the Registration Statement, any Preliminary Prospectus and the
Prospectus and any amendments or supplements to any of the foregoing furnished
or to be furnished to the Underwriters were or will be, as the case may be,
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent otherwise permitted by
Regulation S-T.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the shares,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the
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<PAGE> 18
Prospectus as so supplemented or amended will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the time
such Prospectus is delivered to such purchaser, not misleading. If, after the
initial public offering of the shares by the Underwriters and during such
period, the Underwriters shall propose to vary the terms of offering thereof by
reason of changes in general market conditions or otherwise, you will advise the
Company in writing of the proposed variation, and, if in the opinion either of
counsel for the Company or of counsel for the Underwriters such proposed
variation requires that the Prospectus be supplemented or amended, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the shares may be
sold by the several Underwriters to use the Prospectus, as from time to time
amended or supplemented, in connection with the sale of the shares in accordance
with the applicable provisions of the Securities Act and the applicable rules
and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified or where it would become
subject to taxation as a foreign corporation solely by virtue of such filing.
The Company will, from time to time, prepare and file such statements, reports,
and other documents as are or may be required to continue such qualifications in
effect for so long a period as you may reasonably request for distribution of
the shares.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act). If applicable, any such document furnished
to you will be identical to the electronically transmitted copy thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company and the Selling Securityholders (subject to the
provisions of Section 7(f) below) jointly and severally agree to pay, or cause
to be paid, all costs and expenses
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<PAGE> 19
incident to the performance of their obligations under this Agreement, including
all costs and expenses incident to (i) the preparation, printing and filing with
the Commission and the National Association of Securities Dealers, Inc. ("NASD")
of the Registration Statement, any Preliminary Prospectus and the Prospectus,
(ii) the furnishing to the Underwriters and the persons designated by them of
copies of any Preliminary Prospectus and of the several documents required by
paragraph (c) of this Section 6 to be so furnished, (iii) the printing of this
Agreement and related documents delivered to the Underwriters, (iv) the
preparation, printing and filing of all supplements and amendments to the
Prospectus referred to in paragraph (d) of this Section 6, (v) the furnishing to
you and the Underwriters of the reports and information referred to in paragraph
(g) of this Section 6 and (vi) the printing and issuance of stock certificates,
including the transfer agent's fees. The Selling Securityholders agree to pay
any transfer taxes incident to the transfer to the Underwriters of the Shares
being sold by the Selling Securityholders.
(j) The Company and the Selling Securityholders (subject to the
provisions of Section 7(f) below) jointly and severally agree to reimburse you,
for the account of the several Underwriters, for blue sky fees and related
disbursements (including reasonable counsel fees and disbursements and cost of
printing memoranda for the Underwriters) paid by or for the account of the
Underwriters or their counsel in qualifying the shares under state securities or
blue sky laws and in the review of the offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company and the Selling Securityholders hereby agree to pay and shall
not affect any agreement which the Company and the Selling Securityholders may
make, or may have made, for the allocation or sharing of any such expenses and
costs (including the agreement set forth in Section 7(f) below). The
Underwriters agree not to proceed against the Selling Securityholders for
payment or reimbursement of expenses, fees and costs under paragraphs (i) and
(j) of this Section 6 unless and until the Company shall have failed to make
such payment for 60 days following a written notification from the Underwriters
referencing this paragraph.
(l) The Company hereby agrees that, without the prior written approval
of Volpe, Welty & Company, the Company will not during the period of one hundred
eighty (180) days after the date the Registration Statement becomes effective
(A) offer, sell, contract to sell, make any short sale (including without
limitation a short against the box), pledge or otherwise dispose of, directly or
indirectly, any shares of the Company's Common Stock, Class B Common Stock,
options to acquire Common Stock or Class B Common Stock or securities
convertible into or exchangeable for, or any other rights to purchase or
acquire, the Company's Common Stock or Class B Common Stock or (B) enter into
any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of Common Stock or Class B Common Stock,
whether any such transaction described in (A) or (B) is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
lock-up restriction of the foregoing sentence shall not apply to (i) the shares
to be sold to the Underwriters pursuant to this Agreement (including without
limitation, the Optional Shares), (ii) the sale of shares purchased in the open
market after the date the Registration Statement becomes effective, (iii) the
issuance
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of options or warrants issued under currently existing plans or (iv) the
issuance of shares upon the exercise or conversion of outstanding options,
warrants or convertible securities during any such period. The foregoing lock-up
restriction is expressly agreed to preclude the Company from engaging in any
hedging or other transaction that is designed to or could reasonably be expected
to lead to, or result in, a disposition of Restricted Securities during the
applicable lock-up period even if such Restricted Securities would be disposed
of by the Company subsequent to the applicable lock-up period or by someone
other than the Company.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the shares has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(n) The Company is familiar with the Investment Company Act of 1940,
as amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(o) The Company agrees to maintain directors' and officers' insurance
in amounts customary for the size and nature of the Company's business for a
period of two years from the date of this Agreement.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Securityholders jointly and severally agree to indemnify
and hold harmless each Underwriter and each person (including each partner or
officer thereof) who controls any Underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act") or the common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the prior
written consent of the Company), and the Company and the Selling Securityholders
jointly and severally agree to reimburse each such Underwriter and controlling
person for any legal or other expenses (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel) incurred by
the respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration
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Statement (including the Prospectus as part thereof and any Rule 462(b)
registration statement) or any post-effective amendment thereto (including any
Rule 462(b) registration statement), or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or (iii) any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in any manner
to, the Shares or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage or liability arising out of or
based upon matters covered by clause (i) or (ii) above; provided, however, that
(1) the indemnity agreements of the Company and the Selling Securityholders
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto, and (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the shares which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company and the Selling Securityholders contained in this paragraph (a) and
the representations and warranties of the Company and the Selling
Securityholders contained in Sections 1 and 2 hereof shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
shares.
(b) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its officers who signs the Registration
Statement on his own behalf or pursuant to a power of attorney, each of its
directors, each other Underwriter, each Selling Securityholder and each person
(including each partner or officer thereof) who controls the Company, any such
other Underwriter or any such Selling Securityholder within the meaning of
Section 15 of the Securities Act, from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Exchange Act, or
the common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the prior written consent of each Underwriter) and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against,
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the respective indemnified parties, in each case arising out of or based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of such indemnifying Underwriter for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect
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<PAGE> 23
the interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a) through
(c) of this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the reasonable legal and other expenses incurred in
connection with the conduct of the defense as referred to in clause (i) of the
proviso to the preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel) and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any reasonable legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, or actions in respect thereof, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Selling Securityholders on the one hand and the
Underwriters on the other shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Shares received
by the Company and the Selling Securityholders and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Shares. Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation,
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<PAGE> 24
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will, without
the prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of each Principal Securityholder and each Selling
Securityholder under the indemnity, contribution and reimbursement agreements
contained in the provisions of Sections 6(i) and (j) above, this Section 7 and
Section 8 hereof (and in the case of Principal Securityholders in respect of a
breach of the representations and warranties contained in Section 1 hereof)
shall be limited to an amount equal to the proceeds (net of underwriting
discount) received by such Selling Securityholder from the sale of its Shares
pursuant to the terms hereof. The Company and the Selling Securityholders may
agree, as among themselves and without limiting the rights of the Underwriters
under this Agreement, as to the respective amounts of such liability for which
they each shall be responsible.
SECTION 8. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of each
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a monthly basis the Underwriters for all reasonable legal and other
expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 8 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be
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<PAGE> 25
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
SECTION 9. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders pursuant to the provisions of Section 10 and in
accordance with Section 13, or if after the date of this Agreement trading in
the Common Stock shall have been suspended, or if there shall have occurred (i)
the engagement in hostilities or an escalation of major hostilities by the
United States or the declaration of war or a national emergency by the United
States on or after the date hereof, (ii) any outbreak of hostilities or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, calamity, crisis or change in
economic or political conditions in the financial markets of the United States
or the Company's industry sector would, in the Underwriters' reasonable
judgment, make the offering or delivery of the Shares impracticable, (iii)
suspension of trading in securities generally or a material adverse decline in
value of securities generally on the New York Stock Exchange, the American Stock
Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 9, there shall be no
liability of the Company or the Selling Securityholders to the Underwriters and
no liability of the Underwriters to the Company or the Selling Securityholders;
provided, however, that in the event of any such termination the Company and the
Selling Securityholders agree to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company and the Selling Securityholders under this Agreement, including all
costs and expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
SECTION 10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the shares shall be subject to
the performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Optional Shares are to be purchased, as the case may
be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the shares hereunder
and the validity and form of the certificates representing the shares, all
corporate proceedings and other legal
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<PAGE> 26
matters incident to the foregoing, and the form of the Registration Statement
and of the Prospectus (except as to the financial statements contained therein),
shall have been approved at or prior to the Closing Date by Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters.
(c) You shall have received from Rubin Baum Levin Constant & Friedman,
counsel for the Company and the Selling Securityholders, and from Porter &
Associates, patent counsel for the Company, opinions, addressed to the
Underwriters and dated the Closing Date, covering the matters set forth in Annex
A and Annex B hereto, respectively, and if Optional Shares are purchased at any
date after the Closing Date, additional opinions from each such counsel,
addressed to the Underwriters and dated such later date, confirming that the
statements expressed as of the Closing Date in such opinions remain valid as of
such later date.
(d) You shall be satisfied in your reasonable judgment that (i) as of
the Effective Date, the statements made in the Registration Statement and the
Prospectus were true and correct, and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not misleading;
(ii) since the Effective Date, no event has occurred which should have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment; (iii) since the respective dates as of
which information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein; (iv) the
Commission has not issued any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to the best knowledge of the
respective signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act; (v) neither the Company nor
any of its subsidiaries has any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus; (vi) there are not
any pending or known threatened legal proceedings to which the Company or any of
its subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed in
the Registration Statement and the Prospectus; (vii) there are not any
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as required;
and (viii) the representations and warranties of the Company herein are true and
correct in all material respects as of the Closing Date or any later date on
which Optional Shares are to be purchased, as the case may be.
(e) You shall have received on the Closing Date and on any later date
on which Optional Shares are purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that
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<PAGE> 27
the respective signers of said certificate have carefully examined the
Registration Statement in the form in which it originally became effective and
the Prospectus contained therein and any supplements or amendments thereto, and
that the statements included in clauses (i) through (viii) of paragraph (d) of
this Section 10 are true and correct.
(f) You shall have received from Arthur Andersen LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date, covering the
matters set forth in Annex C hereto, and any later date on which Optional Shares
are purchased, confirming that they are independent public accountants with
respect to the Company within the meaning of the Securities Act and the
applicable published rules and regulations thereunder and based upon the
procedures described in their letter delivered to you concurrently with the
execution of this Agreement (the "Original Letter"), but carried out to a date
not more than three business days prior to the Closing Date or such later date
on which Optional Shares are purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are accurate as
of the Closing Date or such later date, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company or any of its subsidiaries which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the shares or
the purchase of the Optional Shares as contemplated by the Prospectus.
(g) You shall have received from Arthur Andersen LLP a letter stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their examination
of the Company's financial statements as at December 31, 1995, did not disclose
any weakness in internal controls that they considered to be material
weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the shares to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from all
parties listed on Schedule IV attached hereto the agreement referred to in
Section 1(x).
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Testa, Hurwitz & Thibeault, LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
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<PAGE> 28
In case any of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by you by giving written notice
to the Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that in the event of such
termination, the Company and the Selling Securityholders agree (i) to indemnify
and hold harmless the Underwriters from all reasonable costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all reasonable costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof, and (ii)
unless this Agreement is terminated by reason of a default of any of the
Underwriters, to reimburse the Underwriters severally upon demand for all
reasonable out-of-pocket expenses (including reasonable fees and disbursements
of counsel) that shall have been incurred by them in connection with the
transactions contemplated hereby.
SECTION 11. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Shares shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 11 shall
not be fulfilled, this Agreement may be terminated by the Company and the
Selling Securityholders by giving written notice to you. Any such termination
shall be without liability of the Company and the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that in the event of any such
termination the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all reasonable costs
or expenses incident to the performance of the obligations of the Company and
the Selling Securityholders under this Agreement, including all reasonable costs
and expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
SECTION 12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the shares from any of the several Underwriters.
SECTION 13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Volpe, Welty &
Company, One Maritime Plaza, 11th Floor, San Francisco, California 94111,
Attention: Gil Mogavero; and if to the Company, shall be mailed,
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<PAGE> 29
telegraphed or delivered to it at its office, Bitstream Inc., 215 First Street,
Cambridge, Massachusetts 02142, Attention: C. Raymond Boelig, President and
Chief Executive Officer; and if to the Selling Securityholders, shall be mailed,
telegraphed or delivered to the Selling Securityholders in care of Rubin Baum
Levin Constant & Friedman, Attention: Paul A. Gajer, Esq. at 30 Rockefeller
Plaza, New York, New York 10112. All notices given by telegraph shall be
promptly confirmed by letter.
SECTION 14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the shares under this
Agreement; provided, however, that if this Agreement is terminated prior to the
Closing Date, the provisions of the lock-up agreements referred to in Sections
l(x) and 2(i) hereof and the provisions of paragraphs (l) and (m) of Section 6
hereof shall be of no further force or effect.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section , paragraph or provision hereof.
If any Section , paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 16. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 17. GENERAL. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, each of the Selling Securityholders (or
their duly authorized Attorney(s)-in-Fact) and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Securityholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Securityholder pursuant to a
validly existing and binding Power of Attorney which
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<PAGE> 30
authorizes such Attorney-in-fact to take such action. Any action taken under
this Agreement by any of the Attorneys-in-fact will be binding on all of the
Selling Securityholders.
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<PAGE> 31
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company and the several Underwriters,
including you, all in accordance with its terms.
Very truly yours,
BITSTREAM INC.
By:_____________________________________
Name:
Title:
SELLING SECURITYHOLDERS
(NAMED IN SCHEDULE II TO THIS AGREEMENT)
By:______________________________________
Attorney-in-fact
The foregoing Underwriting
Agreement is hereby confirmed
and accepted by us in San
Francisco, California as of
the date first above written.
VOLPE, WELTY & COMPANY
ADVEST, INC.
Acting for ourselves and as
Representatives of the several
Underwriters named in the
attached Schedule I
BY: VOLPE, WELTY & COMPANY
By:____________________________________
Name:
Title:
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<PAGE> 32
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- ----------------------------------------------------------------------
Volpe, Welty & Company .............................
Advest, Inc. .......................................
Total ..................................... 3,000,000
=========
I-1
<PAGE> 33
SCHEDULE II
SELLING SECURITYHOLDERS
NAME OF SELLING SECURITYHOLDERS NUMBER OF
SHARES
TO BE SOLD
- --------------------------------------------------------------------------
Total .......................................... 900,000
=======
II-1
<PAGE> 34
SCHEDULE III
SELLING SECURITYHOLDERS
OFFERING OPTIONAL SHARES
NAME OF SELLING SECURITYHOLDERS NUMBER OF
SHARES
TO BE SOLD
- --------------------------------------------------------------------------
Total .......................................... 450,000
=======
III-1
<PAGE> 35
SCHEDULE IV
SIGNATORIES OF 180-DAY LOCK-UP LETTER
IV-1
<PAGE> 36
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
COUNSEL FOR THE COMPANY
AND THE SELLING SECURITYHOLDERS
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, is duly qualified as a foreign
corporation and in good standing in each state of the United States of America
in which the nature of its business or its ownership or leasing of property
requires such qualification (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole (a "Material Adverse Effect")), and has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement; all of the issued and outstanding capital stock
of each of the subsidiaries of the Company (other than subsidiaries incorporated
under the laws of a foreign country) has been duly authorized and validly issued
and is fully paid and nonassessable, and, to the best of such counsel's
knowledge, is owned by the Company free and clear of all liens, encumbrances and
security interests, and to the best of such counsel's knowledge, no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in such subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of
[_____________ shares of _____________ Stock, $_____ par value, of which there
are outstanding _____________ shares; all of such outstanding shares of capital
stock (including the Firm Shares and the Optional Shares issued, if any) have
been duly authorized and validly issued and are fully paid and nonassessable;
any Optional Shares purchased after the Closing Date have been duly authorized
and, when issued and delivered to, and paid for by, the Underwriters as provided
in the Underwriting Agreement, will be validly issued and fully paid and
nonassessable; and no preemptive rights of, or rights of refusal in favor of,
stockholders exist with respect to the Shares, or the issue and sale thereof,
pursuant to the Certificate of Incorporation or Bylaws of the Company or any
other instrument known to such counsel and, to the knowledge of such counsel,
there are no contractual preemptive rights that have not been waived, rights of
first refusal or rights of co-sale which exist with respect to the Shares being
sold by the Selling Securityholders or the issue and sale of the Shares by the
Company;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
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<PAGE> 37
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply or complied as to form
in all material respects with the requirements of the Securities Act, and with
the rules and regulations of the Commission thereunder (in passing upon the
compliance as to the form of the Registration Statement and the Prospectus only
and without in anyway limiting the opinion of such counsel under paragraph (v)
below, such counsel may assume that all of the statements set forth in the
Registration Statement and the Prospectus are complete, true and correct in all
respects);
(v) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial data contained therein, as to which such counsel need not express any
opinion or belief) at the Effective Date contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial data contained therein, as to which such counsel need not express any
opinion or belief) as of its date or at the Closing Date (or any later date on
which Optional Shares are purchased), contained or contains any untrue statement
of a material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(vi) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items and the description of the Company's stock option
plans and the options granted and which may be granted thereunder and the
options granted otherwise than under such plans set forth in the Prospectus
accurately and fairly presents in all material respects the information required
to be shown with respect to said plans and options to the extent required by the
Securities Act and the rules and regulations of the Commission thereunder;
(vii) to the best of such counsel's knowledge there are no franchises,
contracts, leases, documents or legal proceedings, pending or threatened, which
in the opinion of such counsel are of a character required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described or referred to therein or filed
as required;
(viii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(ix) the Underwriting Agreement has been duly executed and delivered
by or on behalf of the Selling Securityholders and the Custody Agreement between
the Selling Securityholders and _____________, as Custodian, and the Power of
Attorney referred to in such Custody Agreement have been duly executed and
delivered by the several Selling Securityholders;
A-2
<PAGE> 38
(x) the Company has full corporate power and authority to enter into
the Underwriting Agreement and to sell and deliver the Shares to be sold by it
to the several Underwriters; the Underwriting Agreement is a valid and binding
agreement of the Company enforceable in accordance with its terms (such counsel
being entitled to assume the due execution and delivery of the Underwriting
Agreement by the Underwriters), except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting creditor's rights generally and
except as to those provisions relating to indemnity or contribution for
liabilities arising under federal and state securities laws (as to which no
opinion need be expressed).
(xi) the Underwriting Agreement, the Custody Agreement and the Power
of Attorney are valid and binding agreements of each of the Selling
Securityholders enforceable in accordance with their respective terms (such
counsel being entitled to assume the due execution and delivery of the
Underwriting Agreement by the Underwriters) except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions relating to indemnity or
contribution for liabilities under the Securities Act, as to which no opinion
need be expressed, and each Selling Securityholder has full legal right and
authority to enter into the Underwriting Agreement, the Custody Agreement and
the Power of Attorney and to sell, transfer and deliver in the manner provided
in the Underwriting Agreement the Shares sold by such Selling Securityholder
under the Underwriting Agreement;
(xii) the issue and sale by the Company of the Shares sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, or constitute a default under the Certificate of
Incorporation or Bylaws of the Company or any of its subsidiaries or any
agreement or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which any of its properties may be bound or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality applicable to the Company;
(xiii) the transfer and sale by the Selling Securityholders of the
Shares to be sold by the Selling Securityholders as contemplated by the
Underwriting Agreement, the Power of Attorney and the Custody Agreement will not
conflict with, result in a breach of, or constitute a default under any
agreement or instrument known to such counsel to which any of the Selling
Securityholders is a party or by which any of the Selling Securityholders or any
of their properties may be bound, or, to the knowledge of such counsel, any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree of any jurisdiction, court or governmental
instrumentality applicable to any Selling Securityholder.
(xiv) all holders of securities of the Company representing more than
1% of the outstanding shares of Common Stock having rights to the registration
of shares of Common Stock, or other securities, because of the filing of the
Registration Statement by the Company of which such counsel is aware have waived
such rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement or are
including shares owned by them in the Offering as Selling Securityholders;
A-3
<PAGE> 39
(xv) good and marketable title to the Shares under the Underwriting
Agreement, free and clear of all liens, encumbrances, equities, security
interests and claims, has been transferred to the Underwriters who have
severally purchased such Shares under the Underwriting Agreement, assuming for
the purpose of this opinion that the Underwriters purchased the same in good
faith without notice of any adverse claims;
(xvi) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company or,
to the knowledge of such counsel after due inquiry, the Selling Securityholders
of the transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required under
state or foreign securities or blue sky laws in connection with the purchase and
distribution of the Shares by the Underwriters and the clearance of the offering
with the NASD; and
(xvii) the Shares sold by the Selling Securityholders are listed and
duly admitted to trading on the Nasdaq National Market, and the shares issued
and sold by the Company will be duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
------------------------------------
Counsel rendering the foregoing opinion may rely as to factual matters
on certificates of officers of the Company and of government officials and the
representations and warranties of the Company and the Selling Securityholders
contained in the Underwriting Agreement, the Custody Agreement and the Power of
Attorney; provided, that such counsel shall state that they believe that both
they and the Underwriters are justified in relying upon such certificates,
representations and warranties.
In giving such opinion with respect to the matters covered by clause
(v) such counsel may state that their opinion is based upon their participation
in the preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the contents
thereof, but are without independent check or verification except as specified.
Counsel rendering the foregoing opinion may rely on an opinion or opinions of
other counsel retained by them, the Company or one or more Selling Shareholders,
provided that (1) each such counsel is acceptable to the Representatives, (2)
such reliance and reliance by the Representatives is expressly authorized by
each opinion so relied upon, and (3) each such opinion is in form and scope
satisfactory to counsel for the Underwriters. Copies of any opinions so relied
upon shall be delivered to the Representatives and to counsel for the
Underwriters and the foregoing opinion shall also state that counsel knows of no
reason the Underwriters are not entitled to rely upon the opinions of such
counsel.
A-4
<PAGE> 40
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF ___________
PATENT COUNSEL FOR THE COMPANY
Such counsel are familiar with the TrueDoc technology used by the Company
in its business and have read the Registration Statement and the Prospectus,
including particularly the portions of the Registration Statement and the
Prospectus referring to patents, copyrights, trade secrets, trademarks, service
marks and other proprietary information or materials and:
(i) such counsel have no reason to believe that the Registration Statement
or the Prospectus (A) contains any untrue statement of a material fact with
respect to any intellectual property including patents, copyrights, trade
secrets, trademarks, service marks or other proprietary information or materials
owned, licensed or used by the Company, or the manner of its use thereof, or any
allegation on the part of any person that the Company is infringing or has
misappropriated any patent rights, copyrights, trade secrets, trademarks,
service marks or other rights in proprietary information or materials or (B)
omits to state any material fact relating to patents, copyrights, trade secrets,
trademarks, service marks or other proprietary information or materials owned,
licensed or used by the Company, or the manner of its use thereof, that is
required to be stated in the Registration Statement or the Prospectus or is
necessary to make the statements therein not misleading;
OR
[(i) The statements in the Registration Statement and the Prospectus under
the caption[s] ["Intellectual Property and Proprietary Rights" and "Intellectual
Property,"] to the best of such counsel's knowledge and belief, are accurate and
complete statements or summaries of the matters therein set forth and nothing
has come to such counsel's attention that causes such counsel to believe that
the above-described portions of the Registration Statement and the Prospectus
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;]
(ii) to the best of such counsel's knowledge and except for patent
applications in examination before the United States, or a foreign, Patent
Office and as set forth in the Prospectus under the caption "_______________,"
there are no legal or governmental proceedings pending relating to the patent
rights, copyrights, trade secrets, trademarks, service marks or other
proprietary information or materials of the Company, and to the best of such
counsel's knowledge no such proceedings are threatened or contemplated by
governmental authorities or others;
(iii) such counsel do not know of any contracts or other documents,
relating to the Company's patents, copyrights, trade secrets, trademarks,
service marks or other proprietary
B-1
<PAGE> 41
information or materials of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the Registration
Statement or the Prospectus that are not filed or described as required;
(iv) to the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, copyrights, trade secrets,
trademarks, service marks or other proprietary information or materials, of
others, and, except as set forth in the Prospectus, to the best of such
counsel's knowledge there are no infringements by others of any of the Company's
patents, copyrights, trade secrets, trademarks, service marks or other
proprietary information or materials of the Company except for a possible
infringement of TrueDoc by Ares Software Corp.; and
(v) to the best of such counsel's knowledge, the Company owns or possesses
sufficient licenses or other rights to use all patents, copyrights, trade
secrets, trademarks, service marks or other proprietary information or materials
necessary to conduct the business now being or proposed to be conducted by the
Company as described in the Prospectus.
B-2
<PAGE> 42
ANNEX C
Pursuant to Section 10(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its Subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations thereunder and
they have performed procedures specified in accordance with standards
specified by the American Institute of Certified Public Accountants
Statement No. 71 of the unaudited consolidated interim financial
statements, selected financial data and/or condensed financial statements
derived from audited financial statements of the Company for the periods
specified in such letter, as indicated in their reports thereon, copies of
which have been furnished to the representatives of the Underwriters (the
"Representatives");
(iii) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such five
fiscal years;
(iv) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believed that:
(A) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder, or
are not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with the basis for the
audited consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus;
C-1
<PAGE> 43
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any such
unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included in
the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on
a basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than three days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and upon conversions of convertible
securities, in each case which were outstanding on the date of the
latest financial statements included in the Prospectus) or any
increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
net assets or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each
case as compared with amounts shown in the latest balance sheet
included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
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<PAGE> 44
(v) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (iv) above, they have carried out certain specified procedures,
not constituting an examination in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived
from the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
C-3
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
of
BITSTREAM INC.
It is hereby certified that:
1. The current name of the corporation (hereinafter
called the "Corporation") is Bitstream Inc.; the Corporation was originally
incorporated under the name Bitstream Inc., and the date of filing of the
original Certificate of Incorporation of the Corporation with the Secretary of
State of the State of Delaware is April 15, 1996.
2. The provisions of the Certificate of Incorporation of
the Corporation are hereby amended and restated into the single instrument which
is hereinafter set forth, and which is entitled "Restated Certificate of
Incorporation of Bitstream Inc."
3. This Restated Certificate of Incorporation is hereby
adopted in accordance with Sections 242 and 245 of the General Corporation Law
of the State of Delaware.
4. The Certificate of Incorporation of the Corporation
is hereby amended and restated to set forth its entire text as amended and
restated as follows:
FIRST: The name of the corporation is Bitstream
Inc. (the "Corporation").
SECOND: The address of the Corporation's registered
office in the State of Delaware is No. 15 East North Street, in the City of
Dover, County of Kent, State of Delaware; and its registered agent at such
address is United Corporate Services, Inc.
<PAGE> 2
THIRD: The purpose of the Corporation is to engage
in, carry on and conduct any lawful act or activity for which corporations may
be organized under the Delaware General Corporation Law.
FOURTH: The total number of shares of stock that the
Corporation shall have authority to issue is 40,500,000, divided as follows: (a)
30,500,000 shares of Common Stock (i) 30,000,000 shares of which shall be Class
A Common Stock, par value $.01 per share and (ii) 500,000 shares of which shall
be Class B Common Stock, par value $.01 per share, and (b) 10,000,000 shares of
Preferred Stock (i) 6,000,000 shares of which shall be Preferred Stock, par
value $.01 per share, (ii) 3,000,000 shares of which shall be Class A Preferred
Stock, par value $.01 per share and (iii) 1,000,000 shares of which shall be
Class B Preferred Stock, par value $.01 per share.
A. COMMON STOCK
The Common Stock shall have the rights, powers,
qualifications, limitations, and the restrictions as provided below:
1. Voting Rights. The holders of the Common Stock of
the Corporation shall have the following voting rights.
1.1. Class A Common Stock. Except as otherwise
provided by law or this Restated Certificate of Incorporation,
the holders of Class A Common Stock shall have full voting
rights and powers and shall vote together with the holders of
the Class A Preferred Stock as a single class, and each share
of Class A Common Stock shall be entitled to one vote.
1.2. Class B Common Stock. Each outstanding share of
Class B Common Stock shall not be entitled to vote on any
matter on which the stockholders of the Corporation shall be
entitled to vote, and shares of Class B Common Stock shall not
be included in determining the number of shares voting or
entitled to vote on any such matters, except as set forth
herein or as otherwise required by law; provided that,
notwithstanding the foregoing, holders of shares of the Class
B Common Stock shall be entitled to vote as a separate class
on any amendment to this Section 1.2, or as otherwise required
by law.
2. Dividends.
2.1. General. Subject to Section 2.2 below, the Board
of Directors of the Corporation may cause dividends to be paid
to holders of shares of all classes of the Common Stock and
such holders shall share and share alike, and
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<PAGE> 3
without distinction as to class, out of funds then legally
available for the payment of dividends subject to any
provisions of these Articles as amended from time to time
provided that dividends previously have been or simultaneously
are declared on the Preferred Stock.
2.2. Non-Cash. In the case of dividends payable in
shares of Common Stock of the Corporation, or options,
warrants or rights to acquire shares of such Common Stock, or
securities convertible into or exchangeable for shares of such
Common Stock, the shares, options, warrants, rights or
securities so payable shall be payable in shares of, or
options, warrants or rights to acquire, or securities
convertible into or exchangeable for Common Stock of the same
class upon which the dividend or distribution is being paid.
3. Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after the
payment or provision for payment of all debts and liabilities of the Corporation
and all preferential amounts to which the holders of the Preferred Stock are
entitled with respect to the distribution of assets in liquidation, the holders
of all classes of Common Stock shall be entitled to share ratably, and without
distinction as to class, in the remaining assets of the Corporation available
for distribution.
4. Optional Conversion. Subject to and upon compliance
with the provisions of this Section 4, and the exception stated at Section 4.6,
any Regulated Stockholder (as defined in Section 4.7 below) shall have the right
to convert, at any time and from time to time, any or all of the shares of Class
A Common Stock held by such stockholder into the same number of shares of Class
B Common Stock, and any holder of Class B Common Stock shall have the right to
convert any or all of the shares of Class B Common Stock held by such
stockholder into the same number of shares of Class A Common Stock, as follows:
4.1. Exercise of Option. Each conversion of shares of
the Common Stock of the Corporation into shares of another
class of the Common Stock of the Corporation shall be effected
in the same manner as provided for the conversion of preferred
stock at Section C.4.6. below, with the following exceptions
for any Regulated Stockholder (as defined below):
4.1.1. Expiration of Deferral Period. If such
conversion falls subject to Section 4.1.2 below, the
Corporation shall not issue the certificates for the
converted shares until the expiration of the Deferral
Period referred to therein, and no conversion of the
shares of a Regulated Stockholder shall
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<PAGE> 4
be deemed effective except upon the expiration of
such Deferral Period.
4.1.2. Deferral Notice. The Corporation shall
not convert or directly or indirectly redeem,
purchase or otherwise acquire any shares of Class A
Common Stock or any other class of capital stock of
the Corporation or take any other action affecting
the voting rights of such shares, if such action will
increase the percentage of any class of outstanding
voting securities owned or controlled by any
Regulated Stockholder (other than any such
stockholder who requests that the Corporation take
such action, or that otherwise waives in writing its
rights under this Section 4.1) unless the Corporation
gives written notice (the "Deferral Notice") of such
action to each Regulated Stockholder.
4.1.3. Deferral Period. The Corporation will
defer making any conversion, redemption, purchase or
other acquisition, or taking any such other action
described in Section 4.1.2, for a period of ten (10)
business days (the "Deferral Period") after giving
the Deferral Notice in order to allow each Regulated
Stockholder to determine whether it wishes to convert
or take any other action with respect to any Common
Stock it owns, controls or has the power to vote.
4.1.4. Response by Regulated Stockholder during
Deferral Period. If any such Regulated Stockholder
then elects to convert any shares of Class A Common
Stock it shall notify the Corporation in writing
within five (5) business days of the giving of the
Deferral Notice, in which case the Corporation shall
(i) defer taking the pending action until the end of
the Deferral Period, (ii) promptly notify from time
to time each other Regulated Stockholder holding
shares of each proposed conversion and the proposed
transactions, and (iii) effect the conversion
requested by all Regulated Stockholders in response
to the notices issued pursuant to this Section 4.1.4.
at the end of the Deferral Period.
4.2. Stock Splits. If the Corporation shall in any
manner subdivide (by stock split, stock dividend or otherwise)
or combine (by reverse split or otherwise) the outstanding
shares of the Class A Common Stock, the outstanding shares of
each other class of Common Stock shall be subdivided or
combined, as the case may be, to the same extent, share and
share alike, and effective provi-
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<PAGE> 5
sion shall be made for the protection of the conversion rights
hereunder. In the case of any reorganization, reclassification
or change of shares of the Common Stock (other than a change
in par value or from par to no par value as a result of a
subdivision or combination), or in case of any consolidation
of the Corporation with one or more corporations or a merger
of the Corporation with another corporation, or in the case of
any sale, lease or other disposition of all or substantially
all of the assets of the Corporation, each holder of a share
of the Common Stock, irrespective of class, shall have the
right at any time thereafter, so long as the conversion right
hereunder with respect to such share would exist had such
event not occurred, to convert such share into the kind and
amount of shares of stock and other securities and properties
(including cash) receivable upon such reorganization,
reclassification, change, consolidation, merger, sale, lease
or other disposition (each a "Disposition") by a holder of the
number of shares of the class of the Common Stock into which
such shares of the Common Stock might have been converted
immediately prior to such reclassification, change,
consolidation, merger, sale, lease or other disposition. In
the event of such a Disposition, effective provision shall be
made in the Certificate of Incorporation of the resulting or
surviving corporation or otherwise for the protection of the
conversion rights of the shares of the Common Stock of each
class that shall be applicable, as nearly as reasonably may
be, to any such other shares of stock and other securities and
property deliverable upon conversion of shares of the Common
Stock into which such Common Stock might have been converted
immediately prior to such event. The Corporation shall not be
a party to a Disposition pursuant to which any Regulated
Stockholder would be required to take (i) any voting
securities that would cause such holder to violate any law,
regulation or other requirement of any governmental body
applicable to such holder, or (ii) any securities convertible
into voting securities which if such conversion took place
would cause such holder to violate any law, regulation or
other requirement of any governmental body applicable to such
holder other than securities that are specifically provided to
be convertible only in the event that such conversion may
occur without any such violation.
4.3. Capital Reorganization, Merger or Sale of
Assets. If at any time or from time to time there shall be a
capital reorganization of the Common Stock (other than a
subdivision, combination, recapitalization, reclassification
or exchange of shares provided for elsewhere in this Section
4) or a merger or consolidation of the Corporation with or
into another corporation (other than
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<PAGE> 6
a merger or reorganization involving only a change in the
state of incorporation where the Corporation survives as a
going concern as further provided in Section 3.2. of Part C.
hereof), or the sale of all or substantially all of the
Corporation's capital stock or assets to any other person,
then, as a part of such reorganization, merger, or
consolidation or sale, provision shall be made so that the
holders of the Common Stock shall thereafter be entitled to
receive upon conversion of the Common Stock the number of
shares of stock or other securities or property of the
Corporation, or of the successor corporation resulting from
such merger, consolidation or sale, to which such holder would
have been entitled if such holder had converted its shares of
Common Stock immediately prior to such capital reorganization,
merger, consolidation or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions
of this Section 4 to the end that the number of the shares of
Common Stock or other securities issuable upon conversion of
such shares of Common Stock shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
4.4. Reservation of Shares. The Corporation shall at
all times reserve and keep available out of its authorized but
unissued shares of its Common Stock a sufficient number of
shares as from time to time shall permit the conversion of all
outstanding shares of Class B Common Stock into Class A Common
Stock (including any such shares represented by outstanding
warrants, options, subscription or purchase rights). If at any
time the number of authorized but unissued shares of Common
Stock shall prove insufficient to effect the conversion of all
such outstanding or promised shares, then the Corporation
shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock to a sufficient
number to accomplish a complete conversion.
4.5. Stock Transfer Taxes. The issuance of
certificates for shares of any class of Common Stock upon
conversion of shares of any other class of Common Stock shall
be made without charge to the holders of such shares of any
issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the related
issuance of shares of Common Stock. The Corporation shall not,
however, be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery
of any certificate in any name other than that of the holder
of the Common Stock converted, and the Corporation shall not
be required to issue or deliver any such stock certificate,
unless and until the person or persons requesting the issue
thereof shall have paid to the Corporation the
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<PAGE> 7
amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
4.6. Exception. No holder of shares of Class B Common
Stock may convert any such shares to the extent that, as a
result of such conversion, such holder and its Affiliates (as
defined pursuant to Section 4.7 below), directly or
indirectly, would own, control or have the power to vote a
greater number of shares of Class A Common Stock or other
securities of any kind issued by the Corporation than such
holder and its Affiliates shall be permitted to own, control
or have the power to vote under any law, regulation, rule or
other requirement of any governmental authority at the time
applicable to such holder or its Affiliates.
4.7. Definitions. The following terms shall have the
meanings shown below for the purposes of this Section:
4.7.1. Affiliate. shall mean with respect to any
Person, any other person, directly or indirectly
controlling, controlled by or under common control
with such Person. For the purpose of the above
definition, the term "control" (including with
correlative meaning, "controlling," "controlled by,"
"under common control with"), as used with respect to
any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the
direction of the management and policies of such
Person, whether through the ownership of voting
securities or by contract or otherwise.
4.7.2. "Person" shall mean an individual, a
partnership, corporation, trust, joint venture, an
unincorporated association, or a government or any
department or agency thereof.
4.7.3. "Regulated Stockholder" shall mean (i)
any stockholder that is subject to the provisions of
Regulation Y of the Board of Governors of the Federal
Reserve System (12 C.F.R. Part 225) or any successor
to such regulation ("Regulation Y") and which holds
shares of Class B Common Stock or Class B Preferred
Stock of the Corporation as of the date of this
Restated Certificate of Incorporation or shares of
Class B Common Stock or Class B Preferred Stock of
the Corporation which were issued upon the conversion
of shares of Class B Common Stock or Class B
Preferred Stock, as the case may be, of Bitstream
Inc., a Massachusetts
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<PAGE> 8
corporation (the "Predecessor Corporation") in
connection with the merger of the Predecessor
Corporation with and into the Corporation, so long as
such stockholder shall hold such shares of Common
Stock or Preferred Stock or shares issued upon
conversion of such shares, (ii) any Affiliate of any
such Regulated Stockholder that is a transferee of
any shares of Common Stock or Preferred Stock of the
Corporation, so long as such Affiliate shall hold,
and only with respect to, such shares of Common Stock
or Preferred Stock or shares issued upon conversion
of such shares and (iii) any Person to which such
Regulated Stockholder or any of its Affiliates has
transferred such shares, so long as such transferee
shall hold, and only with respect to, any shares
transferred by such stockholder or Affiliates or any
shares issued upon conversion of such shares but only
if such Person (or any Affiliate of such Person)
falls subject to the provisions of Regulation Y.
B. UNDESIGNATED PREFERRED STOCK
1. The shares of Preferred Stock of the Corporation may
be issued from time to time in one or more classes or series of any number of
shares, provided that the aggregate number of shares issued and not cancelled of
any and all such classes or series shall not exceed the total number of shares
of Preferred Stock hereinabove authorized, and with distinctive serial
designations, all as shall hereafter be stated and expressed in the resolutions
or resolutions providing for the issue of such shares of Preferred Stock from
time to time adopted by the Board of Directors of the Corporation pursuant to
authority to do so which is hereby vested in the Board of Directors. Each series
of shares of Preferred Stock (a) may have such voting powers, full or limited,
or may be without voting powers; (b) may be subject to redemption at such time
or times and at such prices; (c) may be entitled to receive dividends (which may
be cumulative or non-cumulative) at such rate or rates, on such conditions and
at such times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or series of stock; (d) may have
such rights upon the voluntary or involuntary liquidation, winding up
dissolution of, or upon any distribution of the assets of, the Corporation; (e)
may be made convertible into or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of
shares of the Corporation at such prices or at such rates of exchange and with
such adjustments; (f) may be entitled to the benefit of a sinking fund to be
applied to the purchase or redemption of shares of such series in such amount or
amounts; (g) may be entitled to the benefit of conditions and restrictions upon
the creation of indebtedness of the Corporation or any subsid-
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<PAGE> 9
iary, upon the issue of any additional shares (including additional shares of
such classes or series or of any other classes or series), upon the amendment of
this Restated Certificate of Incorporation and upon the payment of dividends or
the making of other distributions on, and the purchase, redemption or other
acquisition by the Corporation or any subsidiary of, any outstanding shares of
the Corporation and (h) may have such other relative, participating, optional or
other special rights, qualifications, limitations or restrictions thereof; all
as shall be stated in said resolution or resolutions providing for the issue of
such shares of Preferred Stock. Shares of Preferred Stock of any classes or
series that have been redeemed (whether through the operation of a sinking fund
or otherwise) or that if convertible or exchangeable, have been converted into
or exchanged for shares of any other classes or series shall have the status of
authorized and unissued shares of Preferred Stock of the same classes or series
and may be reissued as a part of the classes or series of which they were
originally a part or may be reclassified and reissued as part of a new class or
series of shares of Preferred Stock to be created by resolution or resolutions
of the Board of Directors or as part of any other class or series of shares of
Preferred Stock, all subject to the conditions or restrictions on issuance set
forth in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any classes or series of shares of Preferred Stock.
C. CLASS A PREFERRED STOCK AND CLASS B PREFERRED STOCK
The Class A Preferred Stock and Class B Preferred Stock shall be subject to the
rights, powers, qualifications, limitations, and restrictions provided below:
1. Voting Rights. The holders of the Class A Preferred
Stock and Class B Preferred Stock of the Corporation shall have the following
voting rights:
1.1. Class A Preferred Stock. Except as otherwise
provided by law or this Restated Certificate of Incorporation,
the holders of Class A Preferred Stock shall have full voting
rights and powers and shall vote together with the holders of
the Class A Common Stock as a single class, with each share of
Class A Preferred Stock entitled to the number of votes that
such share would have possessed if such share had been
converted (pursuant to Section 4 below) to Class A Common
Stock as of the record date for such vote. Notwithstanding the
foregoing, the following actions shall require the affirmative
votes of a majority of the issued and then outstanding shares
of Class A Preferred Stock:
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<PAGE> 10
1.1.1. The merger or consolidation of the
Corporation with or into any other corporation (other
than a wholly-owned subsidiary of the Corporation),
or the sale, assignment, lease or other disposition
(whether in one transaction or in a series of
transactions) of all or substantially all of the
Corporation's assets (whether now owned or hereafter
acquired);
1.1.2. The establishment by the Board of
Directors of the Corporation of a new class of
preferred stock with rights or preferences equal to
or superior to the Class A Preferred Stock;
1.1.3. The redemption or repurchase by the
Corporation of any shares of the Corporation's
capital stock, except pursuant to the rights granted
by stock options, warrants, and/or employee benefit
plans of the Corporation (the "Option Plans") issued
under such Option Plans and options; or
1.1.4. Any amendment to the Restated Certificate
of Incorporation of the Corporation which would
adversely affect the rights of the holders of the
Preferred Stock.
1.2. Class B Preferred Stock. Each outstanding share
of Class B Preferred Stock shall not be entitled to vote on
any matter on which the stockholders of the Corporation shall
be entitled to vote, and shares of Class B Preferred Stock
shall not be included in determining the number of shares
voting or entitled to vote on any such matters, except as set
forth herein or as otherwise required by law; provided that,
notwithstanding the foregoing, holders of shares of the Class
B Preferred Stock shall be entitled to vote as a separate
class on any amendment to this Section 1.2, or as otherwise
required by law.
2. Dividends.
2.1. General. The holders of Preferred Stock shall be
entitled to receive when, as and if declared by the Board of
Directors, out of funds then legally available therefor, such
dividends as equal the amount of dividends that the holders of
Class A Preferred Stock and Class B Preferred Stock would have
received had such holders converted such Preferred Stock to
Common Stock (pursuant to Section 4.1. below) on the record
date for the declaration of such dividends.
2.2. Non-Cash. In the case of dividends payable in
shares of Common Stock of the Corporation, or options,
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<PAGE> 11
warrants or rights to acquire shares of such Common Stock, or
securities convertible into or exchangeable for shares of such
Common Stock, the holders of Class A Preferred Stock shall be
paid in shares of, or options, warrants or rights to acquire,
or securities convertible into or exchangeable for Class A
Common Stock, and the holders of Class B Preferred Stock shall
be paid in shares of, or options, warrants or rights to
acquire, or securities convertible into or exchangeable for
Class B Common Stock,
3. Liquidation.
3.1. Rights on Liquidation. In the event of any
liquidation, dissolution or winding up of the Corporation
(voluntary or involuntary), all of the property and assets of
the Corporation (whether from capital, surplus or earnings)
then available for distribution to the Corporation's
stockholders (the "Distribution Assets") shall be distributed
such that each holder of shares of Class A Preferred Stock and
Class B Preferred Stock shall receive $0.942 for each
preferred share then held by such holder before payment is
made on any share of Common Stock.
3.2. Merger or Consolidation. A merger or a
consolidation to which the Corporation is a party (other than
a merger with or into a wholly-owned subsidiary of the
Corporation), or a sale or lease of all or part of the assets
of the Corporation, shall be deemed a liquidation, dissolution
or winding up of the Corporation for the purposes of this
Section 3 with respect to any event that yields consideration
valued in the good faith judgment of the Board of Directors
less than $0.942 per share, (for purposes of this Section 3, a
"Merger or Sale of Corporation").
3.2.1. Merger Notice. No later than twenty (20)
days before the occurrence of any such Merger or Sale
of Corporation, the Corporation shall deliver a
notice to each holder of Class A Preferred Stock and
Class B Preferred Stock setting forth the principal
terms of such Merger or Sale of Corporation. Such
notice shall be deemed delivered upon personal
delivery or upon deposit in the United States mail,
by registered or certified mail, addressed to each
party at its address shown on the stock records of
the Corporation. Such notice shall include a
description of the amounts that would be paid to
holders of Class A Preferred Stock and Class B
Preferred Stock under Section 3 and of the
consideration that such holders would receive if they
exercised their rights under Section 4.6. to have
shares of Class A Preferred Stock and Class B
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<PAGE> 12
Preferred Stock treated as if they had been converted
into Common Stock.
3.2.2. Election. No later than ten (10) days
after delivery of the notice, each holder of Class A
Preferred Stock and Class B Preferred Stock may
deliver an election to the Corporation notifying the
Corporation that the holder desires (i) to have such
holder's shares of Class A and Class B Preferred
Stock treated, pursuant to Section 4.6., as if they
had been converted into shares of Common Stock or
(ii) to receive such amounts as provided for under
this Section 3.
4. Conversion Rights. The holders of the Preferred
Stock shall have the following rights with respect to the conversion of such
shares into shares of Common Stock.
4.1. General.
4.1.1. Class A Preferred Stock and Class B
Preferred Stock. For purpose of this Section 4, in
each instance that a share of Preferred Stock is
referred to as being convertible into Common Stock,
in the case of Class A Preferred Stock, such share is
convertible only into Class A Common Stock, and in
the case of Class B Preferred Stock, such share is
convertible only into Class B Common Stock.
4.1.2. Conversion. Subject to and in compliance
with the provisions of this Section 4, any shares of
the Class A Preferred Stock and Class B Preferred
Stock may, at the option of any holder, be converted
at any time into an equal number of fully-paid and
non-assessable shares of Common Stock.
4.2. Automatic Conversion Upon Initial Public
Offering or Election of Preferred Stock.
4.2.1. Mandatory Conversion of Preferred Stock.
Immediately upon the effectiveness of an underwritten
public offering on a firm commitment basis pursuant
to an effective registration statement filed pursuant
to the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock for the account of
the Corporation in which the Corporation actually
receives gross proceeds equal to or greater than
$5,000,000 (calculated after deducting underwriter's
discounts and commissions but before calculations of
expenses), and in which the price per share of Common
Stock equals or
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<PAGE> 13
exceeds $3.00 per share (such price to be subject to
equitable adjustment in the event of any stock
dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar
event involving a change in the capital structure of
the Corporation), then all of the outstanding shares
of Class A Preferred Stock and Class B Preferred
Stock shall be converted automatically into the
number of shares of Common Stock into which such
shares of Common Stock are then convertible pursuant
to this Section 4 as of the effectiveness of such
underwritten public offering, without the need of any
further action by the holders of such shares and
whether or not the certificates representing such
shares are surrendered to the Corporation or any
transfer agent for the Corporation.
4.2.2. Surrender of Certificate Upon Mandatory
Conversion. Upon the occurrence of the conversion
event specified in the preceding paragraph 4.2.1.,
the holders of the Class A Preferred Stock and Class
B Preferred Stock shall, upon notice from the
Corporation, surrender the certificates representing
such shares at the office of the Corporation or of
its transfer agent for the Common Stock. Thereupon,
there shall be issued and delivered to such holder a
certificate for the number of shares of Common Stock
into which the shares of Class A Preferred Stock and
Class B Preferred Stock so surrendered were
convertible on the date on which such conversion
occurred. The Corporation shall not be obligated to
issue such certificates unless certificates
evidencing the shares of Class A Preferred Stock and
Class B Preferred Stock being converted are either
delivered to the Corporation or any such transfer
agent, or the holder notifies the Corporation that
such certificates have been lost, stolen, or
destroyed and executes an agreement satisfactory to
the Corporation to indemnify it from any loss
incurred in connection therewith.
4.3. Capital Reorganization or Reclassification. If
the Common Stock issuable upon the conversion of the Class A
Preferred Stock and Class B Preferred Stock shall be changed
into the same or different number of shares of any class or
classes of capital stock, whether by capital reorganization,
recapitalization, reclassification, split up or otherwise
(other than a subdivision or combination of shares or
subdivision or combination of shares or stock dividend (as
provided for elsewhere in this Section 4), or
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<PAGE> 14
the sale of all or substantially all of the Corporation's
capital stock or assets to any other person), then and in each
such event the holder of each share of Class A Preferred Stock
and Class B Preferred Stock shall have the right thereafter to
convert such share into the kind and the amount of shares of
capital stock and other securities and property receivable
upon such reorganization, recapitalization, reclassification,
or other change by the holders of the number of shares of
Common Stock into which the Class A Preferred Stock and Class
B Preferred Stock might have been converted immediately prior
to such reorganization, recapitalization, reclassification or
change, all subject to further adjustment as provided herein.
4.4. Capital Reorganization, Merger or Sale of
Assets. If at any time or from time to time there shall be a
capital reorganization of the Common Stock (other than a
subdivision, combination, recapitalization, reclassification
or exchange of shares provided for elsewhere in this Section
4) or a merger or consolidation of the Corporation with or
into another corporation (other than a merger or
reorganization involving only a change in the state of
incorporation where the Corporation survives as a going
concern as further provided in Section 3.2. hereof), or the
sale of all or substantially all of the Corporation's capital
stock or assets to any other person, then, as a part of such
reorganization, merger, or consolidation or sale, provision
shall be made so that the holders of the Class A Preferred
Stock and Class B Preferred Stock shall thereafter be entitled
to receive upon conversion of the Class A Preferred Stock and
Class B Preferred Stock the number of shares of stock or other
securities or property of the Corporation, or of the successor
corporation resulting from such merger, consolidation or sale,
to which such holder would have been entitled if such holder
had converted its shares of Class A Preferred Stock and Class
B Preferred Stock immediately prior to such capital
reorganization, merger, consolidation or sale. In any such
case, appropriate adjustment shall be made in the application
of the provisions of this Section 4 to the end that the
provisions of this Section 4 (including adjustments of the
Applicable Conversion Value then in effect and the number of
the shares of Common Stock or other securities issuable upon
conversion of such shares of Class A Preferred Stock and Class
B Preferred Stock) shall be applicable after that event in as
nearly equivalent a manner as may be practicable.
4.5. Certificate as to Adjustments; Notice by
Corporation. In each case of an adjustment or readjustment of
the Applicable Conversion Rate, the Corporation at its
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<PAGE> 15
expense will furnish each holder of Class A Preferred Stock
and Class B Preferred Stock with a certificate prepared by the
Treasurer or Chief Financial Officer of the Corporation,
showing such adjustment or readjustment, and stating in detail
the facts upon which such adjustment or readjustment is based.
4.6. Voluntary Conversion. The shares' conversion
privilege may be exercised as follows:
4.6.1. Holder to Initiate. A holder of the
Preferred Stock shall:
4.6.1.1. Surrender the certificate or
certificates representing the shares being
converted to the Corporation at its principal
office;
4.6.1.2. Give written notice to the
Corporation at that office that such holder
elects to convert such shares, including the
name or names with address or addresses in which
the certificate or certificates for shares of
Common Stock issuable upon such conversion shall
be issued (the "Conversion Notice").
4.6.1.3. Include a proper assignment,
either to the Corporation or in blank, of the
certificate or certificates for shares of
Preferred Stock surrendered.
4.6.2. Corporation to Deliver. The Corporation
shall, as promptly as practicable after the
Conversion Date, issue and deliver to the holder of
the shares of Class A Preferred Stock and Class B
Preferred Stock being converted, or to its written
order, such certificate(s) as the holder may request
for the number of shares of Common Stock issuable
upon the conversion of such shares of Class A
Preferred Stock and Class B Preferred Stock in
accordance with the provisions of this Section 4, and
cash, as provided in Section 4.7., in respect of any
fraction of a share of Common Stock issuable upon
such conversion.
4.6.3. Holder of Converted Shares. The person(s)
in whose name or names any certificate(s) for shares
of Common Stock shall be issuable upon such
conversion shall be deemed the holder or holders of
record of the shares of Common Stock represented
thereby.
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4.6.4. Date of Conversion. The date that the
Corporation receives the stockholder's written notice
together with the certificate or certificates
representing the shares of Class A Preferred Stock
and Class B Preferred Stock being converted shall be
the "Conversion Date". The conversion shall be deemed
effective immediately prior to the close of business
on the Conversion Date, and at such time the rights
of the holder shall cease as holder of the converted
shares of Class A Preferred Stock and Class B
Preferred Stock.
4.7. Cash in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares
shall be issued upon the conversion of shares of Class A
Preferred Stock and Class B Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be
issuable upon conversion of Class A Preferred Stock and Class
B Preferred Stock, the Corporation shall pay to the holder of
the shares of the Class A Preferred Stock and Class B
Preferred Stock which were converted a cash adjustment in
respect of such fractional shares in an amount equal to the
product obtained by multiplying the same fraction by the
market price per share of the Common Stock (as determined in a
reasonable manner prescribed by the Board of Directors) at the
close of business on the Conversion Date. The determination as
to whether or not any fractional shares are issuable shall be
based upon the aggregate number of shares of Class A Preferred
Stock and Class B Preferred Stock being converted at any one
time by any holder thereof, not upon each share of Class A
Preferred Stock and Class B Preferred Stock being converted.
4.8. Partial Conversion. In the event that some but
not all of the shares of Class A Preferred Stock and Class B
Preferred Stock represented by a certificate(s) surrendered by
a holder are converted, a new certificate representing the
number of shares of Preferred Stock which were not converted
shall be issued to the holder at the Corporation's expense.
4.9. Reservation of Common Stock. The Corporation
shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock a sufficient
number of shares of Common Stock of each class as from time to
time shall permit the conversion of all outstanding shares of
the Class A Preferred Stock and Class B Preferred Stock
(including any such shares represented by outstanding
warrants, options, subscription or purchase rights). If at any
time the number of authorized but unissued shares of Common
Stock
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shall prove insufficient to effect the conversion of all such
outstanding or promised Class A Preferred Stock and Class B
Preferred Stock, then the Corporation shall take such action
as may be necessary to increase its authorized but unissued
shares of Common Stock to a sufficient number to accomplish a
complete conversion.
4.10. No Reissuance of Preferred Stock. No share(s)
of Class A Preferred Stock and Class B Preferred Stock
reacquired by the Corporation by redemption, purchase,
conversion or otherwise, shall be reissued, and all such
reacquired shares shall be cancelled, retired, and eliminated
from the shares that the Corporation shall be authorized to
issue. The Corporation shall from time to time take such
corporate action as may be necessary and appropriate to reduce
the authorized number of shares of the Class A Preferred Stock
and Class B Preferred Stock to correspond with such
reacquisitions.
4.11. Notices of Record Date. In the event of any
taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders
thereof who are entitled (i) to receive any dividend or other
distribution, any Common Stock or Preferred Stock, or any
right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or
property, or to receive any other right, or (ii) to
participate in any merger, consolidation, liquidation, sale of
all or substantially all of the Corporation's assets, or other
similar transaction, the Corporation shall mail to each holder
of Class A Preferred Stock and Class B Preferred Stock at
least ten (10) days prior to the date specified therein, a
notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or
other action, and the amount and character of such dividend,
distribution, right or other action.
FIFTH: (a) The number of Directors of the
Corporation which shall constitute the whole Board of Directors shall be such as
from time to time shall be fixed by or in the manner provided in the By-Laws but
in no case shall the number be less than one. Except as may otherwise be
required by law, vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized number of Directors
may be filled by a majority of the Directors then in office, though less than a
quorum.
(b) All corporate powers of the Corporation
shall be exercised by the Board of Directors except as otherwise provided herein
or by law. In furtherance and not in limita-
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tion of the powers conferred by statute and by law the Board of Directors is
expressly authorized to make, amend, alter, change, add to or repeal By-Laws of
the Corporation, without any action on the part of the stockholders.
SIXTH: Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or the
application of any receiver or receivers appointed for this Corporation under
the provision of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the Court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH: (a) No contract or transaction between the
Corporation and one or more of its Directors, or between a corporation and any
other corporation, partnership, association or other organization in which one
or more of its Directors or officers are Directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because such Directors or officers are present at or participate in the meeting
of the Board of Directors or the committee thereof which authorizes the contract
or transaction, or solely because his, her or their votes are counted for such
purpose if:
(1) The material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote there-
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<PAGE> 19
on, and the contract or transaction is specifically approved in good faith by
vote of the stockholders; or
(3) The contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders.
In any case described in this Section, any common or interested Director may be
counted in determining the existence of a quorum at any meeting of the Board of
Directors or any committee which shall authorize any such contract or
transaction and may vote thereat to authorize any such contract or transaction.
Any Director of the Corporation may vote upon any contract or other transaction
between the Corporation and any subsidiary or affiliated corporation without
regard to the fact that he is also a Director of such subsidiary or affiliated
corporation.
(b) No person who is or at any time has
been a Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
provided that the foregoing provision shall not eliminate or limit the liability
of a Director (i) for any breach of such Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts of omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from
which such Director derived an improper personal benefit.
(c) Any contract, transaction or act of the
Corporation or of the Board of Directors which shall be ratified by a majority
of a quorum of the stockholders entitled to vote at any annual meeting or at any
special meeting called for that purpose shall be as valid and binding as though
ratified by every stockholder of the Corporation; provided, however, that any
failure of the stockholders to approve or ratify such contract, transaction or
act when and if submitted to them shall not be deemed in any way to invalidate
the same or to deprive the Corporation, its Directors or officers of their right
to proceed with such contract, transaction or act.
(d) Each Director, officer and employee,
past or present, of the Corporation, and each person who serves or may have
served at the request of the Corporation as a Director, Trustee, officer or
employee of another corporation, association, trust or other entity and their
respective heirs, administrators and executors, shall be indemnified by the
Corporation in accordance with, and to the fullest extent permitted by, the
provisions of the General Corporation Law of the State of Delaware as it may
from time to time be amended. Each agent of the Corporation and each person who
serves or may have served at the request of the Corpora-
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tion as an agent of another corporation, or as an employee or agent of any
partnership, joint venture, trust or other enterprise may, in the discretion of
the Board of Directors, be indemnified by the Corporation to the same extent as
provided herein with respect to Directors, officers and employees of the
Corporation. The provisions of this paragraph (d) shall apply to any member of
any Committee appointed by the Board of Directors as fully as though such person
shall have been an officer or Director of the Corporation.
(e) The provisions of this Article SEVENTH
shall be in addition to and not in limitation of any other rights, indemnities,
or limitations of liability to which any Director or officer may be entitled, as
a matter of law or under any By-Law, agreement, vote of stockholders or
otherwise.
EIGHTH: (a) To the extent not prohibited by law,
the Corporation shall indemnify any person who is or was made, or threatened to
be made, a party to any threatened, pending or completed action, suit or
proceeding (a "Proceeding"), whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the Corporation to procure a judgment in its favor, by reason of the fact that
such person, or a person of whom such person is the legal representative, is or
was a Director or officer of the Corporation, or is or was serving in any
capacity at the request of the Corporation for any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise (an
"Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid
in settlement and costs, charges and expenses (including attorneys' fees and
disbursements). Persons who are not Directors or officers of the Corporation may
be similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Article EIGHTH.
(b) The Corporation shall, from time to
time, reimburse or advance to any Director or officer or other person entitled
to indemnification hereunder the funds necessary for payment of expenses,
including attorneys' fees and disbursements, incurred in connection with any
Proceeding, in advance of the final disposition of such Proceeding; provided,
however, that, if required by the Delaware General Corporation Law, such
expenses incurred by or on behalf of any Director or officer or other person may
be paid in advance of the final disposition of a Proceeding only upon receipt by
the Corporation of an undertaking, by or on behalf of such Director or officer
(or other person indemnified hereunder), to repay any such amount so advanced if
it shall ultimately be determined by final judicial decision from which there is
no further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
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<PAGE> 21
(c) The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article EIGHTH shall not be deemed exclusive of any other rights to which a
person seeking indemnification or reimbursement or advancement of expenses may
have or hereafter be entitled under any statute, this Certificate of
Incorporation, the By-laws of the Corporation (the "By-laws"), any agreement,
any vote of stockholders or disinterested Directors or otherwise, both as to
action in his or her official capacity and as to action in another capacity
while holding such office.
(d) The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article EIGHTH shall continue as to a person who has ceased to be a
Director or officer (or other person indemnified hereunder) and shall inure to
the benefit of the executors, administrators, legatees and distributees of such
person.
(e) The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of an
Other Entity, against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article EIGHTH, the
By-laws or under Section 145 of the Delaware General Corporation Law or any
other provision of law.
(f) The provisions of this Article EIGHTH
shall be a contract between the Corporation, on the one hand, and each Director
and officer who serves in such capacity at any time while this Article EIGHTH is
in effect and any other person indemnified hereunder, on the other hand,
pursuant to which the Corporation and each such Director, officer, or other
person intend to be legally bound. No repeal or modification of this Article
EIGHTH shall affect any rights or obligations with respect to any state of facts
then or theretofore existing or thereafter arising or any proceeding theretofore
or thereafter brought or threatened based in whole or in part upon any such
state of facts.
(g) The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article EIGHTH shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that
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<PAGE> 22
such indemnification or reimbursement or advancement of expenses is proper in
the circumstances nor an actual determination by the Corporation (including its
Board of Directors, its independent legal counsel and its stock holders) that
such person is not entitled to such indemnification or reimbursement or
advancement of expenses shall constitute a defense to the action or create a
presumption that such person is not so entitled. Such a person shall also be
indemnified for any expenses incurred in connection with successfully
establishing his or her right to such indemnification or reimbursement or
advancement of expenses, in whole or in part, in any such proceeding.
(h) Any Director or officer of the
Corporation serving in any capacity (i) another corporation of which a majority
of the shares entitled to vote in the election of its directors is held,
directly or indirectly by the Corporation or (ii) any employee benefit plan of
the Corporation or any corporation referred to in clause (i) shall be deemed to
be doing so at the request of the Corporation.
(i) Any person entitled to be indemnified
or to reimbursement or advancement of expenses as a matter of right pursuant to
this Article EIGHTH may elect to have the right to indemnification or
reimbursement or advancement of expenses interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the applicable Proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time such indemnification or
reimbursement or advancement of expenses is sought. Such election shall be made,
by a notice in writing to the Corporation, at the time indemnification or
reimbursement or advancement of expenses is sought; provided, however, that if
no such notice is given, the right to indemnification or reimbursement or
advancement of expenses shall be determined by the law in effect at the time
indemnification or reimbursement or advancement of expenses is sought.
NINTH: The Board of Directors may from time to time
(after adoption by the undersigned of the original By-laws) make, alter or
repeal the By-laws by a vote of a majority of the entire Board of Directors that
would be in office if no vacancy existed, whether or not present at a meeting;
provided, however, that any By-laws made, amended or repealed by the Board of
Directors may be amended or repealed, and any By-laws may be made, by the
stockholders of the Corporation by vote of a majority of the holders of shares
of stock of the Corporation entitled to vote in the election of Directors of the
Corporation.
I, the undersigned officer of BITSTREAM INC., a corporation of
the State of Delaware, hereby certify that the foregoing is
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<PAGE> 23
a true, correct and complete copy of the Restated Certificate of Incorporation
of said Corporation as at present in force.
IN WITNESS WHEREOF, I have hereunto subscribed by name and
affixed the seal of this Corporation this 15th day of May 1996.
BITSTREAM INC.
/s/ C. Raymond Boelig
----------------------------------------
Name: C. Raymond Boelig
Title: President and CEO
ATTEST:
/s/ William Swiggart
- ----------------------------------------
Name: William Swiggart
Title: Secretary
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
BITSTREAM INC.
(a Delaware corporation)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the Corporation
within the State of Delaware shall be located at United Corporate Services,
Inc., 15 East North Street in the City of Dover, County of Kent.
SECTION 2. Other Offices. The Corporation may maintain offices or
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders of the
Corporation for the election of Directors or for any other purpose shall be held
at any such place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors and stated in the notice
of meeting or in a duly executed waiver thereof.
SECTION 2. Annual Meeting. The annual meeting of the stockholders shall
be held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of meeting or in a duly executed
waiver thereof. At such annual meeting, the stockholders shall elect, by a
plurality vote, a Board of Directors and transact such other business as may
properly be brought before the meeting.
SECTION 3. Special Meetings. Special meetings of the stockholders,
unless otherwise prescribed by statute, may be called at any time by the Board
of Directors or the Chairman of the Board, if one shall have been elected.
<PAGE> 2
SECTION 4. Notice of Meetings; Waiver. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the date and place shall be given to each stockholder of
record entitled to vote thereat not less than ten nor more than sixty days
before the date of the meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice. Notice shall
be given personally or by mail and, if by mail, shall be sent in a postage
prepaid envelope, addressed to the stockholder at his or her address as it
appears on the records of the Corporation. Notice by mail shall be deemed given
at the time when the same shall be deposited in the United States mail, postage
prepaid. Notice of any meeting shall not be required to be given to any person
who attends such meeting, except when such person attends the meeting in person
or by proxy for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, or who, either before or after the meeting, shall submit a
signed written waiver of notice, in person or by proxy. Neither the business to
be transacted at, nor the purpose of, an annual or special meeting of
stockholders need be specified in any written waiver of notice.
SECTION 5. List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, showing the address of and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city, town or village where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 6. Quorum; Adjournments. The holders of a majority of the
voting power of the issued and outstanding stock of the Corporation entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of stockholders, except
as otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented by proxy. At such adjourned meeting at which a
quorum shall be present or represented by proxy, any business may be transacted
which might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty days, or, if after adjournment a new record
date is set, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 7. Organization. At each meeting of stockholders, the Chairman
of the Board, if one shall have been elected, or, in his or her absence or if
one shall not have been elected, the President, shall act as Chairman of the
meeting. The Secretary or, in his or her
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<PAGE> 3
absence or inability to act, the person whom the Chairman of the meeting shall
appoint secretary of the meeting, shall act as secretary of the meeting and keep
the minutes thereof.
SECTION 8. Order of Business. The order of business at all meetings of
the stock- holders shall be as determined by the Chairman of the meeting.
SECTION 9. Voting. Except as otherwise provided by statute or the
Certificate of Incorporation, each stockholder of the Corporation shall be
entitled at each meeting of stockholders to one vote for each share of capital
stock of the Corporation standing in his or her name on the record of
stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of Section
7 of Article V of these By-Laws as the record date for the
determination of the stockholders who shall be entitled to notice of
and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then
at the close of business on the day next preceding the day on which
notice thereof shall be given, or, if notice is waived, at the close
of business on the date next preceding the day on which the meeting
is held.
SECTION 10. Proxies. Each stockholder entitled to vote at any meeting
of stockholders may authorize another person or persons to act for him by a
proxy signed by such stockholder or his or her attorney-in-fact, but no proxy
shall be voted after three years from its date, unless the proxy provides for a
longer period. Any such proxy shall be delivered to the secretary of the meeting
at or prior to the time designated in the order of business for so delivering
such proxies. When a quorum is present at any meeting, the vote of the holders
of a majority of the voting power of the issued and outstanding stock of the
Corporation entitled to vote thereon, present in person or represented by proxy,
shall decide any question brought before such meeting, unless the question is
one upon which by express provision of statute or of the Certificate of
Incorporation or of these By-Laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Unless required by statute, or determined by the Chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by his or her proxy,
if there be such proxy, and shall state the number of shares voted.
SECTION 11. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the Chairman of the meeting shall, or if inspectors shall not
have been appointed, the Chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his or her ability. The inspectors shall determine the number of shares of
capital stock of the Corporation outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges
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<PAGE> 4
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the Chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of Directors. Inspectors
need not be stockholders.
SECTION 12. Action by Consent. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, by any provision of statute or of the Certificate of
Incorporation or of these By-Laws, the meeting and vote of stockholders may be
dispensed with, and the action taken without such meeting and vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
stock of the corporation entitled to vote thereon were present and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The
number of Directors constituting the initial Board of Directors shall be as
determined in the resolutions of the Incorporator of the Corporation electing
the Initial Board of Directors. Thereafter, the number of Directors may be
fixed, from time to time, by the affirmative vote of a majority of the entire
Board of Directors or by action of the stockholders of the Corporation. Any
decrease in the number of Directors shall be effective at the time of the next
succeeding annual meeting of stockholders unless there shall be vacancies in the
Board of Directors, in which case such decrease may become effective at any time
prior to the next succeeding annual meeting to the extent of the number of such
vacancies. Directors need not be stockholders. Except as otherwise provided by
statute or these By-Laws, the Directors (other than members of the initial Board
of Directors) shall be elected at the annual meeting of stockholders. Each
director shall hold office until his or her successor shall have been elected
and qualified, or until his or her death, or until he shall have resigned, or
have been removed, as hereinafter provided in these By-Laws.
SECTION 3. Place of Meetings. Meetings of the Board of Directors shall
be held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
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<PAGE> 5
SECTION 4. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
other time or place (within or without the State of Delaware) as shall be
specified in a notice thereof given as hereinafter provided in Section 7 of this
Article III.
SECTION 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board of Directors need not be given except as
otherwise required by statute or these By-Laws.
SECTION 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, if one shall have been elected, or
by two or more Directors of the corporation or by the President.
SECTION 7. Notice of Meetings. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these By-Laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his or her residence or usual
place of business, by first class mail, at least two days before the day on
which such meeting is to be held, or shall be sent addressed to him at such
place by telegraph, cable, telex, telecopy or other similar means, or be
delivered to him personally or be given to him by telephone or other similar
means, at least twenty-four hours before the time at which such meeting is to be
held. Notice of any such meeting need not be given to any director who shall,
either before or after the meeting, submit a signed waiver of notice or who
shall attend such meeting, except when he shall attend for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 8. Quorum and Manner of Acting; Adjournment. A majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, and, except as otherwise
expressly required by statute or the Certificate of Incorporation or these
By-Laws, the act of a majority of the entire Board of Directors shall be the act
of the Board of Directors. In the absence of a quorum at any meeting of the
Board of Directors, a majority of the Directors present thereat may adjourn such
meeting to another time and place. Notice of the time and place of any such
adjourned meeting shall be given to all of the Directors unless such time and
place were announced at the meeting at which the adjournment was taken, in which
case such notice shall only be given to the Directors who were not present
thereat. At any adjourned meeting at which a quorum is present, any business may
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<PAGE> 6
be transacted which might have been transacted at the meeting as originally
called. The Directors shall act only as a Board and the individual Directors
shall have no power as such.
SECTION 9. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, or, in the absence of the
Chairman of the Board or if one shall not have been elected, the President (or,
in his or her absence, another director chosen by a majority of the Directors
present) shall act as Chairman of the meeting and preside thereat. The Secretary
or, in his or her absence, any person appointed by the Chairman shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 10. Resignations. Any Director of the Corporation may resign at
any time by giving written notice of his or her resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase in
the number of Directors or any other cause, may be filled by the vote of a
majority of the Directors then in office, though less than a quorum, or by the
sole remaining Director or by the stockholders at the next annual meeting
thereof or at a special meeting thereof. Each Director so elected shall hold
office until his or her successor shall have been elected and qualified.
SECTION 12. Removal of Directors. Any Director may be removed, either
with or without cause, at any time, by the holders of a majority of the voting
power of the issued and outstanding capital stock of the Corporation entitled to
vote at an election of Directors.
SECTION 13. Compensation. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
Directors for services to the Corporation in any capacity.
SECTION 14. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of one
or more of the Directors of the Corporation. The Board of Directors may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
addition, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Except to the extent restricted by statute or the Certificate of
Incorporation, each such committee, to the extent provided in the resolution
creating it, shall have and may exercise all the powers and authority of the
Board of Directors and may authorize the seal of the Corporation to be affixed
to all papers which require it. Each such committee shall serve at the pleasure
of
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<PAGE> 7
the Board of Directors and have such name as may be determined from time to time
by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors.
SECTION 15. Action by Consent. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV
OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be elected by the Board of Directors and shall include the President, one
or more Vice-Presidents, the Secretary and the Treasurer. If the Board of
Directors wishes, it may also elect as an officer of the Corporation a Chairman
of the Board and may elect other officers (including one or more Assistant
Treasurers and one or more Assistant Secretaries) as may be necessary or
desirable for the business of the Corporation. Any two or more offices may be
held by the same person, and no officer except the Chairman of the Board need be
a Director. Each officer shall hold office until his or her successor shall have
been duly elected and shall have qualified, or until his or her death, or until
he or she shall have resigned or have been removed, as hereinafter provided in
these By-Laws.
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his or her resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof.
SECTION 4. Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be a member of the Board, an officer of the
Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He shall advise and
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<PAGE> 8
counsel with the President, and in his or her absence with other executives of
the Corporation, and shall perform such other duties as may from time to time be
assigned to him by the Board of Directors.
SECTION 5. The President. The President shall be the chief executive
officer of the Corporation. He shall, in the absence of the Chairman of the
Board or if a Chairman of the Board shall not have been elected, preside at each
meeting of the Board of Directors or the stockholders. He shall perform all
duties incident to the office of President and chief executive officer and such
other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 6. Vice-President. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the request of the President or in his or her absence or in
the event of his or her inability or refusal to act, the Vice-President, or if
there shall be more than one, the Vice-Presidents in the order determined by the
Board of Directors (or if there be no such determination, then the
Vice-Presidents in the order of their election), shall perform the duties of the
President, and, when so acting, shall have the powers of and be subject to the
restrictions placed upon the President in respect of the performance of such
duties.
SECTION 7. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of
the Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the Corporation;
and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors.
-8-
<PAGE> 9
SECTION 8. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates for shares of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties as from time to time
may be assigned by the Board of Directors.
SECTION 10. The Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of his
or her inability or refusal to act, perform the duties and exercise the powers
of the Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 11. Officers' Bonds or Other Security. If required by the Board
of Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his or her duties, in such amount and with such
surety as the Board of Directors may require.
SECTION 12. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a Director of
the Corporation.
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<PAGE> 10
ARTICLE V
CAPITAL STOCK
SECTION 1. Stock Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board or the President or a Vice-President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restriction of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 2. Facsimile; Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate or certificates, or his or her legal
representative, to give the Corporation a bond in such sum as it may direct
sufficient to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of
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<PAGE> 11
transfer if, when the certificates are presented to the Corporation for
transfer, both the transferor and the transferee request the Corporation to do
so.
SECTION 5. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. Regulations. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of capital stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its records as the
owner of shares of stock to receive dividends and to vote as such owner, shall
be entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. General. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not
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<PAGE> 12
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
SECTION 3. Indemnification in Certain Cases. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of
this Article VI (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
such Sections 1 and 2 of this Article VI. Such determination shall be made (a)
by the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (b) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
SECTION 5. Advances for Expenses. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to
repay such amount if it shall be ultimately determined that he is not entitled
to be indemnified by the Corporation as authorized in this Article VI.
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<PAGE> 13
SECTION 6. Rights Not-Exclusive. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
SECTION 7. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Article VI.
SECTION 8. Definition of Corporation. For the purposes of this Article
VI, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article VI with respect
to the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
SECTION 9. Survival of Rights. The indemnification and advancement of
expenses provided by or granted pursuant to this Article VI shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Subject to any applicable provisions of law and
the Certificate of Incorporation, dividends upon the shares of capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting of the Board of Directors. Dividends may be paid in cash,
property or shares of stock of the Corporation, unless otherwise provided by
statute or the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the
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<PAGE> 14
interests of the Corporation. The Board of Directors may modify or abolish any
such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. Voting of Stock in Other Corporations. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may, or
may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VIII
AMENDMENTS
These By-Laws may be amended or repealed or new by-laws adopted (a) by
action of the stockholders entitled to vote thereon at any annual or special
meeting of stockholders or (b) if the Certificate of Incorporation so provides,
by action of the Board of Directors at a regular or special meeting thereof. Any
by-law made by the Board of Directors may be amended or repealed by action of
the stockholders at any annual or special meeting of stockholders.
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<PAGE> 1
EXHIBIT 4.1
---------
CLASS A COMMON STOCK BITSTREAM CLASS A COMMON STOCK
---------
[CERTIFICATE NUMBER] Bitstream Inc. [NUMBER OF SHARES]
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR
IN BOSTON, MA OR NEW YORK, NY CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 091736 10 8
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A
COMMON STOCK, $.01 PAR VALUE, OF
- ------------------------------ ----------------------------------
- ------------------------------ BITSTREAM INC. ----------------------------------
- ------------------------------ ----------------------------------
transferable only on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
issued under and subject to the laws of the State of Delaware and to the
Certificate of Incorporation and Bylaws of the Corporation, all as in effect
from time to time. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ James D. Hart /s/ C. Raymond Boelig
VICE PRESIDENT, TREASURER [CORPORATE SEAL] PRESIDENT AND CHIEF
AND CHIEF FINANCIAL OFFICER EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
BY /s/ Mary Penezic
AUTHORIZED SIGNATURE
<PAGE> 2
BITSTREAM INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. THE
CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE CORPORATION, AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE IN WRITING TO THE CORPORATION OR THE TRANSFER
AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ........... Custodian ...........
(Cust) (Minor)
under Uniform Gifts to Minors
Act..............................
(State)
UNIF TRF MIN ACT -- .......Custodian (until age.....)
(Cust)
...........under Uniform Transfers
(Minor)
to Minors Act.....................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
---------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS. INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
DATED
------------------------------
X
---------------------------------------
X
---------------------------------------
THE SIGNATURE(S) TO THIS ASSIGNMENT
NOTICE: MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THIS
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
BY
-------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.1
BITSTREAM INC. - 1996 STOCK PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PURPOSE................................................................... 1
2. ADMINISTRATION OF THE PLAN................................................ 1
A. BOARD OR COMPENSATION COMMITTEE ADMINISTRATION........................ 1
B. COMMITTEE ACTION...................................................... 3
C. GRANT OF STOCK RIGHTS TO MEMBERS OF THE BOARD......................... 3
D. COMPLIANCE WITH FEDERAL SECURITIES LAWS............................... 3
3. ELIGIBLE EMPLOYEES AND OTHERS............................................. 4
4. STOCK SUBJECT TO OPTIONS, AWARDS AND PURCHASES............................ 4
5. GRANTING OF STOCK RIGHTS.................................................. 4
6. MINIMUM OPTION PRICE; ISO LIMITATIONS..................................... 5
A. PRICE FOR WARRANTS OR NON-QUALIFIED OPTIONS........................... 5
B. PRICE FOR ISOs........................................................ 5
C. $100,000 ANNUAL LIMITATION FOR ISOs................................... 5
D. DETERMINATION OF FAIR MARKET VALUE........................................ 5
7. OPTION DURATION........................................................... 6
8. EXERCISE OF OPTION........................................................ 6
A. FULL VESTING OR PARTIAL VESTING....................................... 6
B. FULL VESTING OF INSTALLMENTS.......................................... 6
C. PARTIAL EXERCISE...................................................... 6
D. ACCELERATION OF VESTING............................................... 6
E. EMPLOYEES OWNING GREATER THAN TEN PERCENT OF VOTING STOCK............. 6
9. EMPLOYMENT................................................................ 7
A. TERMINATION OF EMPLOYMENT............................................. 7
B. LEAVES OF ABSENCE..................................................... 7
C. CHANGES OF EMPLOYMENT................................................. 7
10. DEATH; DISABILITY......................................................... 7
A. DEATH................................................................. 7
B. DISABILITY............................................................ 8
11. ASSIGNABILITY............................................................. 8
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
12. TERMS AND CONDITIONS OF OPTIONS........................................... 8
13. ADJUSTMENTS............................................................... 8
A. STOCK DIVIDENDS AND STOCK SPLITS...................................... 8
B. CONSOLIDATIONS OR MERGERS............................................. 9
C. RECAPITALIZATION OR REORGANIZATION.................................... 9
D. MODIFICATION OF ISOs.................................................. 10
E. DISSOLUTION OR LIQUIDATION............................................ 10
F. ISSUANCES OF SECURITIES............................................... 10
G. FRACTIONAL SHARES..................................................... 10
H. ADJUSTMENTS........................................................... 10
14. MEANS OF EXERCISING STOCK RIGHTS.......................................... 10
15. TERM AND AMENDMENT OF PLAN................................................ 11
16. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; CANCELLATION OF ISOs....... 12
17. APPLICATION OF FUNDS...................................................... 12
18. GOVERNMENT REGULATION..................................................... 12
19. WITHHOLDING OF ADDITIONAL INCOME TAXES.................................... 12
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION............................ 13
21. RESTRICTIONS ON EXERCISE OF OPTIONS AND ISSUANCE OF SHARES................ 13
22. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION...... 14
23. DUTIES OF THE COMPANY..................................................... 14
24. NOTICES................................................................... 14
25. GOVERNING LAW -- CONSTRUCTION............................................. 15
</TABLE>
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<PAGE> 4
Bitstream Inc.
1996 Stock Plan
1996 STOCK PLAN
1. PURPOSE. This 1996 Stock Plan (the "Plan") is intended to provide
incentives to:
A. Directors, officers, employees and consultants of Bitstream Inc.
(the "Company"), its parent (if any) and any present or future
subsidiaries (collectively, "Related Corporations") by providing them with
awards of stock in the Company ("Awards"); and
B. Officers and other employees of the Company and Related Corporations
by providing them with options granted hereunder that qualify as
"incentive stock options" under Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code") ("ISO" or "ISOs") substantially in
the form attached hereto as Exhibit 8A;
C. Directors, officers, employees and consultants of the Company and
Related Corporations by providing them with opportunities to purchase
stock in the Company pursuant to warrants granted hereunder which do not
qualify as ISOs ("Warrant" or "Warrants"), substantially in the form
attached hereto as Exhibit 8B;
D. Directors, officers, employees and consultants of the Company and
Related Corporations by providing them with opportunities to purchase
stock in the Company pursuant to Non-Qualified Options granted hereunder
which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"), substantially in the form attached hereto as Exhibit 8C;
E. Directors, officers, employees and consultants of the Company and
Related Corporations by providing them with opportunities to make direct
purchases of stock in the Company ("Purchases").
ISOs, Warrants and Non-Qualified Options are referred to hereafter individually
as an "Option" and collectively as "Options". Options, Awards and authorizations
to make Purchases are referred to hereafter collectively as "Stock Rights". As
used herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation", respectively, as those terms are defined in Section
424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMPENSATION COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board"). The
Board may appoint a Compensation Committee of two or more of its members
to administer this Plan, as assisted by the officers of the Company.
Subject to ratification of the grant or
<PAGE> 5
Bitstream Inc.
1996 Stock Plan
authorization of each Stock Right by the Board (if so required by
applicable state law), and subject to the terms of the Plan, the
Committee shall have the authority to
(i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under
paragraph 3 to receive ISOs) to whom ISOs may be granted, and to
determine (from among the class of individuals and entities eligible
under paragraph 3 to receive Warrants, Non-Qualified Options and Awards
and to make Purchases) to whom Warrants, Non-Qualified Options, Awards
and authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards may
be granted or Purchases made;
(iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price specified
in paragraph 6, and the purchase price of shares subject to each
Purchase;
(iv) determine whether each Option granted shall be an ISO, a
Warrant or Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when
each Option shall become exercisable and the duration of the exercise
period;
(vi) determine whether restrictions such as repurchase options
are to be imposed on shares subject to Options, Awards and Purchases
and the nature of such restrictions, if any, and
(vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it.
If the Committee determines to issue a Warrant or Non-Qualified Option, it shall
take whatever actions it deems necessary, under Section 422 of the Code and the
regulations promulgated thereunder, to ensure that such Option is not treated as
an ISO. The interpretation and construction by the Committee of any provisions
of the Plan or of any Stock Right granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board or the Committee shall be held liable for any action or
determination made in good faith with respect to the Plan or any Stock Right
granted under it.
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Bitstream Inc.
1996 Stock Plan
B. COMMITTEE ACTION. The Committee may select one of its members as its
chairman and shall hold meetings at such time and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall
be the valid acts of the Committee. All references in this Plan to the
Committee shall mean the Board if no Committee has been appointed. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies however
caused, or remove all members of the Committee and thereafter directly
administer the Plan.
C. GRANT OF STOCK RIGHTS TO MEMBERS OF THE BOARD. Notwithstanding the
provisions of paragraph 2(A), no Stock Right shall be granted to any
person who serves as a member of the Board at the time of the proposed
grant, unless such grant has been approved by a majority vote of the
disinterested members of the Board and otherwise approved in accordance
with the following paragraph 2(D), if applicable. [For the purposes of the
Plan, a member of the Board shall be deemed to be "disinterested" only if
such person qualifies as a "disinterested person" within the meaning of
paragraph (c)(2) of Rule 16(b)-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as such term the Board is
interpreted from time to time.]
All grants of Stock Rights to members of the Board shall in all other
respects be made in accordance with those provisions of this Plan that
apply to other eligible persons. Members of the Board who are either (i)
eligible for Stock Rights pursuant to the Plan or (ii) have been granted
Stock Rights may vote on any matters affecting the administration of the
Plan or the grant of any Stock Rights pursuant to the Plan, except that no
such member shall act upon the granting to himself of Stock Rights, but
any such member may be counted in determining the existence of a quorum at
any meeting of the Board during which action is taken with respect to the
granting to him of Stock Rights. The signatures of all the Board members
on a unanimous consent of directors in lieu of a meeting may constitute
the majority vote required by the foregoing paragraph.
[D. COMPLIANCE WITH FEDERAL SECURITIES LAWS. The following shall apply
to any grant of Stock Rights to a member of the Board in the event the
Company registers any class of any equity security pursuant to the
Exchange Act, if such grant occurs at any time from the effective date of
such registration until six months after the termination of such
registration: A majority vote of the other members of the Board must
approve such grant. If a majority of the Board is eligible to participate
in the Plan or in any other stock option or other stock plan of the
Company or any of its affiliates, or has been so eligible at any time
within the preceding year, any grant of Stock Rights to a member of the
Board must be made by, or only in accordance with the recommendation of,
the Compensation Committee or a committee consisting of three or more
persons, who may
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<PAGE> 7
Bitstream Inc.
1996 Stock Plan
but need not be directors or employees of the Company, appointed by the
Board but having full authority to act in the matter, none of whom is
eligible to participate in this Plan or any other stock option or other
stock plan of the Company or any of its affiliates, or has been eligible
at any time within the preceding year. The requirements imposed by the
preceding sentence shall also apply with respect to grants to officers who
are not also directors. Once appointed, such committee shall continue to
serve until otherwise directed by the Board.]
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company or any Related Corporation who are not employees may not be granted ISOs
under the Plan. Warrants, Non-Qualified Options, Awards and authorizations to
make Purchases may be granted to any director (whether or not an employee),
officer, employee or consultant of the Company or any Related Corporation. The
Compensation Committee may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO, a Warrant, Non-Qualified
Option or an authorization to make a Purchase. Granting of any Stock Right to
any individual or entity shall neither entitle that individual or entity to, nor
disqualify him from, participation in any other grant of Stock Rights.
4. STOCK SUBJECT TO OPTIONS, AWARDS AND PURCHASES. The stock subject to
Options, Awards and Purchases shall be authorized but unissued shares of Class A
Common Stock of the Company, par value $.01 per share (the "Common Stock"), or
shares of Common Stock reacquired by the Company in any manner. The aggregate
number of shares which may be issued pursuant to the Plan equals 666,667,
subject to adjustment from time to time by (i) a vote of stockholders or (ii)
otherwise pursuant to paragraph 13. Any such shares may be issued as ISOs,
Warrants, Non-Qualified Options or Awards, or to persons or entities making
Purchases, so long as the number of shares so issued does not exceed such
number, as adjusted or amended. If any Option granted under the Plan shall
expire or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part, or if the
Company shall reacquire any unvested shares issued pursuant to Awards or
Purchases, the unpurchased shares subject to such Options and any unvested
shares so reacquired by the Company shall again be available for grants of Stock
Rights under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
any time after May 1, 1996, and prior to April 30, 2006. The date of grant of a
Stock Right under the Plan will be the date specified by the Compensation
Committee at the time it grants the Stock Right; provided, however, that such
date shall not fall prior to the date on which the Compensation Committee acts
to approve the grant. The Compensation Committee shall enjoy the right, with the
consent of the optionee, to convert an ISO granted under the Plan to a Non-
Qualified Option pursuant to paragraph 16.
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<PAGE> 8
Bitstream Inc.
1996 Stock Plan
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR WARRANTS OR NON-QUALIFIED OPTIONS. The exercise price per
share specified in the agreement relating to each Warrant or Non-Qualified
Option granted under the Plan shall be as determined by the Board or the
Compensation Committee.
B. PRICE FOR ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant.
C. $100,000 ANNUAL LIMITATION FOR ISOs. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related
Corporation, such ISOs do not become exercisable for the first time by
such employee during any calendar year in a manner which would entitle the
employee to purchase more than $100,000 in fair market value (determined
at the time the ISOs were granted) of Common Stock in that year. Any
options granted to an employee in excess of such amount will be granted as
Warrants or Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for
which the prices or quotes discussed in this sentence are available prior
to the date such Option is granted and shall mean
(i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the
Common stock is traded, if the Common Stock is then traded on a
national securities exchange; or
(ii) the last reported sale price (on that date) of the Common
Stock on the NASDAQ National Market List, if the Common Stock is not
then traded on a national securities exchange; or
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<PAGE> 9
Bitstream Inc.
1996 Stock Plan
(iii) the average of the closing bid and asked prices last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the NASDAQ National
Market List.
However, if the Common Stock is not publicly traded at the time that an
Option is granted under the Plan, "fair market value" shall be deemed the
fair value of the Common Stock as determined by the Board or Compensation
Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices
of the Common Stock in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or cancellation as provided in paragraph 16, each Option
shall expire on the date specified by the Board or Compensation Committee, but
not more than ten (10) years from the date of grant.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. FULL VESTING OR PARTIAL VESTING. The Option shall either be fully
exercisable on the date of grant or shall become exercisable thereafter in
such installments as the Board or Compensation Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Board or Compensation
Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Board or Compensation Committee shall
have the right to accelerate the date of exercise of any installment of
any Option; provided that the Board or Compensation Committee shall not
accelerate the exercise date of any installment of any Option granted to
any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the
annual vesting limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
E. EMPLOYEES OWNING GREATER THAN TEN PERCENT OF VOTING STOCK. Any ISO
granted to an employee owning stock possessing more than ten percent (10%)
of the
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<PAGE> 10
Bitstream Inc.
1996 Stock Plan
total combined voting power of all classes of stock of the Company or any
Related Corporation shall not be exercisable after the expiration of five
years from the date of grant.
9. EMPLOYMENT.
A. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death
or disability as defined in paragraph 10, no further installments of his
ISOs shall become exercisable, and his ISOs shall terminate after the
passage of ninety (90) days from the date of termination of his
employment, but in no event later than on their specified expiration
dates, except to the extent that such ISOs (or unexercised installments
thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16.
B. LEAVES OF ABSENCE. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service)
provided that the period of such leave does not exceed ninety (90) days
or, if longer, any period during which such optionee's right to
reemployment is guaranteed by statute. A bona fide leave of absence with
the written approval of the Board or Compensation Committee shall not be
considered an interruption of employment under the Plan, provided that
such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved
period of absence.
C. CHANGES OF EMPLOYMENT. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and
Related Corporations, so long as the optionee continues to be an employee
of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Corporation for
any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
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<PAGE> 11
Bitstream Inc.
1996 Stock Plan
B. DISABILITY. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his disability, he shall have
the right to exercise any ISO held by him on the date of termination of
employment, to the extent of the number of shares with respect to which he
could have exercised it on that date, at any time prior to the earlier of
the specified expiration date of the ISO or 180 days from the date of the
termination of the optionee's employment. For the purposes of the Plan,
the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
grantee except by will or by the laws of descent and distribution, and during
the lifetime of the grantee each Option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Board or
Compensation Committee may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in paragraphs 6 through 11 hereof
and may contain such other provisions as the Board or Compensation Committee
deems advisable which are not inconsistent with the Plan, including restrictions
applicable to shares of Common Stock issuable upon exercise of Options. In
granting any Warrant or Non-Qualified Option, the Board or Compensation
Committee may specify that such Warrant or Non-Qualified Option shall fall
subject to the restrictions set forth herein with respect to ISOs, or to such
other termination and cancellation provisions as the Board or Compensation
Committee may determine. The Board or Compensation Committee may from time to
time confer authority and responsibility on one or more of its own members and/
or one or more officers of the Company to execute and deliver such instruments.
The proper officers of the Company are authorized and directed to take any and
all action necessary or advisable from time to time to carry out the terms of
such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, then, in each such case, the
optionee, on exercise of such Option at any time after the issuance or
effective date of such dividend or split, as the case may be, shall
receive, in lieu of the Common Stock issuable upon such exercise prior to
such issuance or effective date, the stock and other securities and
property (including cash) to which such
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<PAGE> 12
Bitstream Inc.
1996 Stock Plan
holder would have been entitled upon such issuance or effective date, if
such holder had exercised Options granted hereunder immediately prior
thereto.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
unless the Board shall otherwise determine by resolution adopted at least
ten (10) days prior to the closing of the Acquisition, all outstanding
Stock Rights shall become fully vested and exercisable as of the closing
of the Acquisition. In addition, the Board or Compensation Committee or
the board of directors of any entity assuming the obligations of the
Company hereunder (the "Successor Board") may take one or more of the
following actions:
(i) make appropriate provision for the continuation of such Stock
Rights by substituting on an equitable basis for the shares then
subject to such Stock Rights the consideration payable with respect to
the outstanding shares of Common Stock in connection with the
Acquisition; or
(ii) make appropriate provision for the continuation of such
Stock Rights by substituting on an equitable basis for the shares then
subject to such Stock Rights any equity securities of the successor
corporation; or
(iii) upon written notice to the holders of the Stock Rights,
provide that all Stock Rights must be exercised, to the extent then
exercisable, within a specified number of days of the date of such
notice, at the end of which period the Stock Rights shall terminate; or
(iv) terminate all Stock Rights in exchange for a cash payment
equal to the excess of the fair market value of the shares subject to
such Stock Rights (to the extent then exercisable) over the exercise
price thereof; or
(v) terminate all Stock Rights in exchange for the right to
participate in any stock option or other employee benefit plan of any
successor corporation.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in paragraph B above) pursuant to which securities
of the Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, upon exercising a Stock Right, the
holder thereof shall be entitled to receive for the purchase price paid
upon such exercise the securities he would have received if he had
exercised his Stock Right prior to such recapitalization or
reorganization.
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<PAGE> 13
Bitstream Inc.
1996 Stock Plan
D. MODIFICATION OF ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Board or Compensation Committee, after
consulting with counsel for the Company, determines whether such
adjustments would constitute a "modification" of such ISOs (as that term
is defined in Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Board or Compensation
Committee determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Board or Compensation Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the foregoing events
described in subparagraphs A, B or C above, the class and aggregate number
of shares set forth in paragraph 4 hereof that are subject to Stock Rights
which previously have been or subsequently may be granted under the Plan
shall also be appropriately adjusted to reflect the events described in
such subparagraphs. The Board or Compensation Committee or a Successor
Board shall determine the specific adjustments to be made under this
paragraph 13 and, subject to paragraph 2, its determination shall be
conclusive. If any person or entity owning restricted Common Stock
obtained by exercise of a Stock Right made hereunder receives shares or
securities or cash in connection with a corporate transaction described in
subparagraphs A, B or C above as a result of owning such restricted Common
Stock, such shares or securities or cash shall be subject to all of the
conditions and restrictions applicable to the restricted Common Stock with
respect to which such shares or securities or cash were issued, unless
otherwise determined by the Board or Compensation Committee or a Successor
Board.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of
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<PAGE> 14
Bitstream Inc.
1996 Stock Plan
shares as to which such Stock Right is being exercised, accompanied by full
payment of the purchase price therefor either
A. In United States dollars in cash or by check;
B. At the discretion of the Board or Compensation Committee, through
delivery of shares of Common Stock having a fair market value equal as of
the date of the exercise to the cash exercise price of the Stock Right;
C. At the discretion of the Board or Compensation Committee, by
delivery of the grantee's personal recourse note bearing interest payable
not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, or
D. At the discretion of the Board or Compensation Committee, by any
combination of A, B or C above.
If the Board or Compensation Committee permits payment by means of the methods
set forth in clauses B, C, or D of the preceding sentence, such permission shall
be expressed in writing at the time of the grant of the ISO in question. The
holder of a Stock Right shall not have the rights of a shareholder with respect
to the shares covered until the date of issuance of a stock certificate to him
for such shares. Except as expressly provided above in paragraph 13 with respect
to changes in capitalization and stock dividends, no adjustment shall be made
for dividends or similar rights for which the record date falls prior to the
date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on May
1, 1996, subject (with respect to the validation of ISOs granted under the Plan)
to approval of the Plan by the stockholders of the Company at a subsequent
Meeting of Stockholders or, in lieu thereof, by unanimous written consent. If
the stockholders do not provide their approval by April 30, 1997, any grants of
ISOs under the Plan made prior to that date will be rescinded. The Plan shall
expire on April 30, 2006 (except as to Options outstanding on that date).
Subject to the provisions of paragraph 5 above, Stock Rights may be granted
under the Plan prior to the date of stockholder approval of the Plan.
The Board may at any time terminate the Plan or make such modification or
amendment thereof as it deems advisable; provided, however, (i) the Board may
not, without the approval of the stockholders of the Company obtained in the
manner stated in this Section 15, increase the maximum number of shares for
which Options may be granted or change the designation of the class of persons
eligible to receive Options under the Plan, and (ii) any such modification or
amendment of the Plan shall be approved by a majority of the stockholders of the
Company to
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<PAGE> 15
Bitstream Inc.
1996 Stock Plan
the extent that such stockholder approval is necessary to comply with applicable
provisions of the Code, rules promulgated pursuant to Section 16 of the Exchange
Act, applicable state law, or applicable NASD or exchange listing requirements.
Termination or any modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an Option theretofore
granted to him or her.
16. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; CANCELLATION OF ISOs.
The Board or Compensation Committee, at the written request of any optionee, may
in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee serves as an employee of the Company or a Related Corporation at the
time of such conversion. Such actions may include, but not be limited to,
extending the exercise period or reducing the exercise price of the appropriate
installments of such Options. At the time of such conversion, the Board or
Compensation Committee (with the consent of the Optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or Compensation Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Board or Compensation Committee takes appropriate action. The Board or
Compensation Committee, with the consent of the optionee, also may cancel any
portion of any ISO that has not been exercised at the time of such cancellation.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. GOVERNMENT REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan shall fall subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Warrant
or Non-Qualified Option, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Board or Compensation Committee in its discretion may condition
A. the exercise of an option,
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<PAGE> 16
Bitstream Inc.
1996 Stock Plan
B. the grant of an Award,
C. the making of a Purchase of Common Stock for less than its fair
market value, or
D. the vesting of restricted Common Stock acquired by exercising a
Stock Right,
on the grantee's payment of such additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition means any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before he sells such stock, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter. If an
optionee is a person subject to Section 16(b) of the Exchange Act, delivery of
any withholding and employment taxes due may be deferred until ten (10) days
after the date any income on the disposition is recognized under Section 83 of
the Code. The Company may cause a legend to be affixed to certificates
representing shares of Common Stock issued upon exercise of incentive stock
options to ensure that the Board receives notice of a Disqualifying Disposition.
21. RESTRICTIONS ON EXERCISE OF OPTIONS AND ISSUANCE OF SHARES.
A. Notwithstanding anything in this Plan to the contrary, an Option
cannot be exercised, and the Company may delay the issuance of shares covered by
the exercise of an Option and the delivery of a certificate for such shares,
until one of the following conditions shall be satisfied:
(i) the shares with respect to which such Option has been exercised
are at the time of the issuance of such shares effectively registered
or qualified under applicable Federal and state securities acts now in
force or as hereafter amended; or
(ii) counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that the
issuance of such shares is exempt from registration and qualification
under applicable Federal and state securities acts now in force or as
hereafter amended.
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<PAGE> 17
Bitstream Inc.
1996 Stock Plan
B. The Company shall be under no obligation to qualify shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purpose of covering the issuance of shares in
respect of which any Option may be exercised or to cause the issuance of such
shares to be exempt from registration and qualification under applicable Federal
and state securities acts now in force or as hereinafter amended, except as
otherwise agreed to by the Company in writing in its sole discretion.
22. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION.
Unless and until the shares to be issued upon exercise of an Option granted
under the Plan have been effectively registered under the Securities Act of
1933, as amended (the "1933 Act"), as now in force or hereafter amended, the
Company shall be under no obligation to issue any shares covered by any Option
unless the person who exercises such Option, in whole or in part, shall give a
written representation and undertaking to the Company which is satisfactory in
form and scope to counsel for the Company and upon which, in the opinion of such
counsel, the Company may reasonably rely, that he or she is acquiring the shares
issued pursuant to such exercise of the Option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law, and that if
shares are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued.
In the event that the Company shall, nevertheless, deem it necessary
or desirable to register under the 1933 Act or other applicable statutes any
shares with respect to which an Option shall have been exercised, or to qualify
any such shares for exemption from the 1933 Act or other applicable statutes,
then the Company may take such action and may require from each optionee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus, offering circular or
any other document that is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
23. DUTIES OF THE COMPANY. The Company shall at all times keep available
for issuance or delivery such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan.
24. NOTICES. Any communication or notice required or permitted to be given
under the Plan shall be in writing, and mailed by registered or certified mail
or delivered by hand, if
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<PAGE> 18
Bitstream Inc.
1996 Stock Plan
to the Company, to the attention of the President at the Company's principal
place of business; and, if to an optionee, to his or her address as it appears
on the records of the Company.
25. GOVERNING LAW -- CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of Delaware or the laws of any jurisdiction in which the Company or its
successors in interest may be organized from time to time. In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
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<PAGE> 19
Exhibit 8A
BITSTREAM INC.
INCENTIVE STOCK OPTION AGREEMENT
UNDER 1996 STOCK PLAN
IN CONSIDERATION FOR the waiver of any and all pre-existing options
to acquire its stock, Bitstream Inc., a Delaware business corporation (the
"Company"), hereby grants this ____ DAY OF 199_ (the "Option Date") to [FIRST
NAME] [LAST NAME] ("Employee"), an option to purchase a maximum of [NO. SHS]
shares (the "Option Shares") of Class A Common Stock, $.01 par value (the
"Common Stock"), at the price of $.__ per share, on the following terms and
conditions:
1. GRANT UNDER 1996 STOCK PLAN. This Option is granted pursuant to and is
governed by the Company's 1996 Stock Plan (the "Plan") and, unless the context
otherwise requires, terms used herein shall have the same meaning as in the
Plan. The Plan under which this option is granted was approved by the Company's
directors on May 1, 1996 and by the stockholders on _______________________.
2. EXTENT OF OPTION IF EMPLOYMENT CONTINUES. On the following dates, the
Optionee may exercise this Option for the number of Option Shares set opposite
the applicable date so long as Employee continues to be employed by the Company
or any Related Corporation:
<TABLE>
<S> <C>
Less than one year from [ISSUE DATE] -0- Option Shares
One year or more, but less than two years % of the total Option Shares
from [ISSUE DATE]
Two years or more, but less than three an additional __% of the total Option Shares
years from [ISSUE DATE]
Three years or more, but less than four an additional __% of the total Option Shares
from [ISSUE DATE]
Four years or more, but less than five from an additional __% of the total Option Shares
[ISSUE DATE]
Five years or more, but less than six years an additional __% of the total Option Shares
from [ISSUE DATE]
</TABLE>
<PAGE> 20
The foregoing rights shall cumulate while the Optionee continues in the
employment of the Company, or any Related Corporation, and may be exercised up
to and including the date that falls ten (10) years from the Option Date. All of
the foregoing rights are subject to Sections 3 and 4, as appropriate, if
Employee ceases to be employed by the Company or a Related Corporation, or dies
or becomes disabled while in the employ of the Company or a Related Corporation.
3. TERMINATION OF EMPLOYMENT. If Employee ceases to be employed by the
Company or an Related Corporation, other than by reason of death or disability
as defined in Section 4, no further installments of this Option shall become
exercisable and this Option shall terminate ninety (90) days after the date the
Employment ceases, but in no event later than the scheduled expiration date. In
such a case, Employee's only rights to exercise options hereunder shall be those
which are properly exercisable before the termination of this Option. In such an
event, Employee may exercise this Option for the number of Option Shares which
have vested and become exercisable prior to the date of termination, and this
Option may be exercised with respect to such number of Option Shares which have
become exercisable prior to termination at any time prior to the end of ten (10)
years and one day from the date of grant set forth above.
4. DEATH; DISABILITY. If Employee is a natural person who dies while in
the employ of the Company or any Related Corporation, this Option may be
exercised, to the extent of the number of Option Shares with respect to which
Employee could have exercised it on the date of his death, by his estate,
personal representative or beneficiary to whom this option has been assigned
pursuant to Section 9, at any time within 180 days after the date of death, but
not later than the scheduled expiration date. If Employee is terminated by
reason of his disability (as defined in the Plan), this Option may be exercised,
to the extent of the number of Option Shares with respect to which Employee
could have exercised it on the date the Employment was terminated, at any time
within 180 days after the date of such termination, but not later than the
scheduled expiration date. At the expiration of such 180-day period or the
scheduled expiration date, whichever is the earlier, this Option shall terminate
and the only rights hereunder shall be those as to which the Option was properly
exercised before such termination.
5. PARTIAL EXERCISE. Exercise of this Option up to the extent above stated
may be made in part at any time and from time to time within the above limits,
except that this Option may not be exercised for a fraction of a share unless
such exercise is with respect to the final installment of Option Shares subject
to this Option and a fractional share (or cash in lieu thereof) must be issued
to permit Employee to exercise completely such final installment. Any fractional
share with respect to which an installment of this Option cannot be exercised
because of the limitation contained in the preceding sentence shall remain
subject to this Option and available for later purchase by Employee in
accordance with the terms hereof.
6. PAYMENT OF PRICE. The Option price shall be in United States dollars
and may be paid as follows:
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<PAGE> 21
a) in cash or by check, or any combination of the foregoing, equal in
amount to the Option price; or
b) in the discretion of the Board, in cash, by check, by delivery of
shares of the Company's Common Stock having a fair market value (as
determined by the Board) equal as of the date of exercise to the Option
price, or by any combination of the foregoing, equal in amount to the
Option price.
7. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this Option,
Employee agrees that a purchase of Option Shares under this Option will not be
made with a view to their distribution, as that term is used in the 1933 Act
unless in the opinion of counsel to the Company such distribution is in
compliance with or exempt from the registration and prospectus requirements of
the 1933 Act and applicable state securities laws, and Employee agrees to sign a
certificate to such effect at the time of exercising this Option and agrees that
the certificate for the Option Shares so purchased may be inscribed with a
legend to ensure compliance with the 1933 Act and applicable state securities
laws.
In the event that for any reason the Option Shares to be issued upon exercise of
the Option shall not be effectively registered under the 1933 Act, upon any date
on which the Option is exercised in whole or in part, the person exercising the
Option shall give a written representation to the Company in the form reasonably
required by the Company and the Company shall place an "investment legend,"
so-called, upon any certificate for the Shares issued by reason of such
exercise.
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, this Option may be exercised by written notice to the Company,
at the principal executive office of the Company, or to such transfer agent as
the Company shall designate. Such notice shall state the election to exercise
this Option and the number of Option Shares in respect of which it is being
exercised and shall be signed by the person or persons so exercising this
Option. Such notice shall be accompanied by payment of the full purchase price
of such Option Shares, and the Company shall deliver a certificate or
certificates representing such Option Shares as soon as practicable after the
notice shall be received. The certificate or certificates for the Option Shares
as to which this Option shall have been so exercised shall be registered in the
name of the person or persons so exercising this Option (or, if this Option
shall be exercised by Employee and if Employee shall so request in the notice
exercising this Option, shall be registered in the name of Employee and another
person jointly, with right of survivorship) and shall be delivered as provided
above to or upon the written order of the person or persons exercising this
Option. In the event this Option shall be exercised, pursuant to Section 4
hereof, by any person or persons other than Employee, such notice shall be
accompanied by appropriate proof of the right of such person or persons to
exercise this Option. All Option Shares that shall be purchased upon the
exercise of this Option as provided herein shall be fully paid and
nonassessable.
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<PAGE> 22
9. OPTION NOT TRANSFERABLE. This Option is not transferable or assignable
except by will or by the laws of descent and distribution. During the Optionee's
lifetime only Employee can exercise this Option.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
Option imposes no obligation on Employee to exercise it.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT. Neither the Plan nor this Option
shall obligate the Company or any Related Corporations in any manner to continue
Employee in his employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. Employee shall enjoy no
rights as a stockholder with respect to Option Shares subject to this Agreement
until a stock certificate therefor has been issued to Employee and it is fully
paid for by Employee. Except as expressly provided in the Plan for changes in
the capitalization of the Company, no adjustment shall be made for dividends or
similar rights for which the record date precedes the date upon which such stock
certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. This Option is intended to
encourage Employee to work for the best interests of the Company and its
stockholders. To protect Employee's interest in this Option, the provisions of
the Plan that preserve options at full value in a number of contingencies are
hereby made applicable hereunder and are incorporated herein by reference. Thus,
this Option and the Option price shall be equitably adjusted in the event of any
stock dividend, stock split, recapitalization or other change in the capital
structure of the Company. In lieu of issuing fractional shares upon exercise
thereof, this Option (and the corresponding Option Shares) shall be rounded
upward or downward to the nearest whole share (rounding upward for all amounts
equal to or in excess of .51). In particular, without affecting the generality
of the foregoing, it is understood that for the purposes of Sections 2 through 4
hereof, inclusive, maintaining or being in the employ of the Company includes
maintaining or being in the employ of a Related Corporation.
14. DISQUALIFYING DISPOSITION. Employee agrees to notify the Company in
writing immediately after Employee makes a Disqualifying Disposition of any
Option Shares received pursuant to the exercise of this Option. A Disqualifying
Disposition is any disposition (including any sale) of such Option Shares before
the later of (a) two years after the date Employee was granted this Option, or
(b) one year after the date Employee acquired Option Shares by exercising this
Option. If Employee has died before such Option Shares are sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter. Employee also agrees to provide the Company with any information
which it shall request concerning any such disposition. Employee acknowledges
that he or she will forfeit the favorable income tax treatment otherwise
available with respect to the exercise of an incentive so if he or she makes a
Disqualifying Disposition of the Option Shares received on exercise of the
Option.
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<PAGE> 23
15. WITHHOLDING TAXES. If the Company determines in its discretion that it
is obligated to withhold tax with respect to a Disqualifying Disposition (as
defined in the preceding Section) of Option Shares received by the Employee on
exercise of this Option, Employee hereby agrees that the Company may withhold
from Employee's wages or other remuneration the appropriate amount of federal,
state and local withholding taxes attributable to such Disqualifying
Disposition. If any portion of this Option is treated as a non-qualified option,
Employee hereby agrees that the Company may withhold from Employee's wages the
appropriate amount of federal, state and local withholding taxes attributable to
Employee's exercise of such nonqualified option. At the Company's discretion,
the amount required to be withheld may be withheld in cash from such wages or
other remuneration, or in Common Stock (with respect to compensation income
attributable to the exercise of this Option) from the Common Stock otherwise
deliverable to Employee on exercise of this Option; provided however, no such
withholding may be made by an optionee who is an "officer" or "director" within
the meaning of the Exchange Act, except pursuant to a standing election to so
withhold Common Stock purchased upon exercise of an Option, such election to be
made in the form set forth in Exhibit 1 hereto and to be made not less than six
months prior to the date of such exercise. Such election may be revoked by the
optionee only upon six months prior written notice to the Company. Employee
further agrees that, if the Company does not withhold an amount from Employee's
wages or other remuneration sufficient to satisfy the Company's withholding
obligation, Employee will reimburse the Company on demand, in cash, for the
amount underwithheld.
16. NO EXERCISE OF OPTION IF EMPLOYMENT TERMINATED FOR MISCONDUCT. If the
employment of Employee is terminated for "Misconduct," this Option shall
terminate on the date of such termination and this Option shall thereupon not be
exercisable to any extent whatsoever. "Misconduct" is conduct, as determined by
the Board, involving one or more of the following: (i) disloyalty, gross
negligence, dishonesty or breach of fiduciary duty to the Company or a Related
Corporation; or (ii) the commission of an act of embezzlement, fraud or
deliberate disregard of the rules or policies of the Company or a Related
Corporation which results in loss, damage or injury to the Company or a Related
Corporation; or (iii) the unauthorized disclosure of any trade secret or
confidential information of the Company or a Related Corporation; or (iv) the
commission of an act which constitutes unfair competition with the Company or a
Related Corporation or which induces any customer of the Company or a Related
Corporation to break a contract with the Company or a Related Corporation; or
(v) the substantial and continuing failure of Employee to render services to the
Company or a Related Corporation in accordance with his assigned duties, as
determined by two-thirds of the members of the Board. In making such
determination, the Board shall act fairly and in utmost good faith. For purposes
of this Section, termination of employment shall be deemed to occur when
Employee receives notice that his employment is terminated.
17. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Delaware.
-5-
<PAGE> 24
IN WITNESS WHEREOF the Company and Employee have caused this instrument to
be executed, and Employee whose signature appears below acknowledges receipt of
a copy of the Plan and acceptance of an original copy of this Agreement.
Signature of Employee: BITSTREAM INC.:
___________________________ By: _______________________________
[first name[ [last name] Name:
Title: President
-6-
<PAGE> 25
EXHIBIT 1
TO STOCK OPTION AGREEMENT
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), the Company shall withhold from the shares issuable upon
such exercise, such number of shares as is equal in value to the federal and
state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six months
prior written notice to the Company.
Optionee
______________________________
Signature
Name: ________________________
(Printed)
______________________________
Social Security
-7-
<PAGE> 26
Exhibit 8B
NEITHER THIS WARRANT NOR THE SHARES OF CLASS A COMMON STOCK ISSUABLE
UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT HAS BEEN ACQUIRED FOR
INVESTMENT AND CANNOT BE SOLD, TRANSFERRED, OR HYPOTHECATED UNLESS AND
UNTIL A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSFER OR UNLESS AND UNTIL THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL ACCEPTABLE IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE
ACT.
Right to Purchase [[NO.SHS.]] Shares of Class A Common Stock
Warrant No. BB-[[WNT. NO.]]
BITSTREAM INC.
CLASS A COMMON STOCK PURCHASE WARRANT
BITSTREAM INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, [[first names]] [[last name]] (the
"Purchaser"), or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time on or after [ISSUE
DATE (MUST BE AFTER ________)] and before 5:00 p.m., Delaware time, [ISSUE DATE
+ 10 YEARS], up to [[NO.SHS.]] fully paid and nonassessable shares of the
Company's Class A Common Stock at the purchase price per share of [PRICE] (such
purchase price per share as adjusted from time to time as herein provided is
referred to herein as the "Exercise Price"). The number and character of such
shares of Class A Common Stock and the Exercise Price are subject to adjustment
as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) "Company" includes any corporation which shall succeed to or assume
the obligations of the Company hereunder.
(b) "Class A Common Stock" shall mean the Company's Class A Common
Stock, par value $.01 per share.
<PAGE> 27
(c) "Person" shall mean any individual, corporation, partnership, trust
or unincorporated organization, or any government or any agency or
political subdivision thereof.
1. Exercise of Warrant. This Warrant may be exercised in full or in part
by the holder hereof by surrender of this Warrant, with the form of subscription
attached as Annex A hereto duly executed by such holder, to the Company at its
principal office, accompanied by payment, in cash or by certified or official
bank check payable to the order of the Company, of the purchase price of the
shares of Class A Common Stock to be purchased hereunder. For any partial
exercise, the holder shall designate in the subscription the number of shares of
Class A Common Stock (without giving effect to any adjustment therein) that it
wishes to purchase. On any such partial exercise, the Company at its expense
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or warrants of like tenor in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Class A Common Stock equal (without giving effect to any adjustment
therein) to the number of such shares called for on the face of this Warrant
minus the number of such shares designated by the holder in the subscription.
2. Delivery of Stock Certificates, etc. on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares (including
fractional shares) of Class A Common Stock to which such holder shall be
entitled upon such exercise, together with any other stock or securities or
property to which such holder is entitled.
3. Stock Splits, Subdivisions and Combinations. Appropriate adjustment
shall be made in the number of shares of Class A Common Stock subject to this
Warrant and in the number, kind and purchase price for shares covered by this
Warrant, to the extent it is outstanding, to give effect to any stock splits,
subdivisions, combinations, and other similar changes in the capital structure
of the Company after the issuance of this Warrant.
4. Adjustment for Reorganization, Consolidation, Merger, etc. In case the
Company after the date hereof shall (a) effect a capital reorganization, (b)
consolidate with or merge with or into any other person, or (c) transfer all or
substantially all of its assets to any other person under any plan or
arrangement contemplating the dissolution of the Company within twenty-four (24)
months from the date of such transfer, then, in each such case, the holder of
this Warrant, on exercise hereof at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Class A Common
Stock issuable upon such exercise prior to such consummation or such effective
date, the stock and other securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection with
such dissolution, as the
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<PAGE> 28
case may be, if such holder had exercised this Warrant immediately prior
thereto. Upon any reorganization, consolidation, merger or transfer (and any
dissolution following any transfer) referred to in this Section 4, this Warrant
shall continue in full force and effect and the terms hereof shall be applicable
to the shares of stock and other securities and property receivable on the
exercise hereof after the consummation of such reorganization, consolidation or
merger or the effective date of dissolution following any such transfer, as the
case may be, and shall be binding upon the issuer of any such stock or other
securities or property, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the Company.
5. Notice of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
(b) any capital reorganization of the Company or any reclassification
or recapitalization of the capital stock of the Company after the date
hereof, or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person,
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company, or
(d) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities,
then, and in each such event, the Company will mail to the holder hereof a
notice specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, of any is to be fixed, as of which the holders of record of Class
A Common Stock or other securities shall be entitled to exchange their shares of
Class A Common Stock or other securities for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up, or
(iii) the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed at
least ten (10) days prior to the date therein specified.
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<PAGE> 29
6. Reservation of Shares, etc. The Company will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issuance upon exercise of this Warrant as herein provided, such number of shares
of Class A Common Stock as shall then be issuable upon exercise of this Warrant
in full. The Company covenants that all shares of Class A Common Stock that
shall be issuable upon exercise of this warrant shall be duly and validly issued
and fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
7. Exchange of Warrants. On surrender for exchange of any Warrant, properly
endorsed, to the Company, the Company at its expense will issue and deliver to
or on the order of the holder thereof a new Warrant of like tenor, in the name
of such holder or as such holder (on payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Class A Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
8. Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction of any Warrant, on delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, on surrender and cancellation of
such warrant, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of shares of the Company acquired upon
the exercise of this Warrant and/or the conversion of the shares of Class A
Common Stock acquired thereby shall be entitled to the benefit of certain
registration rights, subject to certain obligations of such holder, as set forth
in the Amended and Restated Articles of Organization.
10. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the State of Delaware and shall be
construed and enforced in accordance with and governed by its laws. The headings
in this Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof.
-4-
<PAGE> 30
11. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Delaware time, [ISSUE DATE + 10 YEARS].
Dated: [ISSUE DATE]
(Corporate Seal) BITSTREAM INC.
By: _______________________________
Name: C. Ray Boelig
Title: President
-5-
<PAGE> 31
BITSTREAM INC. Class A Common Stock Purchase Warrant [Issue Date]
To [[first name]] [[last name]] Annex A
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO BITSTREAM INC.
The undersigned holder of the within Warrant hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, _______ shares of the Class A Common Stock of Bitstream Inc., and
herewith makes payment of $______________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
__________________ whose address is ________________________.
___________________________________________
(Signature must conform in all respects
to name of holder as specified on the face
of the Warrant or Assignment of Warrant)
Dated: ____________________ ______________________________
(Address)
Signed in the presence of:
_____________________________
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<PAGE> 32
BITSTREAM INC. Class A Common Stock Purchase Warrant [Issue Date]
To [[first name]] [[last name]] Annex B
FORM OF 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 within Warrant to
purchase __________ shares of Class A Common Stock of Bitstream Inc. to which
the within Warrant relates, and appoints ____________________ Attorney to
transfer such right on the books of Bitstream Inc. with full power of
substitution in the premises.
___________________________________________
(Signature must conform in all respects
to name of holder as specified on the face
of the Warrant or Assignment of Warrant)
Dated: ____________________ ______________________________
(Address)
Signed in the presence of:
___________________________
-7-
<PAGE> 33
Exhibit 8C
BITSTREAM INC.
Non-Qualified Stock Option Agreement
Under 1996 Stock Plan
Bitstream Inc., a Delaware business corporation (the "Company"), hereby
grants this ___ DAY OF 199_ (the "Option Date") to [[FIRST NAME]] [[LAST NAME]]
("Optionee"), an option to purchase a maximum of [[NO. SHS]] shares (the "Option
Shares") of Class A Common Stock, $.01 par value (the "Common Stock"), at the
price of $____ per share, on the following terms and conditions:
1. GRANT UNDER 1996 STOCK PLAN. This Option is granted pursuant to and is
governed by Company's 1996 Stock Plan approved by Company's directors on
_______________ (the "Plan"). Unless the context requires otherwise, terms used
herein shall have the same meaning as in the Plan.
2. GRANT AS NON-QUALIFIED OPTION, OTHER OPTIONS. This Option is intended
to be a Non-Qualified Option (rather than an incentive stock option), and the
Board intends to take appropriate action, if necessary, to achieve this result.
This Option is in addition to any other options heretofore or hereafter granted
to Optionee by Company, but a duplicate original of this instrument shall not
affect the grant of another option.
3. EXTENT OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If Optionee has
continued to serve Company or any Related Corporation in the capacity of an
employee, officer, director, agent, advisor, or consultant, including services
as a member of the Board of Advisors of Company or any Related Corporation (such
service is described herein as maintaining or being involved in a "Business
Relationship" with Company or any Related Corporation), on the following dates,
Optionee may exercise this Option for the number of Option Shares set opposite
the applicable date:
<TABLE>
<S> <C>
One year or more, but less than two years % of the total Option Shares
from [ISSUE DATE]
Two years or more, but less than three years an additional _% of the total Option Shares
from [ISSUE DATE]
Three years or more, but less than four years an additional _% of the total Option Shares
from [ISSUE DATE]
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
Four years or more, but less than five years an additional _% of the total Option Shares
from [ISSUE DATE]
Five years or more, but less than six years an additional _% of the total Option Shares
from [ISSUE DATE]
</TABLE>
The foregoing rights shall cumulate while Optionee continues to maintain a
Business Relationship with Company or any Related Corporation, and may be
exercised up to and including the date that falls ten (10) years from the date
this Option is granted. All of the foregoing rights fall subject to Sections 4
and 5, as appropriate, if Optionee ceases to maintain a Business Relationship
with Company or a Related Corporation, dies, becomes disabled or undergoes
dissolution while involved in a Business Relationship with Company or a Related
Corporation.
4. TERMINATION OF BUSINESS RELATIONSHIP. If Optionee ceases to maintain a
Business Relationship with Company or any Related Corporation, other than by
reason of death or disability as defined in Section 5, no further installments
of this Option shall become exercisable and this Option shall terminate after
the date the Business Relationship ceases, but in no event later than the
scheduled expiration date. In such a case, Optionee's only rights to exercise
options hereunder shall be those that are properly exercisable before the
termination of this Option. In such an event, Optionee may exercise this Option
for the number of Option Shares which have vested and become exercisable prior
to the date of termination, and this Option may be exercised with respect to
such number of Option Shares which have become exercisable prior to termination
at any time prior to the end of ten (10) years and one day from the date of
grant set forth above.
5. DEATH; DISABILITY. If Optionee is a natural person who dies while
involved in a Business Relationship with Company or any Related Corporation,
this Option may be exercised, to the extent of the number of Option Shares with
respect to which Optionee could have exercised it on the date of his death, by
his estate, personal representative or beneficiary to whom this option has been
assigned pursuant to Section 10, at any time within 180 days after the date of
death, but not later than the scheduled expiration date. If Optionee is a
natural person whose Business Relationship with Company or any Related
Corporation is terminated by reason of his disability (as defined in the Plan),
this Option may be exercised, to the extent of the number of Option Shares with
respect to which Optionee could have exercised it on the date the Business
Relationship was terminated, at any time within 180 days after the date of such
termination but not later than the scheduled expiration date. At the expiration
of such 180-day period or the scheduled expiration date, whichever occurs
earlier, this Option shall terminate and the only rights hereunder shall be
those as to which the Option was properly exercised before such termination.
6. PARTIAL EXERCISE. Exercise of this Option up to the extent above stated
may be made in part at any time and from time to time within the above limits,
except that this Option may not be exercised for a fraction of a share unless
such exercise is for the final installment
-2-
<PAGE> 35
of stock subject to this Option and a fractional share (or cash in lieu thereof)
must be issued to permit Optionee to exercise such final installment completely.
Any fractional share for which an installment of this Option cannot be exercised
because of the preceding sentence shall remain subject to this Option and
available for later purchase by Optionee in accordance with the terms hereof.
7. PAYMENT OF PRICE. The option price shall be payable in United States
dollars and may be paid:
(a) in cash or by check, or any combination of the foregoing, equal in
amount to the option price; or
(b) in the discretion of the Board, in cash, by check, by delivery of
shares of Company's Common Stock having a fair market value (as determined
by the Board) equal as of the date of exercise to the option price, or by
any combination of the foregoing, equal in amount to the option price.
8. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this Option
Optionee agrees that a purchase of Option Shares under this Option will not be
made with a view to their distribution as that term is used in the 1933 Act
unless in the opinion of counsel to Company such distribution complies with or
stands exempt from the registration and prospectus requirements of the 1933 Act
and applicable state securities laws, and Optionee agrees to sign a certificate
to such effect at the time of exercising this Option and agrees that the
certificate for the Option Shares so purchased may be inscribed with a legend to
ensure compliance with the 1933 Act and applicable state securities laws.
In the event that for any reason the Option Shares to be issued upon exercise of
the Option shall not be effectively registered under the 1933 Act, upon any date
on which the Option is exercised in whole or in part, the person exercising the
Option shall give a written representation to the Company in the form reasonably
required by the Company and the Company shall place an "investment legend,"
so-called, upon any certificate for the Shares issued by reason of such
exercise.
9. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Agreement, this Option may be exercised by written notice to Company, at
the principal executive office of Company, or to such transfer agent as Company
shall designate. Such notice shall state the election to exercise this Option
and the number of Option Shares in respect of which it is being exercised and
shall be signed by the person or persons so exercising this Option. Such notice
shall be accompanied by payment of the full purchase price of such Option
Shares, and Company shall deliver a certificate or certificates representing
such Option Shares as soon as practicable after the notice shall be received.
The certificate or certificates for the Option Shares as to which this Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising this Option (or, if this Option shall be exercised by
Optionee and if Optionee shall so request in the notice exercising this Option,
shall be registered
-3-
<PAGE> 36
in the name of Optionee and another person jointly, with right of survivorship)
and shall be delivered as provided above to or upon the written order of the
person or persons exercising this Option. In the event this Option shall be
exercised, pursuant to Section 5 hereof, by any person or persons other than
Optionee, such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise this Option. All Option Shares that shall be
purchased upon the exercise of this Option as provided herein shall be fully
paid and nonassessable.
10. OPTION NOT TRANSFERABLE. This Option shall not be transferred or
assigned except by will or by the laws of descent and distribution. During
Optionee's lifetime only Optionee can exercise this Option.
11. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
Option imposes no obligation on Optionee to exercise it.
12. NO OBLIGATION TO CONTINUE BUSINESS RELATIONSHIP. Neither the Plan nor
this Option shall obligate Company or any Related Corporation in any manner to
continue to maintain a Business Relationship with Optionee.
13. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. Optionee shall enjoy no
rights as a stockholder with respect to Option Shares subject to this Agreement
until a stock certificate therefor has been issued to Optionee and it is fully
paid for by Optionee. Except as expressly provided in the Plan for changes in
the capitalization of Company, no adjustment shall be made for dividends or
similar rights for which the record date precedes the date upon which such stock
certificate is issued.
14. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. This Option is intended to
encourage Optionee to work for the best interests of Company and its
stockholders. To protect Optionee's interest in this Option, the provisions of
the Plan that preserve options at full value in a number of contingencies are
hereby made applicable hereunder and are incorporated herein by reference. Thus,
this Option and the Option price shall be equitably adjusted in the event of any
stock dividend, stock split, recapitalization or other change in the capital
structure of Company. In the event of any stock dividend, stock split,
recapitalization or other change in the capital structure of Company, this
Option and the Option price shall be equitably adjusted and, in lieu of issuing
fractional shares upon exercise thereof, this Option (and the corresponding
Option Shares) shall be rounded upward or downward to the nearest whole share
(rounding upward for all amounts equal to or in excess of .51). In particular,
without affecting the generality of the foregoing, Optionee understands that for
the purposes of Sections 3 through 5 hereof, inclusive, maintaining or being
involved in a Business Relationship with Company includes maintaining or being
involved in a Business Relationship with a Related Corporation.
15. WITHHOLDING TAXES. Optionee hereby agrees that Company may withhold
from Optionee's wages or other remuneration the appropriate amount of federal,
state and local taxes attributable to Optionee's exercise of any installment of
this Option. At Company's discretion, the amount required to be withheld may be
withheld in cash from such wages or other remunera-
-4-
<PAGE> 37
tion, or in Common Stock from the Common Stock otherwise deliverable to Optionee
on exercise of this Option; provided however, no such withholding may be made by
an optionee who is an "officer" or "director" within the meaning of the Exchange
Act, except pursuant to a standing election to so withhold Common Stock
purchased upon exercise of an Option, such election to be made in the form set
forth in Exhibit 1 hereto and to be made not less than six months prior to the
date of such exercise. Such election may be revoked by the optionee only upon
six months prior written notice to the Company. Optionee further agrees that, if
Company does not withhold an amount from Optionee's wages or other remuneration
sufficient to satisfy Company's withholding obligation, Optionee will reimburse
Company on demand, in cash, for the amount underwithheld.
16. NO EXERCISE OF OPTION IF EMPLOYMENT TERMINATED FOR MISCONDUCT. If the
employment or engagement of Optionee is terminated for "Misconduct", this Option
shall terminate on the date of such termination and this Option shall thereupon
not be exercisable to any extent whatsoever. "Misconduct" is conduct, as
determined by the Board, involving one or more of the following: (i) disloyalty,
gross negligence, dishonesty or breach of fiduciary duty to Company or any
Related Corporation; or (ii) the commission of an act of embezzlement, fraud or
deliberate disregard of the rules or policies of Company which results in loss,
damage or injury to Company or any Related Corporation; or (iii) the
unauthorized disclosure of any trade secret or confidential information of
Company or any Related Corporation; or (iv) the commission of an act which
constitutes unfair competition with Company or any Related Corporation or which
induces any customer of Company or any Related Corporation to break a contract
with Company or any Related Corporation; or (v) the substantial and continuing
failure of Optionee to render services to Company or any Related Corporation in
accordance with his assigned duties, as determined by two-thirds of the members
of the Board. In making such determination, the Board shall act fairly and in
utmost good faith.
17. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Delaware.
IN WITNESS WHEREOF Company and Optionee have caused this instrument to be
executed, and Optionee whose signature appears below acknowledges receipt of a
copy of the Plan and acceptance of an original copy of this Agreement.
Signature of Optionee: BITSTREAM INC.
_____________________________ By: ______________________________
[[first name]] [[last name]] Name:
Title: President
-5-
<PAGE> 38
EXHIBIT 1
TO STOCK OPTION AGREEMENT
Gentlemen:
The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), the Company shall withhold from the shares issuable upon
such exercise, such number of shares as is equal in value to the federal and
state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six months
prior written notice to the Company.
Optionee
_______________________________
Signature
Name: _________________________
(Printed)
_______________________________
Social Security
-6-
<PAGE> 1
Exhibit 10.2
BITSTREAM INC. -- 1994 STOCK PLAN
Adopted December 7, 1994
<PAGE> 2
BITSTREAM INC. -- 1994 STOCK PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
1. Purpose. 1
2. Administration of the Plan. 2
A. Board or Compensation Committee Administration.
B. Compensation Committee Action.
C. Grants to Board Members.
D. Compliance with Federal Securities Laws.
3. Eligible Employees and Others. 4
4. Stock Subject to Options, Awards and Purchases. 4
5. Granting of Stock Rights. 4
6. Minimum Option Price; ISO Limitations. 4
A. Price for Warrants or Non-Qualified Options.
B. Price for ISOs.
C. $100,000 Annual Limitation on ISOs.
D. Determination of Fair Market Value.
7. Option Duration. 6
8. Exercise of Option. 6
A. Full Vesting or Partial Vesting.
B. Full Vesting of Installments.
C. Partial Exercise.
D. Acceleration of Vesting.
9. Employment. 7
A. Termination of Employment.
B. Leaves of Absence.
C. Changes of Employment.
10. Death; Disability. 7
11. Assignability. 8
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
12. Terms and Conditions of Options. 8
13. Adjustments. 8
A. Stock Dividends and Stock Splits.
B. Consolidations or Mergers.
C. Recapitalization or Reorganization.
D. Modification of ISOs.
E. Dissolution or Liquidation.
F. Issuances of Securities.
G. Fractional Shares.
H. Adjustments.
14. Means of Exercising Stock Rights. 10
15. Term and Amendment of Plan. 11
16. Conversion of ISOs into Non-Qualified Options;
Cancellation of ISOs. 12
17. Application of Funds. 12
18. Governmental Regulation. 12
19. Withholding of Additional Income Taxes. 12
20. Notice to Company of Disqualifying Disposition. 13
21. Governing Law -- Construction. 13
</TABLE>
- ii -
<PAGE> 4
1994 STOCK PLAN
1. PURPOSE. This 1994 Stock Plan (the "Plan") is intended to provide
incentives to:
A. Directors, officers, employees and consultants of the
Company and Related Corporations by providing them with awards of stock
in the Company ("Awards"); and
B. Officers and other employees of Bitstream Inc. (the
"Company"), its parent (if any) and any present or future subsidiaries
(collectively "Related Corporations") by providing them with options
granted hereunder that qualify as "incentive stock options" under
Section 422A(b) of the Internal Revenue Code of 1986, as amended (the
"Code") ("ISO" or "ISOs") in the form attached hereto as Exhibit 8B;
C. Directors, officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities
to purchase stock in the Company pursuant to warrants granted hereunder
which do not qualify as ISOs ("Warrant" or "Warrants"), in the form
attached hereto as Exhibit 8C;
D. Directors, officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities
to purchase stock in the Company pursuant to Non-Qualified Options
granted hereunder which do not qualify as ISOs ("Non-Qualified Option"
or "Non-Qualified Options"), in the form attached hereto as Exhibit 8D;
E. Directors, officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities
to make direct purchases of stock in the Company ("Purchases").
ISOs, Warrants and Non-Qualified Options are referred to hereafter individually
as an "Option" and collectively as "Options". Options, Awards and authorizations
to make Purchases are referred to hereafter collectively as "Stock Rights". As
used herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation", respectively, as those terms are defined in Section
425 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMPENSATION COMMITTEE ADMINISTRATION. The Plan
shall be administered by the Board of Directors of the Company (the
"Board"). The Board may appoint a Compensation Committee of two or more
of its members to administer this Plan, as assisted by the officers of
the Company. Subject to ratification of the grant or authorization of
each Stock Right by the Board (if so required by applicable state law),
and subject to the terms of the Plan, the Committee shall have the
authority to
<PAGE> 5
(i) determine the employees of the Company and
Related Corporations (from among the class of employees
eligible under paragraph 3 to receive ISOs) to whom ISOs may
be granted, and to determine (from among the class of
individuals and entities eligible under paragraph 3 to receive
Warrants, Non-Qualified Options and Awards and to make
Purchases) to whom Warrants, Non-Qualified Options, Awards and
authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or
Awards may be granted or Purchases made;
(iii) determine the option price of shares subject to
each Option, which price shall not be less than the minimum
price specified in paragraph 6, and the purchase price of
shares subject to each Purchase;
(iv) determine whether each Option granted shall be
an ISO, a Warrant or Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or
times when each Option shall become exercisable and the
duration of the exercise period;
(vi) determine whether restrictions such as
repurchase options are to be imposed on shares subject to
Options, Awards and Purchases and the nature of such
restrictions, if any, and
(vii) interpret the Plan and prescribe and rescind
rules and regulations relating to it.
If the Committee determines to issue a Warrant or Non-Qualified Option,
it shall take whatever actions it deems necessary, under Section 422A
of the Code and the regulations promulgated thereunder, to ensure that
such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any
Stock Right granted under it shall be final unless otherwise determined
by the Board. The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best. No member of
the Board or the Committee shall fall liable for any action or
determination made in good faith with respect to the Plan or any Stock
Right granted under it.
B. COMMITTEE ACTION. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and
places as it may determine. Acts by a majority of the Committee, or
acts reduced to or approved in writing by a majority of the members of
the Committee, shall be the valid acts of the Committee. All references
in this Plan to the Committee shall mean the Board if no Committee has
been appointed. From time to time the Board may increase the size of
the
- 2 -
<PAGE> 6
Committee and appoint additional members thereof, remove members (with
or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO MEMBERS OF THE BOARD.
Notwithstanding the provisions of paragraph 2(A), no Stock Right shall
be granted to any person who serves as a member of the Board at the
time of the proposed grant, unless such grant has been approved by a
majority vote of the disinterested members of the Board and otherwise
approved in accordance with the following paragraph 2(D), if
applicable. Advance review and approval by the major stockholders
consisting of those stockholders who are granted board observation
rights under the proposed 1994 Plan and Agreement of Recapitalization,
and as amended by subsequent agreement or corporate action also shall
be required.
All grants of Stock Rights to members of the Board shall in
all other respects be made in accordance with those provisions of this
Plan that apply to other eligible persons. Members of the Board who are
either (i) eligible for Stock Rights pursuant to the Plan or (ii) have
been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to
the Plan, except that no such member shall act upon the granting to
himself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting to him of
Stock Rights. The signatures of all the Board members on a unanimous
consent of directors in lieu of a meeting may constitute the majority
vote required by the foregoing paragraph.
D. COMPLIANCE WITH FEDERAL SECURITIES LAWS. The following
shall apply to any grant of Stock Rights to a member of the Board in
the event the Company registers any class of any equity security
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), if such grant occurs at any time from the
effective date of such registration until six months after the
termination of such registration: A majority vote of the other members
of the Board must approve such grant. If a majority of the Board is
eligible to participate in the Plan or in any other stock option or
other stock plan of the Company or any of its affiliates, or has been
so eligible at any time within the preceding year, any grant of Stock
Rights to a member of the Board must be made by, or only in accordance
with the recommendation of, the Compensation Committee or a committee
consisting of three or more persons, who may but need not be directors
or employees of the Company, appointed by the Board but having full
authority to act in the matter, none of whom is eligible to participate
in this Plan or any other stock option or other stock plan of the
Company or any of its affiliates, or has been eligible at any time
within the preceding year. The requirements imposed by the preceding
sentence shall also apply with respect to grants to officers who are
- 3 -
<PAGE> 7
not also directors. Once appointed, such committee shall
continue to serve until otherwise directed by the Board.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any
employee of the Company or any Related Corporation. Those officers and
directors of the Company who are not employees may not be granted ISOs
under the Plan. Warrants, Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any director
(whether or not an employee), officer, employee or consultant of the
Company or any Related Corporation. The Compensation Committee may take
into consideration a recipient's individual circumstances in
determining whether to grant an ISO, a Warrant, Non-Qualified Option or
an authorization to make a Purchase. Granting of any Stock Right to any
individual or entity shall neither entitle that individual or entity
to, nor disqualify him from, participation in any other grant of Stock
Rights.
4. STOCK SUBJECT TO OPTIONS, AWARDS AND PURCHASES. The stock
subject to Options, Awards and Purchases shall be authorized but
unissued shares of Class B Common, (Nonvoting) Stock of the Company,
par value $.01 per share (the "Common Stock"), or shares of Common
Stock reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan equals 2,750,000,
subject to adjustment from time to time by (i) a vote of stockholders
or (ii) otherwise pursuant to paragraph 13. Any such shares may be
issued as ISOs, Warrants, Non-Qualified Options or Awards, or to
persons or entities making Purchases, so long as the number of shares
so issued does not exceed such number, as adjusted or amended. If any
Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to
be exercisable in whole or in part, or if the Company shall reacquire
any unvested shares issued pursuant to Awards or Purchases, the
unpurchased shares subject to such Options and any unvested shares so
reacquired by the Company shall again be available for grants of Stock
Rights under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under
the Plan any time after OCTOBER 7, 1994, and prior to OCTOBER 7, 2005.
The date of grant of a Stock Right under the Plan will be the date
specified by the Compensation Committee at the time it grants the Stock
Right; provided, however, that such date shall not fall prior to the
date on which the Compensation Committee acts to approve the grant. The
Compensation Committee shall enjoy the right, with the consent of the
optionee, to convert an ISO granted under the Plan to a Non-Qualified
Option pursuant to paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR WARRANTS OR NON-QUALIFIED OPTIONS. The
exercise price per share specified in the agreement relating
to each Warrant or Non-Qualified Option granted under the Plan
shall in no event be less than the lesser of (i) the book
value per share of Common Stock as of the end of the fiscal
year of the Company immediately preceding the date of
- 4 -
<PAGE> 8
such grant, or (ii) fifty (50%) percent of the fair market value per
share of Common Stock on the date of such grant.
B. PRICE FOR ISOs. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not be
less than the fair market value per share of Common Stock on the date
of such grant. In the case of an ISO to be granted to an employee
owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date
of grant.
C. $100,000 ANNUAL LIMITATION FOR ISOs. Each eligible employee
may be granted ISOs only to the extent that, in the aggregate under
this Plan and all incentive stock option plans of the Company and any
Related Corporation, such ISOs do not become exercisable for the first
time by such employee during any calendar year in a manner which would
entitle the employee to purchase more than $100,000 in fair market
value (determined at the time the ISOs were granted) of Common Stock in
that year. Any options granted to an employee in excess of such amount
will be granted as Warrants or Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an
Option is granted under the Plan, the Company's Common Stock is
publicly traded, "fair market value" shall be determined as of the last
business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean
(i) the average (on that date) of the high and low
prices of the Common Stock on the principal national
securities exchange on which the Common stock is traded, if
the Common Stock is then traded on a national securities
exchange; or
(ii) the last reported sale price (on that date) of
the Common Stock on the NASDAQ National Market List, if the
Common Stock is not then traded on a national securities
exchange; or
(iii) the average of the closing bid and asked prices
last quoted (on that date) by an established quotation service
for over-the-counter securities, if the Common Stock is not
reported on the NASDAQ National Market List.
However, if the Common Stock is not publicly traded at the time that an
Option is granted under the Plan, "fair market value" shall be deemed
the fair value of the Common Stock as determined by the Board or
Compensation Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale
and offer
- 5 -
<PAGE> 9
prices of the Common Stock in private transactions negotiated at arm's
length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or cancellation as provided in paragraph 16, each Option
shall expire on the date specified by the Board or Compensation Committee, but
not more than
A. seven years and one day from the date of grant in the case
of Warrants or Non-Qualified Options, or
B. ten years from the date of grant in the case of ISOs.
Subject to earlier termination as provided in paragraphs 9 and 10, the term of
each ISO shall be that set forth in the original instrument granting such ISO,
except with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. FULL VESTING OR PARTIAL VESTING. The Option shall either be
fully exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Board or Compensation Committee
may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination
of the Option, unless otherwise specified by the Board or Compensation
Committee.
C. PARTIAL EXERCISE. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up
to the total number of shares with respect to which it is then
exercisable.
D. ACCELERATION OF VESTING. The Board or Compensation
Committee shall have the right to accelerate the date of exercise of
any installment of any Option; provided that the Board or Compensation
Committee shall not accelerate the exercise date of any installment of
any Option granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph 16) if such
acceleration would violate the annual vesting limitation contained in
Section 422A(b)(7) of the Code, as described in paragraph 6(C).
E. Employees Owning Greater than Ten Percent of Voting Stock.
Any ISO granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation shall be exercisable no
earlier than five years from the date of grant.
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<PAGE> 10
9. EMPLOYMENT.
A. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be
employed by the Company and all Related Corporations other than by
reason of death or disability as defined in paragraph 10, no further
installments of his ISOs shall become exercisable, and his ISOs shall
terminate after the passage of ninety (90) days from the date of
termination of his employment, but in no event later than on their
specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 16.
B. LEAVES OF ABSENCE. Employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as
those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed ninety
(90) days or, if longer, any period during which such optionee's right
to reemployment is guaranteed by statute. A bona fide leave of absence
with the written approval of the Board or Compensation Committee shall
not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Company
or any Related Corporation to continue the employment of the optionee
after the approved period of absence.
C. CHANGES OF EMPLOYMENT. ISOs granted under the Plan shall
not be affected by any change of employment within or among the Company
and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan
shall be deemed to give any grantee of any Stock Right the right to be
retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his death, any ISO of
his may be exercised, to the extent of the number of shares with
respect to which he could have exercised it on the date of his death,
by his estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, at any time
prior to the earlier of the specified expiration date of the ISO or 180
days from the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his disability, he
shall have the right to exercise any ISO held by him on the date of
termination of employment, to the extent of the number of shares with
respect to which he could have exercised it on that date, at any time
prior to the earlier of the specified expiration date of the ISO or 180
days from the date
- 7 -
<PAGE> 11
of the termination of the optionee's employment. For the purposes of
the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or successor
statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
grantee except by will or by the laws of descent and distribution or pursuant to
a qualified domestic relations order defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employment Retirement Security Income Act,
or the rules thereunder, and during the lifetime of the grantee each Option
shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Board or
Compensation Committee may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in paragraphs 6 through 11 hereof
and may contain such other provisions as the Board or Compensation Committee
deems advisable which are not inconsistent with the Plan, including restrictions
applicable to shares of Common Stock issuable upon exercise of Options. In
granting any Warrant or Non-Qualified Option, the Board or Compensation
Committee may specify that such Warrant or Non-Qualified Option shall fall
subject to the restrictions set forth herein with respect to ISOs, or to such
other termination and cancellation provisions as the Board or Compensation
Committee may determine. The Board or Compensation Committee may from time to
time confer authority and responsibility on one or more of its own members and/
or one or more officers of the Company to execute and deliver such instruments.
The proper officers of the Company are authorized and directed to take any and
all action necessary or advisable from time to time to carry out the terms of
such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number
of shares or if the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, then, in each such
case, the optionee, on exercise of such Option at any time after the
issuance or effective date of such dividend or split, as the case may
be, shall receive, in lieu of the Common Stock issuable upon such
exercise prior to such issuance or effective date, the stock and other
securities and property (including cash) to which such holder would
have been entitled upon such issuance or effective date, if such holder
had exercised Options granted hereunder immediately prior thereto.
B. CONSOLIDATIONS OR MERGERS. If the Company is intended to be
consolidated with or acquired by another entity in a merger, sale of
all or
- 8 -
<PAGE> 12
substantially all of the Company's assets or otherwise (an
"Acquisition"), the Board of Directors, the Board or Compensation
Committee or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall, as
to outstanding Stock Rights, take one or more of the following actions:
(i) make appropriate provision for the continuation
of such Stock Rights by substituting on an equitable basis for
the shares then subject to such Stock Rights the consideration
payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition; or
(ii) make appropriate provision for the continuation
of such Stock Rights by substituting on an equitable basis for
the shares then subject to such Stock Rights any equity
securities of the successor corporation; or
(iii) upon written notice to the holders of the Stock
Rights, provide that all Stock Rights must be exercised, to
the extent then exercisable, within a specified number of days
of the date of such notice, at the end of which period the
Stock Rights shall terminate; or
(iv) terminate all Stock Rights in exchange for a
cash payment equal to the excess of the fair market value of
the shares subject to such Stock Rights (to the extent then
exercisable) over the exercise price thereof; or
(v) accelerate the date of exercise of such Stock
Rights or of any installment of any such Stock Rights; or
(vi) terminate all Stock Rights in exchange for the
right to participate in any stock option or other employee
benefit plan of any successor corporation.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in paragraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, upon exercising a
Stock Right, the holder thereof shall be entitled to receive for the
purchase price paid upon such exercise the securities he would have
received if he had exercised his Stock Right prior to such
recapitalization or reorganization.
D. MODIFICATION OF ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to
ISOs shall be made only after the Board or Compensation Committee,
after consulting with counsel for the Company, determines whether such
adjustments would constitute a "modification" of such ISOs (as that
term
- 9 -
<PAGE> 13
is defined in Section 425 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Board or Compensation
Committee determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs, it may refrain from
making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at
such other time and subject to such other conditions as shall be
determined by the Board or Compensation Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect,
and no adjustment by reason thereof shall be made with respect to, the
number or price of shares subject to Options. No adjustments shall be
made for dividends paid in cash or in property other than securities of
the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in
lieu of such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the foregoing
events described in subparagraphs A, B or C above, the class and
aggregate number of shares set forth in paragraph 4 hereof that are
subject to Stock Rights which previously have been or subsequently may
be granted under the Plan shall also be appropriately adjusted to
reflect the events described in such subparagraphs. The Board or
Compensation Committee or a Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive. If any person or
entity owning restricted Common Stock obtained by exercise of a Stock
Right made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs A, B
or C above as a result of owning such restricted Common Stock, such
shares or securities or cash shall be subject to all of the conditions
and restrictions applicable to the restricted Common Stock with respect
to which such shares or securities or cash were issued, unless
otherwise determined by the Board or Compensation Committee or a
Successor Board.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either
- 10 -
<PAGE> 14
A. In United States dollars in cash or by check;
B. At the discretion of the Board or Compensation Committee,
through delivery of shares of Common Stock having a fair market value
equal as of the date of the exercise to the cash exercise price of the
Stock Right; /
C. At the discretion of the Board or Compensation Committee,
by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest
applicable Federal rate, as defined in Section 1274(d) of the Code, or
D. At the discretion of the Board or Compensation Committee,
by any combination of A., B. or C. above.
If the Board or Compensation Committee permits payment by means of the methods
set forth in clauses B., C., or D. of the preceding sentence, such permission
shall be expressed in writing at the time of the grant of the ISO in question.
The holder of a Stock Right shall not have the rights of a shareholder with
respect to the shares covered until the date of issuance of a stock certificate
to him for such shares. Except as expressly provided above in paragraph 13 with
respect to changes in capitalization and stock dividends, no adjustment shall be
made for dividends or similar rights for which the record date falls prior to
the date such stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
OCTOBER 7, 1994, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at a
subsequent Meeting of Stockholders or, in lieu thereof, by unanimous written
consent. If the stockholders do not provide their approval by OCTOBER 6, 1995,
any grants of ISOs under the Plan made prior to that date will be rescinded. The
Plan shall expire on OCTOBER 7, 2005, (except as to Options outstanding on that
date). Subject to the provisions of paragraph 5 above, Stock Rights may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
A. The total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to paragraph
13);
B. The provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified;
C. The provisions of paragraph 6(B) regarding the exercise
price at which shares may be offered pursuant to ISOs may not be
modified (except by adjustment pursuant to paragraph 13); and
- 11 -
<PAGE> 15
D. The expiration date of the Plan may not be extended.
Except as otherwise provided in this paragraph 15, in no event may an action of
the Board or stockholders alter or impair the rights of a grantee, without his
consent, under any Stock Right previously granted to him.
16. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; CANCELLATION OF
ISOs. The Board or Compensation Committee, at the written request of any
optionee, may in its discretion take such actions as may be necessary to convert
such optionee's ISOs (or any installments or portions of installments thereof)
that have not been exercised on the date of conversion into Non-Qualified
Options at any time prior to the expiration of such ISOs, regardless of whether
the optionee serves as an employee of the Company or a Related Corporation at
the time of such conversion. Such actions may include, but not be limited to,
extending the exercise period or reducing the exercise price of the appropriate
installments of such Options. At the time of such conversion, the Board or
Compensation Committee (with the consent of the Optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the Board
or Compensation Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Board or Compensation Committee takes appropriate action. The Board or
Compensation Committee, with the consent of the optionee, also may cancel any
portion of any ISO that has not been exercised at the time of such cancellation.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. GOVERNMENT REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan shall fall subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Warrant or Non-Qualified Option, the grant of an Award, the making of a Purchase
of Common Stock for less than its fair market value, the making of a
Disqualifying Disposition (as defined in paragraph 20) or the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder, the
Company, in accordance with Section 3402(a) of the Code, may require the
optionee, Award recipient or purchaser to pay additional withholding taxes in
respect of the amount that is considered compensation includible in such
person's gross income. The Board or Compensation Committee in its discretion may
condition
A. the exercise of an option,
B. the grant of an Award,
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<PAGE> 16
C. the making of a Purchase of Common Stock for less than its
fair market value, or
D. the vesting of restricted Common Stock acquired by
exercising a Stock Right,
on the grantee's payment of such additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition means any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before he sells such stock, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW -- CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of Massachusetts or the laws of any jurisdiction in which the Company or its
successors in interest may be organized from time to time. In construing this
Plan, the singular shall include the plural and the masculine gender shall
include the feminine and neuter, unless the context otherwise requires.
- 13 -
<PAGE> 17
Exhibit 8B
BITSTREAM INC.
INCENTIVE STOCK OPTION AGREEMENT
UNDER 1994 STOCK PLAN
For good and Valuable consideration, Bitstream Inc., a Massachusetts Business
Corporation (the "Company"), hereby grants this (the "Option Date")
to ("Employee"), an option to purchase a maximum of shares
(the "Option Shares") of Class A Common Stock, $.01 par value (the "Common
Stock"), at the price of $.60 per share, on the following terms and conditions:
1. GRANT UNDER 1994 STOCK PLAN. This Option is granted pursuant to and is
governed by the Company's 1994 Incentive Stock Option Plan (the "Plan") and,
unless the context otherwise requires, terms used herein shall have the same
meaning as in the Plan. Determinations made in connection with this Option
pursuant to the Plan shall be governed by the Plan as it exists on this date.
The Plan under which this option is granted was approved by the Company's
directors on October 7, 1994.
2. EXTENT OF OPTION IF EMPLOYMENT CONTINUES. On the following dates, the
Optionee may exercise this Option for the number of Option Shares set opposite
the applicable date so long as Employee continues to be employed by the Company:
Less than one year from . -0- Option Shares
One year or more, but less than two
years from . 33% of the total Option Shares
Two years or more, but less than three
years from . an additional 33% of the total Option
Shares
Three years or more from . an additional 34% of the total Option
Shares
The foregoing rights shall cumulate while the Optionee continues in the
employment of the Company, and may be exercised up to and including the date
that falls ten (10) years from the Option Date. All of the foregoing rights are
subject to Sections 4 and 5, as appropriate, if Employee ceases to be employed
by the Company, or dies or becomes disabled while in the employ of the Company.
3. TERMINATION OF EMPLOYMENT. If Employee ceases to be employed by the
Company, other than by reason of death or disability as defined in Section 4, no
further installments of this Option shall become exercisable and this Option
shall terminate ninety (90) days after the date the Employment
<PAGE> 18
Page 2
ceases, but in no event later than the scheduled expiration date. In such a
case, Employee's only rights to exercise options hereunder shall be those which
are properly exercisable before the termination of this Option. In such an
event, Employee may exercise this Option for the number of Option Shares which
have vested and become exercisable prior to the date of termination, and this
Option may be exercised with respect to such number of Option Shares which have
become exercisable prior to termination at any time prior to the end of ten (10)
years and one day from the date of grant set forth above.
4. DEATH, DISABILITY. If Employee is a natural person who dies while in the
employ of the Company, this Option may be exercised, to the extent of the number
of Option Shares with respect to which Employee could have exercised it on the
date of his death, by his estate, personal representative or beneficiary to whom
this option has been assigned pursuant to Section 9, at any time within 180 days
after the date of death, but not later than the scheduled expiration date. If
Employee is terminated by reason of his disability (as defined in the Plan),
this Option may be exercised, to the extent of the number of Option Shares with
respect to which Employee could have exercised it on the date the Employment was
terminated, at any time within 180 days after the date of such termination, but
not later than the scheduled expiration date. At the expiration of such 180-day
period or the scheduled expiration date, whichever is the earlier, this Option
shall terminate and the only rights hereunder shall be those as to which the
Option was properly exercised before such termination.
5. PARTIAL EXERCISE. Exercise of this Option up to the extent above stated
may be made in part at any time and from time to time within the above limits,
except that this Option may not be exercised for a fraction of a share unless
such exercise is with respect to the final installment of Option Shares subject
to this Option and a fractional share (or cash in lieu thereof) must be issued
to permit Employee to exercise completely such final installment. Any fractional
share with respect to which an installment of this Option cannot be exercised
because of the limitation contained in the preceding sentence shall remain
subject to this Option and available for later purchase by Employee in
accordance with the terms hereof.
6. PAYMENT OF PRICE. The Option price shall be in United States dollars and
may be paid as follows:
a) in cash or by check, or any combination of the foregoing, equal in
amount to the Option price; or
b) in the discretion of the Board of Directors, in cash, by check, by
delivery of shares of the Company's Common Stock having a fair market value
(as determined by the Board of Directors) equal as of the date of exercise
to the Option price, or by any combination of the foregoing, equal in
amount to the Option price.
<PAGE> 19
Page 3
Notwithstanding the foregoing, Employee may not pay any part of the
exercise price for the Option by transferring shares of Common Stock to the
Company if such Common Stock is both subject to a substantial risk of forfeiture
and not transferable within the meaning of section 83 of the Code.
7. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this Option,
Employee agrees that a purchase of Option Shares under this Option will not be
made with a view to their distribution, as that term is used in the Securities
Act of 1933, as amended (the "Securities Act"), unless in the opinion of counsel
to the Company such distribution is in compliance with or exempt from the
registration and prospectus requirements of the Securities Act and applicable
state securities laws, and Employee agrees to sign a certificate to such effect
at the time of exercising this Option and agrees that the certificate for the
Option Shares so purchased may be inscribed with a legend to ensure compliance
with the Securities Act and applicable state securities laws.
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this
Agreement, this Option may be exercised by written notice to the Company, at the
principal executive office of the Company, or to such transfer agent as the
Company shall designate. Such notice shall state the election to exercise this
Option and the number of Option Shares in respect of which it is being exercised
and shall be signed by the person or persons so exercising this Option. Such
notice shall be accompanied by payment of the full purchase price of such Option
Shares, and the Company shall deliver a certificate or certificates representing
such Option Shares as soon as practicable after the notice shall be received.
The certificate or certificates for the Option Shares as to which this Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising this Option (or, if this Option shall be exercised by
Employee and if Employee shall so request in the notice exercising this Option,
shall be registered in the name of Employee and another person jointly, with
right of survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising this Option. In the event this
Option shall be exercised, pursuant to Section 4 hereof, by any person or
persons other than Employee, such notice shall be accompanied by appropriate
proof of the right of such person or persons to exercise this Option. All Option
Shares that shall be purchased upon the exercise of this Option as provided
herein shall be fully paid and nonassessable.
9. OPTION NOT TRANSFERABLE. This Option is not transferable or assignable
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order defined by the Internal Revenue Code of 1986,
as amended, or Title I of the Employment Retirement Security Income Act, or the
rules thereunder. During the Optionee's lifetime only Employee can exercise this
Option.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
Option imposes no obligation on Employee to exercise it.
<PAGE> 20
Page 4
11. NO OBLIGATION TO CONTINUE EMPLOYMENT. Neither the Plan nor this Option
shall obligate the Company or any related corporations in any manner to continue
Employee in his employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. Employee shall enjoy no rights
as a stockholder with respect to Option Shares subject to this Agreement until a
stock certificate therefor has been issued to Employee and it is fully paid for
by Employee. Except as expressly provided in the Plan for changes in the
capitalization of the Company, no adjustment shall be made for dividends or
similar rights for which the record date precedes the date upon which such stock
certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. This Option is intended to
encourage Employee to work for the best interests of the Company and its
stockholders. To protect Employee's interest in this Option, the provisions of
the Plan that preserve options at full value in a number of contingencies are
hereby made applicable hereunder and are incorporated herein by reference. Thus,
this Option and the Option price shall be equitably adjusted in the event of any
stock dividend, stock split, recapitalization or other change in the capital
structure of the Company. In lieu of issuing fractional shares upon exercise
thereof, this Option (and the corresponding Option Shares) shall be rounded
upward or downward to the nearest whole share (rounding upward for all amounts
equal to or in excess of .51). In particular, without affecting the generality
of the foregoing, it is understood that for the purposes of Sections 2 through 4
hereof, inclusive, maintaining or being in the employ of the Company includes
maintaining or being in the employ of a Related Corporation (as defined in the
Plan).
14. DISQUALIFYING DISPOSITION. Employee agrees to notify the Company in
writing immediately after Employee makes a Disqualifying Disposition of any
Option Shares received pursuant to the exercise of this Option. A Disqualifying
Disposition is any disposition (including any sale) of such Option Shares before
the later of (a) two years after the date Employee was granted this Option, or
(b) one year after the date Employee acquired Option Shares by exercising this
Option. If Employee has died before such Option Shares are sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter. Employee also agrees to provide the Company with any information
which it shall request concerning any such disposition. Employee acknowledges
that he or she will forfeit the favorable income tax treatment otherwise
available with respect to the exercise of an incentive so if he or she makes a
Disqualifying Disposition of the Option Shares received on exercise of the
Option.
15. WITHHOLDING TAXES. If the Company determines in its discretion that it
is obligated to withhold tax with respect to a Disqualifying Disposition (as
defined in the preceding Section) of Option Shares received by the Employee on
exercise of this Option, Employee hereby agrees that the Company may withhold
from Employee's wages or other remuneration the appropriate
<PAGE> 21
Page 5
amount of federal, state and local withholding taxes attributable to such
Disqualifying Disposition. If any portion of this Option is treated as a
non-qualified option, Employee hereby agrees that the Company may withhold from
Employee's wages the appropriate amount of federal. state and local withholding
taxes attributable to Employee's exercise of such nonqualified option. At the
Company's discretion, the amount required to be withheld may be withheld in cash
from such wages or other remuneration, or in kind (with respect to compensation
income attributable to the exercise of this Option) from the Common Stock
otherwise deliverable to Employee on exercise of this Option. Employee further
agrees that, if the Company does not withhold an amount from Employee's wages or
other remuneration sufficient to satisfy the Company's withholding obligation,
Employee will reimburse the Company on demand, in cash, for the amount
underwithheld.
16. NO EXERCISE OF OPTION IF EMPLOYMENT TERMINATED FOR MISCONDUCT. If the
employment of Employee is terminated for "Misconduct," this Option shall
terminate on the date of such termination and this Option shall thereupon not be
exercisable to any extent whatsoever. "Misconduct" is conduct, as determined by
the Board of Directors, involving one or more of the following: (i) disloyalty,
gross negligence, dishonesty or breach of fiduciary duty to the Company; or (ii)
the commission of an act of embezzlement, fraud or deliberate disregard of the
rules or policies of the Company which results in loss, damage or injury to the
Company; or (iii) the unauthorized disclosure of any trade secret or
confidential information of the Company; or (iv) the commission of an act which
constitutes unfair competition with the Company or which induces any customer of
the Company to break a contract with the Company; or (v) the substantial and
continuing failure of Employee to render services to the Company in accordance
with his assigned duties, as determined by two-thirds of the members of the
Board of Directors. In making such determination, the Board of Directors shall
act fairly and in utmost good faith. For purposes of this Section, termination
of employment shall be deemed to occur when Employee receives notice that his
employment is terminated.
17. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF the Company and Employee have caused this instrument to be
executed, and Employee whose signature appears below acknowledges receipt of a
copy of the Plan and acceptance of an original copy of this Agreement.
Signature of Employee: BITSTREAM INC.:
By:
- ----------------------------- ------------------------------
Name:
Title: President
<PAGE> 22
Exhibit 8C
NEITHER THIS WARRANT NOR THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND CANNOT
BE SOLD, TRANSFERRED, OR HYPOTHECATED UNLESS AND UNTIL A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR UNLESS AND UNTIL THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL ACCEPTABLE IN FORM AND SUBSTANCE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE ACT.
Right to Purchase Shares of Class A Common Stock
Warrant No.
BITSTREAM INC.
CLASS A COMMON STOCK PURCHASE WARRANT
BITSTREAM INC., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, (the "Purchaser"),
or assigns, is entitled, subject to the terms set forth below, to purchase from
the Company at any time or from time to time on or after [ISSUE DATE (MUST BE
AFTER 11/21/94)] and before 5:00 p.m., Massachusetts time, [ISSUE DATE + 7
YEARS], up to fully paid and nonassessable shares of the
Company's Class A Common Stock at the purchase price per share of (such
purchase price per share as adjusted from time to time as herein provided is
referred to herein as the "Exercise Price"). The number and character of such
shares of Class A Common Stock and the Exercise Price are subject to adjustment
as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) "Company" includes any corporation which shall succeed to or assume
the obligations of the Company hereunder.
(b) "Class A Common Stock" shall mean the Company's Class A Common
Stock, par value $.01 per share.
(c) "Person" shall mean any individual, corporation, partnership, trust
or unincorporated organization, or any government or any agency or
political subdivision thereof.
1. Exercise of Warrant. This Warrant may be exercised in full or in part by
the holder hereof by surrender of this Warrant, with the form of subscription
attached as Annex A hereto duly executed by such holder, to the Company at its
principal office, accompanied by payment, in cash or by certified or official
bank check payable to the order of the Company, of the
<PAGE> 23
Page 2
purchase price of the shares of Class A Common Stock to be purchased hereunder.
For any partial exercise, the holder shall designate in the subscription the
number of shares of Class A Common Stock (without giving effect to any
adjustment therein) that it wishes to purchase. On any such partial exercise,
the Company at its expense will forthwith issue and deliver to or upon the order
of the holder hereof a new Warrant or warrants of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes) may request, calling in the aggregate on the face or faces
thereof for the number of shares of Class A Common Stock equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares designated by the holder in
the subscription.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares (including
fractional shares) of Class A Common Stock to which such holder shall be
entitled upon such exercise, together with any other stock or securities or
property to which such holder is entitled.
3. Stock Splits, Subdivisions and Combinations. Appropriate adjustment
shall be made in the number of shares of Class A Common Stock subject to this
Warrant and in the number, kind and purchase price for shares covered by this
Warrant, to the extent it is outstanding, to give effect to any stock splits,
subdivisions, combinations, and other similar changes in the capital structure
of the Company after the issuance of this Warrant.
4. Adjustment for Reorganization, Consolidation, Merger, etc. In case the
Company after the date hereof shall (a) effect a capital reorganization, (b)
consolidate with or merge with or into any other person, or (c) transfer all or
substantially all of its assets to any other person under any plan or
arrangement contemplating the dissolution of the Company within twenty-four (24)
months from the date of such transfer, then, in each such case, the holder of
this Warrant, on exercise hereof at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Class A Common
Stock issuable upon such exercise prior to such consummation or such effective
date, the stock and other securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such holder had exercised this Warrant
immediately prior thereto. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 4, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise hereof after the consummation of such
reorganization, consolidation or merger or the effective
<PAGE> 24
Page 3
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities or property,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company.
5. Notice of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
(b) any capital reorganization of the Company or any reclassification or
recapitalization of the capital stock of the Company after the date hereof,
or any transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person,
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company, or
(d) any proposed issue or grant by the Company of any shares of stock of
any class or any other securities, or any right or option to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities,
then, and in each such event, the Company will mail to the holder hereof a
notice specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, of any is to be fixed, as of which the holders of record of Class
A Common Stock or other securities shall be entitled to exchange their shares of
Class A Common Stock or other securities for securities or other property
deliverable on such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up, or
(iii) the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed at
least ten (10) days prior to the date therein specified.
6. Reservation of Shares, etc. The Company will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issuance upon exercise of this Warrant as herein provided, such number of shares
of Class A
<PAGE> 25
Page 4
Common Stock as shall then be issuable upon exercise of this Warrant in full.
The Company covenants that all shares of Class A Common Stock that shall be
issuable upon exercise of this warrant shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
7. Exchange of Warrants. On surrender for exchange of any Warrant, properly
endorsed, to the Company, the Company at its expense will issue and deliver to
or on the order of the holder thereof a new Warrant of like tenor, in the name
of such holder or as such holder (on payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Class A Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
8. Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction of any Warrant, on delivery
of an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, on surrender and cancellation of
such warrant, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of shares of the Company acquired upon
the exercise of this Warrant and/or the conversion of the shares of Class A
Common Stock acquired thereby shall be entitled to the benefit of certain
registration rights, subject to certain obligations of such holder, as set forth
in the Amended and Restated Articles of Organization.
10. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the Commonwealth of Massachusetts and
shall be construed and enforced in accordance with and governed by its laws. The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof.
11. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Massachusetts time, [ISSUE DATE + 7 YEARS].
Dated: [ISSUE DATE] BITSTREAM INC.
(Corporate Seal) By:
--------------------------
Name: C. Ray Boelig
Title: President
Attest:
<PAGE> 26
Page 5
Annex A
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO BITSTREAM INC.
The undersigned holder of the within Warrant hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, shares of the Class A Common Stock of Bitstream Inc., and
herewith makes payment of $ therefor, and requests that the certificates
for such shares be issued in the name of, and delivered to
whose address is .
------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant or Assignment
of Warrant)
Dated:
----------------------- ------------------------------
(Address)
Signed in the presence of:
- -----------------------------
<PAGE> 27
Page 6
Annex B
FORM OF 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 within Warrant to purchase
shares of the Class A Common Stock of Bitstream Inc. to which the
within Warrant relates, and appoints Attorney to
transfer such right on the books of Bitstream Inc. with full power of
substitution in the premises.
------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
Dated:
----------------------- ------------------------------
(Address)
Signed in the presence of:
- -----------------------------
<PAGE> 28
Exhibit 8D
BITSTREAM INC.
Non-Qualified Stock Option Agreement
Under 1994 Stock Plan
Bitstream Inc., a Massachusetts Business Corporation (the "Company"),
hereby grants this ___ day of 199_ (the "Option Date") to
("Optionee"), an option to purchase a maximum of shares (the
"Option Shares") of Class A Common Stock, $.01 par value (the "Common Stock"),
at the price of $___ per share, on the following terms and conditions:
1. GRANT UNDER 1994 STOCK PLAN. This Option is granted pursuant to and is
governed by Company's 1994 Stock Plan approved by CompanyOs directors on October
7, 1994, and later by the stockholders, and as amended subsequently (the
"Plan"). Unless the context requires otherwise, terms used herein shall have the
same meaning as in the Plan. Determinations made in connection with this Option
pursuant to the Plan shall be governed by the Plan as it exists on this date.
2. GRANT AS NON-QUALIFIED OPTION, OTHER OPTIONS. This Option is intended to
be a Non-Qualified Option (rather than an incentive stock option), and the Board
of Directors intends to take appropriate action, if necessary, to achieve this
result. This Option is in addition to any other options heretofore or hereafter
granted to Optionee by Company, but a duplicate original of this instrument
shall not affect the grant of another option .
3. EXTENT OF OPTION IF BUSINESS RELATIONSHIP CONTINUES. If Optionee has
continued to serve Company in the capacity of an employee, officer, director,
agent, advisor, or consultant, including services as a member of the Board of
Advisors of Company (such service is described herein as maintaining or being
involved in a "Business Relationship" with Company), on the following dates,
Optionee may exercise this Option for the number of Option Shares set opposite
the applicable date:
One year or more, but less than two % of the
years from [ISSUE DATE]. total Option Shares
Two years or more, but less than three an additional _% of the
years from [ISSUE DATE]. total Option Shares
Three years or more, but less than four an additional _% of the
years from [ISSUE DATE]. total Option Shares
Four years or more, but less than five an additional _% of the
years from [ISSUE DATE]. total Option Shares
Five years or more, but less than six an additional _% of the
years from [ISSUE DATE]. total Option Shares
<PAGE> 29
Page 2
The foregoing rights shall cumulate while Optionee continues to maintain a
Business Relationship with Company, and may be exercised up to and including the
date that falls seven (7) years from the date this Option is granted. All of the
foregoing rights fall subject to Sections 4 and 5, as appropriate, if Optionee
ceases to maintain a Business Relationship with Company, dies, becomes disabled
or undergoes dissolution while involved in a Business Relationship with Company.
4. TERMINATION OF BUSINESS RELATIONSHIP. If Optionee ceases to maintain a
Business Relationship with Company, other than by reason of death or disability
as defined in Section 5, no further installments of this Option shall become
exercisable and this Option shall terminate after the date the Business
Relationship ceases, but in no event later than the scheduled expiration date.
In such a case, Optionee's only rights to exercise options hereunder shall be
those that are properly exercisable before the termination of this Option. In
such an event, Optionee may exercise this Option for the number of Option Shares
which have vested and become exercisable prior to the date of termination, and
this Option may be exercised with respect to such number of Option Shares which
have become exercisable prior to termination at any time prior to the end of
seven (7) years and one day from the date of grant set forth above.
5. DEATH; DISABILITY. If Optionee is a natural person who dies while
involved in a Business Relationship with Company, this Option may be exercised,
to the extent of the number of Option Shares with respect to which Optionee
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary to whom this option has been assigned pursuant to
Section 10, at any time within 180 days after the date of death, but not later
than the scheduled expiration date. If Optionee is a natural person whose
Business Relationship with Company is terminated by reason of his disability (as
defined in the Plan), this Option may be exercised, to the extent of the number
of Option Shares with respect to which Optionee could have exercised it on the
date the Business Relationship was terminated, at any time within 180 days after
the date of such termination but not later than the scheduled expiration date.
At the expiration of such 180-day period or the scheduled expiration date,
whichever occurs earlier, this Option shall terminate and the only rights
hereunder shall be those as to which the Option was properly exercised before
such termination.
6. PARTIAL EXERCISE. Exercise of this Option up to the extent above stated
may be made in part at any time and from time to time within the above limits,
except that this Option may not be exercised for a fraction of a share unless
such exercise is for the final installment of stock subject to this Option and a
fractional share (or cash in lieu thereof) must be issued to permit Optionee to
exercise such final installment completely. Any fractional share for which an
installment of this Option cannot be exercised because of the preceding sentence
shall remain subject to this Option and available for later purchase by Optionee
in accordance with the terms hereof.
<PAGE> 30
Page 3
7. PAYMENT OF PRICE. The option price shall be payable in United States
dollars and may be paid:
(a) in cash or by check, or any combination of the foregoing, equal in
amount to the option price; or
(b) in the discretion of the Board of Directors, in cash, by check, by
delivery of shares of Company's Common Stock or Preferred Stock having a
fair market value (as determined by the Board of Directors) equal as of the
date of exercise to the option price, or by any combination of the
foregoing, equal in amount to the option price.
If Optionee delivers shares of Common Stock or Preferred Stock held by Optionee
(the "Old Stock") to Company in full or partial payment of the option price, and
the Old Stock so delivered falls subject to restrictions or limitations imposed
by agreement between Optionee and Company, the Common Stock or Preferred Stock
received by Optionee on the exercise of this Option shall be subject to all
restrictions and limitations applicable to the Old Stock to the extent that
Optionee paid for such Common Stock or Preferred Stock by delivery of Old Stock,
in addition to any restrictions or limitations imposed by this Agreement.
8. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this Option,
Optionee agrees that a purchase of Option Shares under this Option will not be
made with a view to their distribution as that term is used in the Securities
Act of 1933, as amended (the "Securities Act"), unless in the opinion of counsel
to Company such distribution complies with or stands exempt from the
registration and prospectus requirements of the Securities Act and applicable
state securities laws, and Optionee agrees to sign a certificate to such effect
at the time of exercising this Option and agrees that the certificate for the
Option Shares so purchased may be inscribed with a legend to ensure compliance
with the Securities Act and applicable state securities laws.
9. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this
Agreement, this Option may be exercised by written notice to Company, at the
principal executive office of Company, or to such transfer agent as Company
shall designate. Such notice shall state the election to exercise this Option
and the number of Option Shares in respect of which it is being exercised and
shall be signed by the person or persons so exercising this Option. Such notice
shall be accompanied by payment of the full purchase price of such Option
Shares, and Company shall deliver a certificate or certificates representing
such Option Shares as soon as practicable after the notice shall be received.
The certificate or certificates for the Option Shares as to which this Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising this Option (or, if this Option shall be exercised by
Optionee and if Optionee shall so request in the notice exercising this Option,
shall be registered in the name of Optionee and another person jointly, with
right of survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising this Option. In the event this
Option shall be exercised, pursuant to Section 5 hereof, by any person or
per-
<PAGE> 31
Page 4
sons other than Optionee, such notice shall be accompanied by appropriate
proof of the right of such person or persons to exercise this Option. All Option
Shares that shall be purchased upon the exercise of this Option as provided
herein shall be fully paid and nonassessable.
10. OPTION NOT TRANSFERABLE. This Option shall not be transfered or
assigned except by will or by the laws of descent and distribution or pursuant
to a qualified domestic relations order defined by the Internal Revenue Code of
1986, as amended, or Title I of the Employment Retirement Security Income Act,
or the rules thereunder. During Optionee's lifetime only Optionee can exercise
this Option.
11. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
Option imposes no obligation on Optionee to exercise it.
12. NO OBLIGATION TO CONTINUE BUSINESS RELATIONSHIP. Neither the Plan nor
this Option shall obligate Company or any related corporations in any manner to
continue to maintain a Business Relationship with Optionee.
13. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. Optionee shall enjoy no rights
as a stockholder with respect to Option Shares subject to this Agreement until a
stock certificate therefor has been issued to Optionee and it is fully paid for
by Optionee. Except as expressly provided in the Plan for changes in the
capitalization of Company, no adjustment shall be made for dividends or similar
rights for which the record date precedes the date upon which such stock
certificate is issued.
14. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. This Option is intended to
encourage Optionee to work for the best interests of Company and its
stockholders. To protect OptioneeOs interest in this Option, the provisions of
the Plan that preserve options at full value in a number of contingencies are
hereby made applicable hereunder and are incorporated herein by reference. Thus,
this Option and the Option price shall be equitably adjusted in the event of any
stock dividend, stock split, recapitalization or other change in the capital
structure of Company. In the event of any stock dividend, stock split,
recapitalization or other change in the capital structure of Company, this
Option and the Option price shall be equitably adjusted and, in lieu of issuing
fractional shares upon exercise thereof, this Option (and the corresponding
Option Shares) shall be rounded upward or downward to the nearest whole share
(rounding upward for all amounts equal to or in excess of .51). In particular,
without affecting the generality of the foregoing, Optionee understands that for
the purposes of Sections 3 through 5 hereof, inclusive, maintaining or being
involved in a Business Relationship with Company includes maintaining or being
involved in a Business Relationship with a Related Corporation (as defined in
the Plan).
15. WITHHOLDING TAXES. Optionee hereby agrees that Company may withhold
from Optionee's wages or other remuneration the appropriate amount of federal,
state and local taxes attributable to Optionee's exercise of
<PAGE> 32
Page 5
any installment of this Option. At Company's discretion, the amount required to
be withheld may be withheld in cash from such wages or other remuneration, or in
kind from the Common Stock otherwise deliverable to Optionee on exercise of this
Option. Optionee further agrees that, if Company does not withhold an amount
from Optionee's wages or other remuneration sufficient to satisfy Company's
withholding obligation, Optionee will reimburse Company on demand, in cash, for
the amount underwithheld.
16. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT: If Optionee desires to sell all or any part of
the Option Shares acquired under this Option (including any securities
received in respect thereof pursuant to any stock dividend, stock split,
reclassification, reorganization, recapitalization and the like), and an
Offeror (the "Offeror") has made an offer therefor, which offer Optionee
desires to accept, Optionee shall: (i) obtain in writing an irrevocable and
unconditional bona fide offer (the "Bona Fide Offer") for the purchase
thereof from the Offeror; and (ii) give written notice (the "Option
Notice") to Company setting forth his desire to sell such Option Shares,
which Option Notice shall be accompanied by a photocopy of the original
executed Bona Fide Offer and shall set forth at least the name and address
of the Offeror and the price and terms of the Bona Fide Offer. Upon receipt
of the Option Notice, Company shall have an assignable option to purchase
any or all of such Option Shares specified in the Option Notice, such
option to be exercisable by giving, within 30 days after receipt of the
Option Notice by Company, a written counter-notice to Optionee. If Company
elects to purchase any or all of such Option Shares, it shall be obligated
to purchase, and Optionee shall be obligated to sell to Company, such
Option Shares at the price and terms indicated in the Bona Fide Offer
within 60 days from the date of receipt by Company of the Option Notice.
(b) SALE OF OPTION SHARES TO OFFEROR: Optionee may sell, pursuant to the
terms of the Bona Fide Offer, any or all of such Option Shares not
purchased or agreed to be purchased by Company for 60 days after the
expiration of the 30-day period during which Company may give the aforesaid
counter-notice; provided, however, that Optionee shall not sell such Option
Shares to the Offeror if the Offeror is a competitor of Company and Company
gives written notice to Optionee, within 30 days of its receipt of the
Option Notice, stating that Optionee shall not sell his Option Shares to
the Offeror; and provided, further, that prior to the sale of such Option
Shares to the Offeror, the Offeror shall execute an agreement with Company
pursuant to which the Offeror agrees to be subject to the restrictions set
forth in this Section 16. If any or all of such Option Shares are not sold
pursuant to a Bona Fide Offer within the time permitted above, the unsold
Option Shares shall remain subject to the terms of this Section 16.
<PAGE> 33
Page 6
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE: If there shall be any
change in the Common Stock of Company through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination or
exchange of shares, or the like, the restrictions contained in this Section
16 shall apply with equal force to additional and/or substitute securities,
if any, received by Optionee in exchange for, or by virtue of his ownership
of, the Option Shares.
(d) FAILURE TO DELIVER OPTION SHARES: In the event Optionee fails or
refuses to deliver on a timely basis duly endorsed certificates
representing Option Shares to be sold to Company pursuant to this Section
16, Company shall have the right to deposit the purchase price for the
Option Shares in a special account with any bank or trust company in the
State of Massachusetts giving notice of such deposit to Optionee, whereupon
such Option Shares shall be deemed to have been purchased by Company. All
such Moines shall be held by the bank or trust company for the benefit of
Optionee. All monies deposited with the bank or trust company but remaining
unclaimed for two (2) years after the date of deposit shall be repaid by
the bank or trust company to Company on demand, and Optionee shall
thereafter look only to Company for payment. Company may place a legend on
any stock certificate delivered to Optionee reflecting the restrictions on
transfer provided in this Section 16.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The refusal rights
is of Company forth above shall remain in effect until such time, if ever,
as a distribution to the public is made of shares of Company's Common Stock
for an aggregate public offering price of at least $5,000,000 or more
pursuant to a registration statement filed under the Securities Act of
1933, as amended, or a successor statute, at which time the refusal rights
of Company set forth herein will automatically expire.
17. NO EXERCISE OF OPTION IF EMPLOYMENT TERMINATED FOR MISCONDUCT. If the
employment or engagement of Optionee is terminated for "Misconduct", this Option
shall terminate on the date of such termination and this Option shall thereupon
not be exercisable to any extent whatsoever. "Misconduct" is conduct, as
determined by the Board of Directors, involving one or more of the following:
(i) disloyalty, gross negligence, dishonesty or breach of fiduciary duty to
Company; or (ii) the commission of an act of embezzlement, fraud or deliberate
disregard of the rules or policies of Company which results in loss, damage or
injury to Company; or (iii) the unauthorized disclosure of any trade secret or
confidential information of Company; or (iv) the commission of an act which
constitutes unfair competition with Company or which induces any customer of
Company to break a contract with Company; or (v) the substantial and continuing
failure of Optionee to render services to Company in accordance with his
assigned duties, as determined by two-thirds of the members of the Board of
Directors. In making such determination, the Board of Directors shall act fairly
and in utmost good faith.
<PAGE> 34
Page 7
18. COMPANY'S RIGHT OF REPURCHASE. Company shall enjoy a right to
repurchase Option Shares as follows:
(a) EVENTS OF REPURCHASE. Company may exercise the Repurchase Option in
the event that any of the following shall occur:
(i) The receivership, bankruptcy or other creditor's proceeding
regarding Optionee or the taking of any of Optionee's Option Shares by
legal process, such as a levy of execution;
(ii) Distribution of shares held by Optionee to his spouse as such
spouse's joint or community interest pursuant to a decree of
dissolution, operation of law, divorce, property settlement agreement or
for any other reason, except as may be otherwise permitted by Company;
(iii) The termination of Optionee's engagement with Company or any
related corporation, whether voluntarily or involuntarily, for any
reason, prior to the time this Option shall be fully vested in Section 3
hereof; or
(iv) The termination of the employment or engagement of the
Optionee for "Misconduct" as defined in Section 17.
(b) EXERCISE. If any of the events specified in Section 18(a) above
occur, then,
(i) with respect to Option Shares acquired upon exercise of this
Option prior to the occurrence of such event, within 90 days after
Company receives actual knowledge of the event, and
(ii) with respect to Option Shares acquired upon exercise of this
Option after the occurrence of such event, within 90 days following the
date of such exercise,
(in either case, the "Repurchase Period"), Company shall have the
option, but not the obligation, to repurchase any or all the Option Shares from
Optionee, or his legal representatives, as the case may be (the "Repurchase
Option"). The Repurchase Option shall be exercised giving Optionee, or his legal
representative, written notice on or before the last day of the Repurchase
Period, and, together with such notice, tendering to Optionee, or his legal
representative, an amount equal to the higher of (i) the option price or (ii)
the fair market value of the Option Shares. Company may designate one or more
nominees to purchase the shares either within or without the Company. Upon
timely exercise of the Repurchase Option, Optionee, or his legal representative,
shall deliver to Company the stock certificate or certificates representing the
Option Shares, duly endorsed, free and clear of any and all liens, charges
<PAGE> 35
Page 8
and encumbrances. If the Option Shares are not purchased under the
Repurchase Option, Optionee and his successor in interest, if any, will
hold any of the Option Shares in his possession subject to all of the
provisions of this Agreement.
(c) DETERMINATION OF FAIR MARKET VALUE: The fair market value of the
Option Shares, as used in this Section, shall be determined on the basis of
the price per share at which shares of the Common Stock could reasonably be
expected to be sold in an arms-length transaction, for cash, other than on
an installment basis, to a person not employed by, controlled by, in
control of or under common control with Company. Fair market value shall be
determined by the Board of Directors, giving due consideration to recent
grants of incentive stock options for shares of Common Stock, recent
transactions involving shares of the Common Stock, if any, earnings of
Company to the date of such determination, projected earnings of Company,
the effect of the transfer restrictions to which the Option Shares are
subject under law and this Agreement, the absence of a public market for
the Common Stock and such other matters as the Board of Directors deems
pertinent. If the Common Stock of Company is traded on any national
securities exchange or the NASDAQ Interdealer Quotation System, fair market
value shall be (i) the average of the high and low closing sale prices, or
(ii) the average of the last reported sale price on the NASDAQ National
Market System, or (iii) the average of the closing bid prices for the
twenty (20) consecutive trading days preceding the date Company exercises
its Repurchase Option and tenders payment for the Option Shares. The
determination by the Board of Directors of the fair market value shall be
conclusive and binding. The fair market value of the Option Shares shall be
determined as of the day on which the event occurs.
19. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Massachusetts.
IN WITNESS WHEREOF Company and Optionee have caused this instrument to be
executed, and Optionee whose signature appears below acknowledges receipt of a
copy of the Plan and acceptance of an original copy of this Agreement.
Signature of Optionee: BITSTREAM INC.:
By:
- ----------------------------- ---------------------------
Name:
Title: President
<PAGE> 1
EXHIBIT 10.3
BITSTREAM INC
AGREEMENT AND PLAN OF RECAPITALIZATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Description Page
- ------- ----------- ----
<S> <C> <C>
RECITALS 1
SECTION 1 COVENANTS BY STOCKHOLDERS 4
1.1. Waiver of Redemption. 4
1.2. Liquidation. 4
1.3. Cancellation and Restatement of Shareholder Agreements. 4
1.4. Confidential Information. 4
1.5. Certain Provisions Regarding Transfers by Regulated Shareholder. 5
SECTION 2 PLAN OF REORGANIZATION OF THE COMPANY 6
2.1. Charter Amendment. 6
2.2. Recapitalization Date. 7
2.3. Stock Certificates. 7
2.4. Conversion of Old Stock into New Stock. 7
2.5. Conversion Chart. 8
2.6. Exchange of Stock Certificates. 8
2.7. Automatic Effect. 9
2.8. No Fractional Shares. 9
2.9. Warrants and Options. 9
2.10. New Option Shares. 9
2.11. Tax Treatment. 9
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 10
3.1. Organization and Standing. 10
3.2. Corporate Action. 10
3.3. Governmental Approvals. 10
3.4. Restrictions Upon Transfer of Capital Stock. 10
3.5. Financial Information. 10
3.6. Deferral of Repurchase (re the "Regulated Shareholders"). 11
3.7. Repurchase of Certain Shares Held by Regulated Shareholder. 12
SECTION 4 COVENANTS OF THE COMPANY 13
4.1. Quarterly Financial Statements. 13
4.2. Maintenance of Records, Inspection. 13
4.3. Board of Directors' Meetings 13
</TABLE>
<PAGE> 2
Agreement and Plan of Recapitalization Page ii
Bitstream Inc. Effective Date: October 28, 1994
<TABLE>
<CAPTION>
Section Description Page
- ------- ----------- ----
<S> <C> <C>
4.4. Adjustment of Thresholds. 13
4.5. Assignment of Rights to Information. 13
4.6. Termination of Covenants. 14
SECTION 5 RIGHT OF CO-SALE 14
5.1. Agreement to Sell. 14
5.1.1. Notice. 14
5.1.2. Terms of Co-Sale Right. 14
5.1.3. Response by Co-Sale Shareholders. 14
5.1.4. Transfers for Other than Value. 14
5.2. Exceptions. 15
SECTION 6 PREEMPTIVE RIGHTS 15
6.1. Preemptive Rights. 15
6.2. Exceptions. 16
6.3. Issuances to Regulated Shareholders. 17
SECTION 7 REGISTRATION 17
7.1. Piggyback Registration. 17
7.1.1. Inclusion in Registration. 17
7.2. Required Registration. 18
7.3. Registration on Form S-3. 18
7.4. Effectiveness. 18
7.5. Indemnification. 18
7.6. Exchange Act. 20
7.7. Damages. 21
7.8. Further Obligations of the Company. 21
7.9. Expenses. 22
SECTION 8 DEFINITIONS 22
8.1. "Affiliate" 22
8.2. "Person" 22
8.3. "Regulated Shareholder" 22
SECTION 9 MISCELLANEOUS 23
9.1. Survival. 23
9.2. No Waiver 23
9.3. Amendments, Waivers, and Consents. 23
9.4. Notices. 23
9.5. Costs, Expenses and Taxes. 23
9.6. Brokers, etc. 23
9.7. Binding Effect 24
9.8. Governing Law. 24
</TABLE>
<PAGE> 3
Exhibit 10.3
BITSTREAM INC.
AGREEMENT AND PLAN OF RECAPITALIZATION
This is an agreement and plan of recapitalization with an effective
date of October 28, 1994 by and among Bitstream Inc., a Massachusetts
corporation first organized on December 7, 1981, and having its principal place
of business at 215 First Street, Cambridge, Mass. 02142 (the "Company") and the
undersigned holders of its Classes H & I Series of Preferred Stock (the "H & I
Stockholders"), its Classes F & G Series of Preferred Stock (the "F & G
Stockholders").
RECITALS
A. The total number of shares of all classes of stock as of
the Effective Date that the Company has authority to issue consists of
37,079,820 shares (all having a $.01 per share value), as follows:
<TABLE>
<CAPTION>
Common:
<S> <C>
Class A 24,000,000
Class B 2,000,000
Class C (Nonvoting) 2,094,446
Preferred:
Class A 1,000,000
Class B 2,000,000
Class C 688,952
Class D 154,332
Class E (Nonvoting) 361,984
Class F 2,800,000
Class G (Nonvoting) 880,116
Class H 1,000,000
Class I 100,000
----------
Total 37,079,830
</TABLE>
B. The stockholders of the Company and the outstanding shares
owned by them are as listed on Schedule B hereto (said shares sometimes
referred to hereinafter as "Old Stock");
C. On April 29, 1993, in connection with the Series H &I
Offering referred to below, the Series F and G investors received an
amendment of their investment agreement to double their number of share
and warrant units that they had received initially in their November
1992 offering;
<PAGE> 4
Agreement and Plan of Recapitalization Page 2
Bitstream Inc. Effective Date: October 28, 1994
D. The Company in the H and I offering, in order to raise
additional capital on an emergency basis, amended its Articles of
Organization to grant both the Series F and G and the new Series H and
I investors a liquidation preference that held priority over all common
stock and all prior preferred stock, and more than 2/3 of each class of
stock outstanding approved both amendments;
E. Pursuant to the Series F through I liquidation preferences,
in the event of a triggering event under Section 3. of Article 4 of the
amended Articles, the Series F through I stockholders would be paid
their full liquidation preferences prior to any payments to the junior,
Class A through E preferred stockholders in the amounts of $1.00 per
share for the Series F and G and $3.00 per share for the Series H and
I;
F. The April 29, 1993 stock purchase agreement gave the new,
Series H Preferred Stockholders the ability to require the Company to
redeem their 685,690 shares for $3.00 each as of October 31, 1994,
representing a total potential payment of $2,057,070, and the Series I
Preferred Stockholders the ability to require a redemption payment of
$300,000 as of October 31, 1998;
G. The Company recently conducted extensive, but ultimately
unsuccessful efforts to find a buyer for its operations, and currently
has a negligible to negative book value and the Directors therefore
anticipate that the Company will be incapable of paying the H
stockholders any material amount of their redemption, and have informed
the H stockholders of that fact;
H. The H Stockholders hold the right to take over the board of
Directors of the Company, and to take any other actions necessary to
enable them to enforce the redemption, and they acquired and are
holding the proxies from more than 2/3 of each class of stock
outstanding to enable the Chairman of the Board or the President to
vote the shares at the direction of 51% or more of the number of shares
of the Company's Class H Preferred Stock voting in any matter that the
holders of Class H Preferred Stock are entitled to vote (including,
without limitation, any vote of holders of the capital stock of the
Company upon a merger or sale of the Company or of all or substantially
all of the Company's assets and business or an amendment of the
Company's Amended Articles of Organization) (copy of proxy attached as
Exhibit H);
I. The H Stockholders have informed the Company that, unless
they and the Company can agree to an alternative to the redemption, the
H Stockholders will proceed to take all such actions as are necessary
and allowable under the terms of their redemption agreement and proxy;
<PAGE> 5
Agreement and Plan of Recapitalization Page 3
Bitstream Inc. Effective Date: October 28, 1994
J. Despite showing an operating profit over the last three
quarters as a result of the drastic restructuring of its operations,
the Company will continue to need all of its available cash on hand (an
amount that in any event will equal substantially less than $2,057,070
as of October 31, 1994) for the foreseeable future to continue to pay
off its creditors, fund its ongoing operations, and fund a modest
expansion to support its TrueDoc(TM) initiative;
K. Despite the Company's inability to pay a material portion
of the redemption amount, the H Stockholders have informed the Company
that they recognize that it is not in their or the Company's best
interests vigorously to pursue its collection, and have decided instead
to waive their redemption rights provided that the Company effects a
recapitalization that reflects their current liquidation preferences by
increasing their stock ownership in the recapitalized company, and also
reserves a certain amount of stock for the issuance upon exercise of
options and warrants to be granted as incentive compensation to
employees and outside service providers;
L. The I Stockholder also is willing to waive its future
redemption right subject to the recapitalization;
M. By the same token, the F, G, H & I Stockholders are willing
to deem any and all of their liquidation preferences satisfied that
might be triggered by the recapitalization;
N. Despite the failure of efforts to sell the Company and its
negligible book value, the stockholders and directors have agreed to
establish a value for the Company of approximately $5 million;
O. The Board of Directors believes that would assist the
Company in obtaining future debt and equity financing to simplify its
capital structure and reduce its existing eleven classes of stock down
to a minimum that is acceptable to its shareholders (including G
Preferred stockholder J.P. Morgan Capital Corporation which may own no
more than 5% of the voting stock of a corporation due to United States
banking laws);
P. Upon the completion of the proposed plan of
recapitalization, the undersigned F, G, H & I Stockholders will
represent the holders of a majority of the shares of New Stock
outstanding; and
Q. In the unanimous opinion of the Board of Directors, the
proposed plan of recapitalization will strengthen the equity
capitalization of the Company, and inure to the advantage and welfare
of the Company and its stockholders.
<PAGE> 6
Agreement and Plan of Recapitalization Page 4
Bitstream Inc. Effective Date: October 28, 1994
NOW THEREFORE, in consideration of the premises and the mutual
undertakings of the parties hereinafter set forth, the Company hereby adopts and
the H & I Stockholders and the F & G Stockholders hereby agree to the following
plan of recapitalization, and accept the rights conferred herein on behalf of
all of the stockholders of the Company:
SECTION 1
COVENANTS BY STOCKHOLDERS
1.1. Waiver of Redemption. Subject to the following sentence, the
undersigned H & I Stockholders, constituting the holders of more than 51% of the
outstanding H & I Stock, hereby waive any right of redemption that they may have
or had under the unamended Articles of Organization, subject to final approval
of this plan and the filing and effectiveness of the Amended Articles of
Organization referred to in the following Section 2. If the stockholders do not
approve this plan and agreement as of the Recapitalization Date, the H
Stockholders accordingly reserve the right to call for the redemption of their
shares on the Recapitalization Date and, upon the failure of the Company to
redeem, to exercise the proxies they now hold for the purpose of voting the
approval of this plan and agreement by the stockholders of the Company.
1.2. Liquidation. The undersigned F, G, H & I Stockholders hereby
covenant and agree that any and all rights that they may have or had under
Section 4.b.3. of the unamended Articles of Organization upon the effectiveness
of this plan and agreement to receive payment of any liquidation preference are
hereby deemed to be fully satisfied, subject to the full and final approval of
this Plan and Agreement of Recapitalization, and the filing and effectiveness of
the newly Amended Articles of Organization referred to in the following Section
2.
1.3. Cancellation and Restatement of Shareholder Agreements. As of the
Effective Date, the Company and the F, G, H & I Stockholders hereby waive and
cancel all rights held by the Company and said stockholders under any and all
outstanding prior stockholder agreements in return for the stockholder rights
stated herein and in the Amended Articles of Organization subject to completion
of the recapitalization provided for herein by the Recapitalization Date.
1.4. Confidential Information. The stockholders understand that certain
information that such stockholders will receive from the Company may constitute
confidential information of the Company (the "Confidential Information"). The
stockholders shall not disclose any such information identified to them in
writing as Confidential information except to those employees or independent
contractors of the stockholders who participate directly in the supervision and
review of the stockholders' investment in the Company or as required by law. The
stockholders shall take all reasonable steps necessary to protect the
Confidential Information, including, without
<PAGE> 7
Agreement and Plan of Recapitalization Page 5
Bitstream Inc. Effective Date: October 28, 1994
limitation, such steps as are equivalent to those used by the stockholders with
regard to their own Confidential Information.
1.5. Certain Provisions Regarding Transfers by Regulated Shareholder.
The undersigned Regulated Shareholder agrees and covenants as follows:
1.5.1. No shareholder that is a Regulated Shareholder (as
defined in Definitions section) may sell, assign, pledge, encumber or
otherwise transfer any shares of Class B Common or Class B Preferred
New Stock, or warrants for the purchase of the same (collectively, the
"Class B Shares"),except
(i) to the Company;
(ii) to other shareholders of the Company pursuant to
any contractual right of first offer existing in favor of
shareholders at the time of such transfer,
(iii) to an Affiliate of such Regulated Shareholder,
(iv) in connection with any merger, consolidation or
reorganization of the Company or sale of more than 50% of the
outstanding Common Stock of the Company (collectively, a
"reorganization"),
(v) in a registered public offering or a sale
pursuant to Rule 144 under the Securities Act (or any
successor rule or regulation),
(vi) in a private sale (otherwise than to the
Company, another shareholder as set forth in exception (ii)
above, an Affiliate or in a reorganization or public offering
or sale), provided that the Regulated Shareholder (A) shall
have first offered to the Company the right to purchase all of
such Class B Shares pursuant to a written offer that shall
have been open to acceptance for a period of at least ten
days, for cash at a price that did not exceed the price
obtained in the private sale, and (B) shall not knowingly sell
or otherwise transfer to any single person or group of persons
acting in concert a number of shares of Class B Shares that,
if converted into Class A Common Stock would represent more
than 2 percent of the shares of Class A Common Stock then
outstanding; or
(vii) upon the advice of counsel to such Regulated
Shareholder that such sale or other transfer is permitted
under the laws and regulations applicable to such Regulated
Shareholder.
<PAGE> 8
Agreement and Plan of Recapitalization Page 6
Bitstream Inc. Effective Date: October 28, 1994
1.5.2. Anything in this Agreement to the contrary
notwithstanding, in the event that it becomes unlawful for any
Regulated Shareholder to continue to hold some or all of the
New Stock or warrants held by it (or shares issued on
conversion of either of them) ("Shares"), or restrictions are
imposed on any such holder by any statute, regulation or
interpretation or decision of any governmental authority
which, in the reasonable judgment of such holder, make it
unduly burdensome to continue to hold such Shares, such holder
may sell or otherwise dispose of its Shares, and the Company
shall assist such Regulated Shareholder in disposing of its
Shares in a prompt and orderly manner, and, at the request of
such holder, shall provide (and authorize such Regulated
Shareholder to provide) financial and other information
concerning the Company to any prospective purchaser of the
Shares, provided, however, that any such prospective purchaser
shall enter into an agreement in writing with the Company to
keep such information confidential. Such Regulated Shareholder
shall reimburse the Company for all reasonable expenses
incurred by the Company in connection with the Company's
assistance of such holder hereunder.
SECTION 2
PLAN OF REORGANIZATION OF THE COMPANY
The following actions shall occur upon the final approval of this Plan of
Recapitalization:
2.1. Charter Amendment. The Amended Articles of Organization of the
Company, a copy of which is annexed hereto as Exhibit 2.1, shall be filed with
the Secretary of State of the Commonwealth of Massachusetts no later than
November 21, 1994. The said Articles shall, as of the Recapitalization Date,
revise the number of classes of common stock as follows:
2.1.1. Reduce the three common classes "A" through "C" to two
new classes "A" and "B" (referred to hereinafter as the "Common Stock"
or "Common New Stock"),
2.1.2. Reduce the current nine classes of preferred stock ("A"
through "I") to two (classes "A" and "B") (referred to hereinafter as
the "Preferred Stock" or "Preferred New Stock").
2.1.3. Each new class shall have $.01 per value and such
preferences, voting powers, qualifications, special or relative rights
or privileges as are set forth in Section 4 of the said Amended
Articles ("New Stock").
2.1.4. Class B New Stock shall be nonvoting (for the purposes
of the current Regulated Shareholder, and will be convertible subject
to
<PAGE> 9
Agreement and Plan of Recapitalization Page 7
Bitstream Inc. Effective Date: October 28, 1994
certain conditions, but are intended to be identical to Class
A Common and Class A Preferred, respectively in every other
material respect.
2.2. Recapitalization Date. The Recapitalization Date shall be
November 21, 1994. All the transactions described in this Section 2
shall be deemed to have been completed and effective as of the
Recapitalization Date.
2.3. Stock Certificates. Certificates representing the New
Stock issued hereunder shall bear legends substantially as follows:
- For both Common & Preferred New Stock:
"The shares evidenced by this certificate
(a) have not been registered under the
Securities Act of 1933, as amended (the
"Act"), and such shares cannot be sold,
transferred or hypothecated unless and until
a registration statement under the Act goes
into effect as to such transfer or the
Corporation has received an opinion of
counsel acceptable in form and substance to
the Corporation that such registration is
not required in order for such transfer to
comply with the Act,
(b) are subject to restrictions on transfer
contained in the Amended Articles of
Organization filed with the Secretary of
State of the Commonwealth (Rights of First
Purchase),"
(c) represent one of several classes of stock of
the Corporation. The full text of the
designations, preferences, powers, and
special and relative rights of the shares of
each such class and series of stock, as set
forth in the Amended Articles of
Organization, will be furnished to the
holder of this certificate upon written
request to the Corporation and without
charge
- and for Preferred New Stock only:
"(c) are subject to restrictions on transfer
contained in The Plan and Agreement of
Reorganization dated October 26, 1994,
Section 5 (Rights of Co-Sale)."
2.4. Conversion of Old Stock into New Stock. On the
Recapitalization Date, all of the outstanding shares of the
Corporation's capital stock shall be converted automatically as
follows:
- Shares of Classes A & B Common Old Stock and A, B, C,
& D Preferred Old Stock shall become shares of a
single Class A Common Stock
<PAGE> 10
Agreement and Plan of Recapitalization Page 8
Bitstream Inc. Effective Date: October 28, 1994
- Shares of Class C Common Old Stock and Class E
Preferred shall become shares of a single class of
Class B Common New Stock (nonvoting);
- Preferred Classes F, H & I of Old Stock shall become
shares of a single class of Class A Convertible
Preferred New Stock; and
- Preferred Class G of Old Stock shall become shares of
a single class of Class B Convertible Preferred New
Stock (nonvoting).
2.5. Conversion Table. The actual conversion shall occur according to
the following chart with respect to all shares of stock outstanding:
<TABLE>
<CAPTION>
Shares of Shares of
Class of Old Stock Class of New Stock Subtotals of Split
Old Stock Outstanding New Stock Outstanding New Stock Ratio (%)
- --------- ----------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
New Common:
To Board of
Directors: 'A' Common 180,000 N/A
A Common 1,842,700 'A' Common 122,846 6.66667
B Common 0 'A' Common 0 N/A
A Preferred 955,180 'A' Common 63,678 6.66667
B Preferred 0 'A' Common 0 6.66667
C Preferred 688,952 'A' Common 45,930 Tot. A Common 6.66667
D Preferred 154,321 'A' Common 10,288 422,742 6.66667
--------- ---------
C Common* 332,461 'B' Common* 22,164 Tot. B Common 6.66667
E Preferred* 361,983 'B' Common* 24,132 46,296 6.66667
--------- ---------
New Preferred:
F Preferred 1,831,800 'A' Preferred 1,831,800 100.00000
H Preferred 685,690 'A' Preferred 2,057,070 Tot. A Preferred 300.00000
I Preferred 100,000 'A' Preferred 300,000 4188,870 300.00000
--------- ---------
G Preferred* 586,744 'B' Preferred* 586,744 B Pref'd: 586,744 100.00000
--------- --------- ---------
Totals: 7,539,831 5,244,652 5,244,652
------
</TABLE>
2.6. Exchange of Stock Certificates. Promptly after the
Recapitalization Date, each stockholder shall surrender to the Company
certificates representing all of its or his shares of Old Stock in exchange by
for the issuance the Company of the shares listed above as New Stock.
2.7. Automatic Effect. In the case of any Old Stock for which the
Company does not receive and exchange the certificate, the existing certificate
for such Old Stock nonetheless shall be deemed automatically to represent
converted shares of the New Stock equal to the integer obtained by
- -------------------
*Nonvoting stock
<PAGE> 11
Agreement and Plan of Recapitalization Page 9
Bitstream Inc. Effective Date: October 28, 1994
multiplying the applicable Split Ratio times the number of shares of Old Stock
held as of the Recapitalization Date of this Plan. Attached as Schedule 2.7 is a
listing of the resulting holdings of New Stock of each shareholder after the
Recapitalization Date.
2.8. No Fractional Shares. Where the application of the Split Ratio to
the Old Stock results in a fractional (decimal) number, the holder shall receive
a cash payment equal to fractional number minus its integer.
2.9. Warrants and Options. All outstanding warrants and options for Old
Stock shall, as of the Recapitalization Date, become exercisable automatically
for New Stock of the appropriate class in the Split Ratio stated above. The
Company will issue new warrants and options at the appropriate ratio to any
holder who turn its or his old ones.
2.10. New Option Shares. In order to provide further incentives to
retain and motivate key employees and service providers, and to implement the
equivalent of its management incentive plan of March 1994, which contemplated
substantial payments by the Company to key employees in the event that the
Company were to be sold or merged for proceeds in excess of $3 million, the
Company shall reserve an additional 2,750,000 shares of Common New Stock for
issuance under an Incentive Stock Option Plan both to the participants in the
said incentive plan and to additional key employees on an as needed basis, and
under warrants for issuance to key outside service providers (consultants,
directors, etc.) whose continued efforts and loyalty are deemed vital to the
continued turnaround and resumed success of the Company (the "New Option
Shares").
2.11. Tax Treatment. This Agreement and Plan of Recapitalization is
intended to take effect as a plan of reorganization within the meaning of
Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended.
////////////
<PAGE> 12
Agreement and Plan of Recapitalization Page 10
Bitstream Inc. Effective Date: October 28, 1994
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as follows:
3.1. Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the Commonwealth of Massachusetts and has all requisite and corporate power and
authority to own and operate its property and to carry on its business as now
conducted and as now proposed to be conducted. The Company is duly licensed or
qualified to do business in each jurisdiction where the ownership or leasing of
property or the nature of the activities conducted by it makes such
qualification necessary.
3.2. Corporate Action. The Company holds all necessary corporate power
and has taken all corporate action required to make all the provisions of this
Agreement and any other agreement and instrument executed in connection herewith
the valid and enforceable obligations they purport to be. Sufficient shares of
authorized but unissued Common Stock and Preferred Stock of the Company have
been reserved by appropriate corporate action in connection with the issuance of
the shares of Preferred Stock hereunder. Upon issuance, the shares of Preferred
Stock to be issued hereunder, and the shares of Common Stock issuable upon the
conversion of such Preferred Stock will not fall subject to preemptive or other
preferential rights or similar statutory or contractual rights, either arising
pursuant to any agreement or instrument to which the Company is a party or which
are otherwise binding upon the Company.
3.3. Governmental Approvals. No authorization, consent, approval,
license, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for or in connection with the execution or delivery by the
Company of this Agreement or the issuance by the Company of the Preferred Stock
to be issued hereunder other than the filing of the Amended Articles of
Organization.
3.4. Restrictions on Transfer of Capital Stock. There are no general
restrictions on the transfer of shares of the Common or Preferred Stock of the
Company, other than those (a) imposed on the stockholders pursuant to the
provisions of Sections 7.1 & 7.2 hereof, (b) that may be set forth on the stock
certificates in accordance with Section 2.3 hereof, or (c) are imposed by
relevant domestic and foreign securities laws.
3.5. Financial Information. Copies of the financial statements of the
Company have previously been provided to all holders of stock of the Company for
the twelve-month period ended September 30, 1993 and for the eleven-month period
ended August, 1994. An additional, unaudited financial
<PAGE> 13
Agreement and Plan of Recapitalization Page 11
Bitstream Inc. Effective Date: October 28, 1994
statement for the month of September, 1994 is also provided herewith (copies
will be attached to the final, executed version of this Agreement as Exhibit
3.5).
3.5.1. Audited Statements. The financial statements for the
twelve-month period ended September 30, 1993 present fairly the
financial position of the Company as at the dates thereof and its
results of operations for the periods covered thereby and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis. The Company bears no liability,
contingent or otherwise, not disclosed in the aforesaid audited
financial statements or in the notes thereto that could, together with
all such other liabilities, materially affect the financial condition
of the Company, nor does the Company have any reasonable grounds to
know of any such liability.
3.5.2. Recent, Unaudited Statements. The financial statements
attached for the twelve-month period ended September, 1994 are
estimated, have not been audited, and are subject to year-end
adjustments that may include normal recurring items and certain
anticipated, one-time restructuring charges. The Fiscal Year 1995
Budget that is also attached is merely a projection, and no assurance
can be given that it will correspond to actual Fiscal Year 1995 events.
3.5.3. Financial Changes. Since the date of said financial
statements, (a) there has been no material adverse change in the
business, assets or condition, financial or otherwise, operations or
prospects of the Company; and (b) to the best of the Company's
knowledge, neither the business, condition, operations, or prospects of
the Company nor any of its properties or assets has been materially
adversely affected as the result of any legislative or regulatory
change, any revocation or change in any franchise, license or right to
do business, or any other event or occurrence, whether or not insured
against.
3.6. Deferral of Repurchase (re the "Regulated Shareholders"). The
Company shall not directly or indirectly convert, redeem, purchase or otherwise
acquire any shares of any class of Common Stock or Preferred Stock of the
Company unless the Company gives prior written notice (the "Company Notice") of
such action to each Regulated Shareholder (as defined at Section 8). The Company
will defer making any such conversion, redemption, purchase or other acquisition
for a period of 10 business days after the giving of such notice in order to
allow each Regulated Shareholder to determine whether it wishes to convert or
take any other action with respect to the stock of the Company that it owns or
controls. The Company Notice shall be deemed given when received by each
Regulated Shareholder and may, if the Company so elects, be sent to such
Regulated Shareholder by telefax. The Company Notice shall contain a statement
as to (i) the total number of shares of each class of Common Stock and or
Preferred Stock of the Company to be converted, redeemed, purchase d or
otherwise acquired and (ii) the total number of
<PAGE> 14
Agreement and Plan of Recapitalization Page 12
Bitstream Inc. Effective Date: October 28, 1994
shares of each class of Common Stock and or Preferred Stock of the Company that
will be outstanding immediately following such conversion, redemption, purchase,
or other acquisition.
3.7. Repurchase of Certain Shares Held by Regulated Shareholder. In the
event that the Company proposes a redemption, purchase or other acquisition
("Share Purchase"): (i) any shares of any class of Common Stock of the Company
or (ii) any shares of any class of Preferred Stock of the Company where as a
result of such Share Purchase of Preferred Stock any Regulated Shareholder is
required to convert any shares of Preferred Stock of the Company or warrants for
such shares then held by such Regulated Shareholder into shares of Common Stock
in order to remain in compliance with any law, rule, regulation, interpretation
or other requirement of any Person at the time applicable to such Regulated
Shareholder; and as a result of any such Share Purchase, the number of
outstanding shares of Common Stock of the Company held by any Regulated
Shareholder plus the number of such shares issuable upon exercise of outstanding
warrants therefor held by such Regulated Shareholder, together with those held
by its Affiliates would constitute more than 24.9% of the total number of shares
of Common Stock then outstanding (the "Maximum Permitted Percentage") (any such
Share Purchase shall hereinafter be referred to as a "24.9% Transaction"), such
Regulated Shareholder shall have the right to require the Company to purchase
such number of shares (or any portion thereof) of Common Stock held by such
holder as would be necessary to maintain such holder's aggregate holdings at the
Maximum Permitted Percentage following the execution of such 24.9% Transaction
(the "Excess Shares"). The purchase price per share for the Excess Shares shall
be equal to (i) $.60 in the case of Common Stock and (ii) $1.00 in the case of
Preferred Stock (both as adjusted accordingly for any stock splits up or splits
down, stock dividends or other recapitalizations of the company occurring after
the Recapitalization Date). The sale of any Excess Shares elected to be sold
shall occur prior to or concurrent with the proposed 24.9% Transaction and shall
be made upon surrender by such Regulated Shareholder of the certificates
evidencing such Excess Shares (accompanied by appropriate stock transfer powers)
against full payment by the Company payable to the order of such Regulated
Shareholder or, at the request of any such holder, by wire transfer of
immediately available funds to a bank designated by such holder.
///////////
<PAGE> 15
Agreement and Plan of Recapitalization Page 13
Bitstream Inc. Effective Date: October 28, 1994
SECTION 4
COVENANTS OF THE COMPANY
(Applicable to Stated Share Thresholds)
4.1. Quarterly Financial Statements. The Company will furnish or cause
to be furnished as soon as available, copies of any quarterly financial
statements prepared by the Company for internal purposes to holders of greater
than 5,000 shares of the New Stock of the Company.
4.2. Maintenance of Records, Inspection. The Company will keep complete
records and books of account in accordance with generally accepted accounting
principles applied on a consistent basis, and permit representatives of each
holder of greater than 500,000 shares of the Preferred New Stock to examine and
make copies of its records and books of account.
4.3. Board of Directors' Meetings; Discussion of Financial Affairs of
Company with Officers. Each holder of greater than 500,000 shares of the
Preferred New Stock shall be entitled to receive notice of and to attend
meetings of the Board of Directors of the Company and to discuss the financial
affairs of the Company with the Company's officers, and to receive all material
information distributed to members of the Board of Directors when distributed to
such members; provided, that any information disclosed or furnished to such
shareholder (or its or his nominee) which shall have been indicated or
designated as being "Confidential" shall be maintained as confidential and shall
not be disclosed by any shareholder (or its or his nominee) to any other person
except the employees and consultants of such Investor on a need-to-know basis
consistent with the purposes of this Agreement.
4.4. Adjustment of Thresholds. The share thresholds stated herein shall
be adjusted accordingly for any stock splits up or splits down, stock dividends
or other recapitalizations of the company occurring after the Recapitalization
Date.
4.5. Assignment of Rights to Information. The rights granted pursuant
to Sections 4.1 - 4.3. may be assigned or otherwise conveyed by a holder of New
Stock or by any subsequent purchaser or by any subsequent assignee or transferee
of any such rights in connection with a transfer of any of the New Stock;
provided, however, that such assignee or transferee (i) is not itself, does not
control and is not controlled by, directly or indirectly, any competitor or the
Company, (ii) shall agree to be bound by the provisions of Section 1.4 of this
Agreement, and (iii) is subject to the same share ownership limits as provided
in this Section 4 (as adjusted per Section 4.4). The Purchaser or any subsequent
assigned or transferee of such rights shall notify the Company in writing of any
such transfer,
4.6. Termination of Covenants. The covenants in this Section 4 shall
terminate and cease to have any further force and effect upon the date when a
<PAGE> 16
Agreement and Plan of Recapitalization Page 14
Bitstream Inc. Effective Date: October 28, 1994
registration statement on Form S-1 filed by the Company under the 1933
Securities Act in connection with the first underwritten public offering of its
securities becomes effective, provided that at such time the Company falls
subject to the reporting requirements under the 1934 Securities Exchange Act, as
amended.
SECTION 5
RIGHT OF CO-SALE
(Applicable to holders of Preferred Shares)
5.1. Except as provided at Section 5.2 hereto, each holder of shares of
the Preferred New Stock (referred to within this Section as the "Co-Sale
Shareholders") hereby agrees to the following right of co-sale with respect to
any sale or agreement to sell, for value, any shares of Preferred Stock owned by
any holder of shares of the Preferred New Stock (or its or his respective
donees, transferrees, or assignees per Section 5.5 below) (referred to within
this Section as the "Selling Shareholder"):
5.1.1. Notice Required. No Selling Shareholder shall complete
a sale of its or his shares covered by this Section without first
giving written notice in reasonable detail to each other Co-Sale
Shareholder at least 30 days prior to such sale or agreement to sell.
The Selling Shareholder shall follow up the initial notice with
additional 30-day notices in the event of any material changes of the
terms of the offering in price or nature of the securities offered.
5.1.2. Terms of Co-Sale Right. The Selling Shareholder must
afford to each other Co-Sale Shareholder the opportunity to sell in
such offering, on the same terms and price per share at which the
Selling Shareholder intends to sell its or his shares, the number of
shares of Preferred Stock held by such Co-Sale Shareholder that
represents the same proportion of such Co-Sale shareholder's holdings
of Preferred Stock as the number of shares of Preferred Stock to be
sold by the Selling Shareholder bears to the total number of shares of
Preferred Stock then held by the Selling Shareholder.
5.1.3. Response by Co-Sale Shareholders. Each Co-Sale
Shareholder shall have twenty days following receipt of the initial
notice or any subsequent follow up notice from a Selling Shareholder to
respond with a request to participate in the offering on the terms
stated in the notice.
5.1.4. Transfers for Other than Value. Each Co-Sale
Shareholder agrees that it or he will not transfer for other than
value, by gift, assignment or otherwise unless the transferee agrees in
writing with each Co-Sale Shareholder to follow the provisions of this
Section 5.
<PAGE> 17
Agreement and Plan of Recapitalization Page 15
Bitstream Inc. Effective Date: October 28, 1994
5.2. Exceptions to Co-Sale Rights. Notwithstanding anything to the
contrary provided herein, the co-sale rights granted pursuant to this Section 5
shall not apply to:
5.2.1. Sales or agreements to sell less than 100,000 shares of
Preferred Stock during any twelve-month period,
5.2.2. Transfers to the Selling Shareholder's family members
for estate planning purposes, or
5.2.3. Sales or agreements to sell to the Company, or
5.2.4. Sales or agreements to sell to an Affiliate.
SECTION 6
PREEMPTIVE RIGHTS
(Applicable to "Accredited Investors")
6.1. Preemptive Rights. Except as provided in Section 6.2 herein, the
Company grants this right to each shareholder that qualifies as an Accredited
Investor as defined for the purpose of private placements pursuant to Regulation
D (Rules 501 through 506 of the Securities and Exchange Commission), or any
successor provision (an "Accredited Investor") the right to purchase or
otherwise acquire a portion of new securities that the Company may from time to
time propose to issue and sell. These preemptive rights apply to any new
securities that the Company issues after the date hereof up to a limit, with
respect to each Accredited Investor, equal to the percentage of the offering
that such investor's shares bears to the total number of outstanding shares. For
purposes of this Section 6, the term "Newly Issued Securities" shall mean any
capital stock of the Company whether now authorized or not, and any rights,
options or warrants to purchase capital stock and securities convertible into
capital stock other than those excepted by Section 6.2.
6.1.1. Notice. The Company shall give each Accredited Investor
written notice between thirty (30) and ninety (90) days prior to the
proposed date of issuance as stated therein. The Notice shall describe
the type and price of Newly Issued Securities to be issued, and the
general terms upon which the Company proposes to effect their issuance.
The Company shall follow up the initial notice with additional 30-day
notices of any material changes of the terms of the offering in price
or nature of the securities offered.
6.1.2. Accredited Investor Response Required. Each Accredited
Investor must supply the Company with a written response no later than
twenty (20) days after the written notice stating the maximum number of
Newly Issued Securities the Accredited Investor agrees to purchase.
<PAGE> 18
Agreement and Plan of Recapitalization Page 16
Bitstream Inc. Effective Date: October 28, 1994
6.1.3. All Shares Subscribed For. If all of the Newly Issued
Securities are subscribed for pursuant to this provision, then the
Company shall sell the Newly Issued Securities to the Accredited
Investors on the date of issuance as stated in the Notice. If the
number of Newly Issued Securities subscribed for shall exceed the
number offered, the shares to be sold shall be allocated among the
accepting Accredited Investors, insofar as reasonably practicable, in
relation to their then holdings of the Company.
6.1.4. Unsubscribed Shares. If less than all of the shares or
other securities of the Newly Issued Securities are subscribed for,
then the Company may sell all of the shares or other securities of the
Newly Issued Securities to any person, corporation or entity upon the
same price, terms and conditions as set forth in the Notice for a
period of ninety (90) days following the sale dated as set forth in the
Notice.
6.1.5. Loans from Shareholders. The Company and the Accredited
Investors acknowledge that certain of the Accredited Investors have
loaned money to the Company (either directly or by deferring receipt of
compensation income), and that one or more of them may loan money to
the Company in the future. The Company and the Accredited Investors
agree that in the event that any Accredited Investor elects to purchase
any portion of the Newly Issued Securities, he may pay for all or part
of the purchase by canceling all or a part of the debt owed to him or
the Company, even though such debt at the time is not yet due and
payable. The Company agrees that it will accept such cancellation of
debt in lieu of cash.
6.2. Exceptions to Preemptive Rights. Notwithstanding anything to the
contrary provided herein, the preemptive rights granted pursuant to this Section
6 shall not apply to the:
6.2.1. issuance of any securities upon conversion of any class
of convertible Preferred Stock of the Company or any class of Common
Stock into any other securities issued by the Company, or upon the
exercise of any outstanding warrants or options
6.2.2. issuance of any options or warrants for the New Option
Shares (per Section 2.10), or shares pursuant to the same.
6.2.3. sale of securities in a public offering, or
6.2.4. issuance of securities pursuant to any stock dividend
or other pro rata distribution to shareholders declared by the Board of
Directors of the Company.
6.3. Issuances to Regulated Shareholders. At the option of any
Regulated Shareholder, the right to purchase granted hereby may be exercisable
for shares of, or rights or options to purchase shares of or shares
<PAGE> 19
Agreement and Plan of Recapitalization Page 17
Bitstream Inc. Effective Date: October 28, 1994
convertible into or exchangeable for shares of Common Stock or Preferred Stock
of the same class then held by such holder or equivalent non-voting securities.
If the right to purchase granted hereby is exercised for such shares, etc., and
if, because of such exercise, the Company is required to issue a new class or
new classes of non-voting securities, the said Regulated Shareholder shall bear
all fees, costs and expenses of each issuance of a new class or new classes of
non-voting securities, up to a maximum aggregate amount of $5,000.
SECTION 7
REGISTRATION
(Applicable to All New Stock)
7.1. Piggyback Registration. Notice by Company. If at any time or times
after the Recapitalization Date the Company shall determine to register shares
of its Common Stock under the Securities Act (other than (a) the registration of
an offer and sale of securities to employees of or other persons providing
services to the Company pursuant to an employee or similar benefit plan,
registered on Form S-8 or comparable form; or (b) relating to a merger,
acquisition or other transaction of the type described in Securities Act Rule
145 or comparable rule, registered on Form S-14, Form S-15 or similar form), the
Company shall send prompt written notice of such determination to each Person
who is a stockholder or holding an option or warrant issued pursuant to the
reservation of the New Option Shares ("Investor").
7.1.1. Inclusion in Registration. If within 20 days after
receipt of such notice such Investor shall so request in writing, the
Company shall use its best efforts to include in such registration
statement all or any part of such holder's New Stock or such stock as
may be issued or issuable upon conversion thereof or upon exercise of
an option or warrant issued pursuant to the reservation of the New
Option Shares (the "Registrable Shares") as such holder requests to be
registered; provided, however:
7.1.1.1. First Offering. In the case of the first
such registration of Common Stock by the Company, the Company
shall not be required to register any Registrable Shares which
the principal underwriter of a firm commitment underwritten
offering shall reasonably and in good faith refuse in writing
to include in such offering; and provided, further, that in
the event of such refusal by such principal underwriter, then
the Company will ensure that each holder of Registrable Shares
may participate proportionately with all other holder of
Registrable Shares to be included in such offering.
7.1.1.2. Secondary Offering. If the registration is
exclusively of a secondary offering, each holder of
Registrable Shares shall bear its proportionate share of the
expenses of the registration and offering, except expenses
which the Company
<PAGE> 20
Agreement and Plan of Recapitalization Page 18
Bitstream Inc. Effective Date: October 28, 1994
would have incurred whether or not registration was attempted,
including without limitation the expense of preparing normal
audited or unaudited financial statements or summaries consistent
with this Agreement or applicable reports to the Securities and
Exchange Commission.
7.2. Required Registration. The holders of not less than 50% of the
Registrable Shares then held by the stockholders shall have the right,
exercisable on any two occasions after the closing of a Public Offering, to
require the Company to use its best efforts to cause not less than 30% of the
Registrable Shares then held by the stockholders to be registered under the
Securities Act as expeditiously as possible. Such right shall be exercised by a
written notice from such holders to the Company which designates the number of
Registrable Shares then held by such holders as to which such registration is
sought .
7.3. Registration on Form S-3. In addition to the rights provided the
holders of Registrable Shares in Sections 7.1 & 7.2 above, if the registration
of Registrable Shares under the Securities Act can be effected on Form S-3 (or
any similar form promulgated by the SEC), the Company will promptly so notify
each holder of the Registrable Shares, including each holder who has a right to
acquire Registrable Shares, and then will at any time, and from time to time
thereafter, as expeditiously as possible, use its best efforts to effect
qualification and registration under the Securities Act on said Form S-3 of all
or such portion of the Registrable Shares as the holder or holders shall
specify.
7.4. Effectiveness. The Company will use its best efforts to maintain
for up to nine months the effectiveness of any registration statement pursuant
to which any of the Registrable Shares are being offered, and from time to time
will amend or supplement such registration statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act and any applicable state securities statute or regulation.
7.5. Indemnification. In the event any Registrable Shares are included
in a registration statement under this Agreement:
7.5.1. Of Holder. To the extent permitted by law, the Company
will indemnify and hold harmless each holder requesting or joining in a
registration, any underwriter (as defined in the Securities Act of
1933) for it, and each Person, if any, who controls such holder or
underwriter within the meaning of the Securities Act of 1933 ("Holder
Indemnitee"), against any losses, claims, damages, or liabilities,
joint and several, to which they may become subject under the
Securities Act of 1933 or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or
are based on any untrue or alleged untrue statement of any material
fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or arise out of or are based upon
the omission or alleged
<PAGE> 21
Agreement and Plan of Recapitalization Page 19
Bitstream Inc. Effective Date: October 28, 1994
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading or
arise out of any violations by the Company of any rule or regulation
promulgated under the Securities Act of 1933 applicable to the Company
and relating to action or inaction required of the Company in
connection with any such registration; and will reimburse each such
Holder Indemnitee for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the
Company (which consent shall not shall not be unreasonably withheld)
nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in connection with such registration
statement, preliminary prospectus, final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with registration
by any such Holder Indemnitee.
7.5.2. Of Company. To the extent permitted by law, each holder
of Registrable Shares requesting or joining in a registration will
indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the registration statement, each person,
if any, who controls the Company within the meaning of the Securities
Act of 1933, and each agent and any underwriter for the Company (a
"Company Indemnitee") (within the meaning of the Securities Act of
1933) against any losses, claims, damages, or liabilities to which the
Company Indemnitee may become subject, under the Securities Act of 1933
or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration
statement, including any preliminary or final prospectus contained
therein or any amendments of supplements thereto, arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or final prospectus, or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished
by such holder expressly for use in connection with such registration;
and each such holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such Company Indemnitee in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the
<PAGE> 22
Agreement and Plan of Recapitalization Page 20
Bitstream Inc. Effective Date: October 28, 1994
indemnity agreement contained in this subsection shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of such
holder (which consent shall not be unreasonably withheld), and further
provided that such holder's obligations hereunder shall be limited to
an amount equal to the net proceeds realized by such holder of
Registrable Shares pursuant to the sale of such Registrable Shares in
such registration.
7.5.3. Method of Indemnification. Promptly after receipt by an
indemnitee under this section of notice of the commencement of any
action, such indemnitee will, if a claim in respect thereof is to be
made against any indemnifying party under this subsection, notify the
Indemnifying Party in writing of the commencement thereof and the
Indemnifying Party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
Indemnifying Party similarly notified, to assume the defense thereof
with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any
action, if and only if prejudicial to his ability to defend such
action, shall relieve such Indemnifying Party of any liability to the
Indemnified Party under this subsection, but the omission so to notify
the Indemnifying Party will not relieve him of any liability that he
may have to any Indemnified Party otherwise than under this subsection.
7.6. Exchange Act. If the Company falls subject to the reporting
requirements of either Section 13 or Section 15(d) of the Exchange Act, the
Company will use its best efforts to timely file with the SEC such information
as the SEC may require under either of said Sections; and in such event, the
Company shall use its best efforts to take all action as may be required as a
condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereinafter in effect) with respect to its Common
Stock. The Company shall furnish to any holder of Registrable Shares forthwith
upon request (a) a written statement by the Company as to its compliance with
the reporting requirements of Rule 144, (b) a copy of the most recent annual or
quarterly report of the Company as filed with the SEC, and (c) such other
reports and documents as such holder may reasonably request in availing itself
of any rule or regulation of the SEC allowing a holder to sell any such
Registrable Shares without registration.
7.7. Damages. The Company recognizes and agrees that holders of the
Registrable Shares will not have an adequate remedy at law if the Company fails
to comply with the provisions of this Section 7 and that damages will not be
readily ascertainable. The Company therefore expressly agrees that, in the event
of such failure, it shall not oppose an application by the holders of
Registrable Shares or any other person entitled to the benefits of this Section
7 requiring specific performance of any and all provisions of this Section 7
enjoining the Company from continuing to commit any such breach of this Section
7.
<PAGE> 23
Agreement and Plan of Recapitalization Page 21
Bitstream Inc. Effective Date: October 28, 1994
7.8. Further Obligations of the Company. Whenever, under the preceding
provisions of this Section 7, the Company is required hereunder to register
Registrable Shares, it agrees that it shall also do the following:
7.8.1. Furnish to each selling holder of Registrable Shares
such copies of each preliminary and final prospectus and such other
documents as such holder may reasonably request to facilitate the
public offering of its Registrable Shares;
7.8.2. Use its best efforts to register or qualify the
Registrable Shares covered by said registration statement under the
applicable securities or "blue sky" laws of such jurisdictions as any
selling holder may reasonably request; provided, however, that the
Company shall not be obligated to qualify to do business in any
jurisdiction where it is not then so qualified or to take any action
which would subject it to the service of process in suits other than
those arising out of the offer or sale of the securities covered by the
registration statement in any jurisdiction where it is not then so
subject;
7.8.3. Furnish to each selling holder a signed counterpart of
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported
on the Company's financial statements included in the
registration statement, to the extent permitted by the
standards of the American Institute of Certified Public
Accountants,
covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in
the case of the accountants "comfort" letters) with respect to events
subsequent to the date of the financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' "comfort"
letters delivered to the underwriters in underwritten public offerings
of securities, to the extent that the Company is required to deliver or
cause the delivery of such opinion or "comfort" letters to the
underwriters in an underwritten public offering of securities;
7.8.4. Permit each selling holder or his counsel or other
representative to inspect and copy such corporate documents and records
as may reasonably be requested by them;
7.8.5. Furnish to each selling holder a copy of all documents
filed and all correspondence from or to the SEC in connection with any
such offering; and
<PAGE> 24
Agreement and Plan of Recapitalization Page 22
Bitstream Inc. Effective Date: October 28, 1994
7.8.6. Use its best efforts to insure the obtaining of all
necessary approvals from the National Association of Securities
Dealers, Inc.
7.9. Expenses. In the case of a registration under Section 7.1 (except
as otherwise provided in the case of registration which is exclusively of a
secondary offering) or Section 7.2, the Company shall bear all costs and
expenses of each such registration, including, but not limited to, printing,
legal and accounting expenses, SEC filing fees and "blue sky" fees and expenses;
provided, however, that the Company shall have no obligation to pay or otherwise
bear (a) any portion of the fees or disbursements of more than one counsel for
the selling holders of Registrable Shares in connection with the registration of
their Registrable Shares in connection with the registration of their
Registrable Shares, or (b) any portion of the underwriters' commissions or fees
attributable to the registration of Registrable Shares.
SECTION 8
DEFINITIONS
8.1. Affiliate. shall mean with respect to any Person, any other
person, directly or indirectly controlling, controlled by or under common
control with such Person. For the purpose of the above definition, the term
"control" (including with correlative meaning, "controlling," "controlled by,"
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
8.2. "Person" shall mean an individual, a partnership, corporation,
trust, joint venture, an unincorporated association, or a government or any
department or agency thereof.
8.3. "Regulated Shareholder" shall mean (i) any stockholder that is
subject to the provisions of Regulation Y of the Board of Governors of the
Federal Reserve System (12 C.F.R. Part 225) or any successor to such
<PAGE> 25
Agreement and Plan of Recapitalization Page 23
Bitstream Inc. Effective Date: October 28, 1994
regulation ("Regulation Y") and to which shares of Class B Common Stock and
Class B Preferred Stock of the Corporation are issued pursuant to the
recapitalization effected with these Articles, so long as such stockholder shall
hold such shares of Common Stock or Preferred Stock or shares issued upon
conversion of such shares, or warrants to purchase any shares of those classes,
(ii) any Affiliate of any such Regulated Shareholder that is a transferee of any
shares of Common Stock or Preferred Stock of the Corporation or warrants for the
same, so long as such Affiliate shall hold, and only with respect to, such
shares of Common Stock or Preferred Stock or shares issued upon conversion of
such shares and (iii) any Person to which such Regulated Shareholder or any of
its Affiliates has transferred such shares or warrants, so long as such
transferree shall hold, and only with respect to, any shares or warrants
transferred by such stockholder or Affiliates or any shares issued upon
conversion of such shares or exercise of such warrants but only if such Person
(or any Affiliate of such Person) falls subject to the provisions of Regulation
Y.
SECTION 9
MISCELLANEOUS
9.1. Survival. The agreements and covenants contained in Sections 1, 4,
5, 6, 7 & 8 shall survive the Effective Date
9.2. No Waiver; Cumulative Remedies. No failure or delay on the part of
a party or stockholder in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise there or the
exercise of any other right, power or remedy hereunder.
9.3. Amendments, Waivers, and Consents. Notwithstanding any provision
in this Agreement to the contrary, changes in or additions to this Agreement may
be made, and compliance with any covenant or provision herein set forth may be
omitted or waived with respect to the party affected thereby by a writing signed
by that party.
9.4. Notices. All notices, hereunder shall be in writing to the Company
at its headquarters address (cc: Legal Department) and to the shareholders at
their addresses as stated in the stockholder records of the Company, or at such
other address as any party hereto may designate in writing.
9.5. Costs, Expenses and Taxes. Each party to this Agreement shall bear
his or its own legal or other related expenses in connection with the
preparation and/or negotiation of this Agreement.
9.6. Brokers, etc. There is no broker, finder, etc. with any right to
any commission in connection with this Agreement.
<PAGE> 26
Agreement and Plan of Recapitalization Page 24
Bitstream Inc. Effective Date: October 28, 1994
9.7. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company, each of the stockholders, and their
respective successors and assigns.
9.8. Governing Law. The laws of the Commonwealth of Massachusetts shall
govern this Agreement.
In Witness Whereof, the parties hereto have executed this Agreement, as
of the Effective Date.
JHI DEVELOPMENT CAPITAL LIMITED PRIVEST I N.V.
By: /s/ Robert A. Christensen By: /s/
------------------------------- -------------------------------
Robert A. Christensen, Director
BANCBOSTON VENTURES, INC. J.P. MORGAN CAPITAL CORP.
By: /s/ Peter Roberts By: /s/ Mark Hulak
------------------------------- -------------------------------
Peter Roberts Mark Hulak
PRIVEST II N.V.
/s/ James W. Sole By: /s/
- ----------------------------------- -------------------------------
James W. Sole
/s/ Amos Kaminski /s/ Morton E. Goulder
- ----------------------------------- -----------------------------------
Amos Kaminski Morton E. Goulder
/s/ Susan D. Johnson /s/ David G. Lubrano
- ----------------------------------- -----------------------------------
Susan D. Johnson (nee' Gosselin) David G. Lubrano
INTERFID LTD.
By: /s/ /s/ George B. Beitzel
------------------------------- -----------------------------------
George B. Beitzel
GEORGE BEITZEL TRUST
By: /s/ George B. Beitzel /s/ John Collins
------------------------------- -----------------------------------
George B. Beitzel, Trustee John Collins
BITSTREAM INC.
By: /s/ C. Ray Boelig
-------------------------------
C. Ray Boelig, President
<PAGE> 1
EXHIBIT 10.4
LEASE
1. PARTIES: ROBERT A. JONES, K. GEORGE NAJARIAN, Trustees of Athenaeum
Realty Nominee Trust, under a Declaration of Trust dated October 3, 1990,
("LESSOR"), which expression shall include its heirs, successors and assigns
where the context so admits, does hereby lease to BITSTREAM, INC., a
Massachusetts Corporation, ("LESSEE") which expression shall include its
successors, administrators, and assigns where the context so admits, and the
LESSEE hereby leases and shall peaceably hold and enjoy the following described
premises:
2. PREMISES: Portions of the first floor (A-1), second floor (A-2, F-2)
and the third floor (F-3) containing forty-one thousand three hundred
twenty-four (41,324) square feet of space more or less, in the building at 215
First Street, Cambridge, Middlesex County, Massachusetts, all as described in
Exhibit A attached hereto and shown on the plan in said Exhibit A (the "Leased
Premises"), together with all improvements therein and together with all
appurtenances thereto, including but not limited to the right to use in common,
with others entitled thereto, the entrances, lobby, hallways, stairways,
loading docks, and elevators, necessary for access to and enjoyment of said
Leased Premises.
LESSOR reserves the right from time to time to install, maintain, use,
repair, place and replace utility lines, pipes, ducts, conduits, wires, gas,
electric, or any other meters and fixtures located on or passing through the
Leased Premises (in locations which shall not
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materially interfere with LESSEE'S use thereof) to serve other portions of the
LESSOR'S property of which the Leased Premises are a part. LESSOR shall use
reasonable efforts to minimize the disruption to LESSEE'S business when
exercising LESSOR'S rights under this Section 2.
Subject to LESSOR'S reserved rights specified above, there shall be
appurtenant to the Leased Premises the right to park up to one hundred
forty-two (142) passenger motor vehicles in open (uncovered) parking areas
provided on the Lot and/or in any parking garage which LESSOR may hereafter
construct on the Lot. Notwithstanding anything herein to the contrary, such
parking will be made available within twelve hundred (1,200) feet of the main
Linksy Way (Munroe Street) entrance to the building. LESSOR reserves the right
to designate the locations of the spaces to be utilized for such parking rights
by written notice to LESSEE, and to change the location of any or all of such
spaces by notice to LESSEE at any time and from time to time as LESSOR shall
solely determine. The parking spaces provided hereunder need not be contiguous
and may be partially located in covered garage areas and partially in open
lots. After the construction of a parking garage, the annual fair rental value
of LESSEE'S parking spaces available to LESSEE shall be reasonably determined
by LESSOR, but in no event to be greater than the lowest rate then being
offered to any other similar user of the parking garage for a similar amount of
parking spaces.
3. TERM: The term of this Lease shall be for a term of five (5) years
commencing October 1, 1990.
4. RENT: The LESSEE shall pay to the LESSOR base rent at the rate of
Four hundred thirteen thousand two hundred and forty dollars
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($413,240.00) annually, payable in advance in monthly installments of
Thirty-four thousand four hundred and thirty-six dollars and 67/100
($34,436.67); LESSEE shall pay LESSOR monthly parking rent at the rate of
Seventy-five dollars ($75.00) per space per month. For example, the monthly
rent for 142 spaces equals ($75.00 x 142 spaces) $10,650.00 monthly, or One
hundred twenty-seven thousand eight hundred dollars ($127,800.00) annually.
Each rent payment shall be due and payable on or before the fifth of
the month for which the rent payment is applicable. If any payment of rent or
other sums due hereunder is not paid when due three times within any twelve
(12) month period, LESSEE shall pay to LESSOR a late charge equal to five (5%)
percent of the unpaid amount per month, or part thereof, that such amount
remains unpaid.
LESSOR agrees that all payments made by LESSEE for the period from
October 1, 1990 until the date of signing of this Lease are sufficient and no
further charges are due to LESSOR even though such payments may not be in
accordance with this Lease and/or the prior lease between LESSOR and LESSEE.
5. RENT ADJUSTMENT: The LESSEE shall pay to the LESSOR as additional
rent fourteen and 50/100ths percent (14.50%) of any operating expenses, defined
for purposes of this agreement as to the common area operating expenses,
including but not limited to heat, electricity, insurance, snow and ice
removal, janitorial, and other maintenance, but specifically excluding all
expenses which would be considered to be "capital expenses" under generally
accepted accounting principals. The LESSEE shall also pay to the LESSOR
fourteen and 50/100ths percent.
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(14.50%) of the real estate taxes levied against the land and building, of
which the Leased Premises are a part. These payments shall be prorated should
this Lease terminate before the end of the calendar year. The LESSEE shall pay
with each monthly installment of rent one-twelfth (1/12) the estimated annual
amount of such operating expenses and taxes to be adjusted annually when the
actual amount is determined.
6. RIGHT OF FIRST REFUSAL ON ADDITIONAL SPACE: Provided LESSEE is not
then in default of the Lease, LESSOR agrees that prior to leasing the space
(B-3, 12,708 square feet) or any portion of that space identified on Exhibit B
(Right of First Refusal Space) to a third party (a person or entity not already
in possession of that space), LESSOR shall notify LESSEE in writing including
the terms upon which the First Refusal Space is to be leased (Offered Terms).
On or before the fifth (5th) business day after receipt by LESSEE of notice of
Offered Terms, LESSEE shall have the right to lease the First Refusal Space on
Offered Terms. LESSEE shall exercise its right to Lease First Refusal Space by
written notice to LESSOR and received by LESSOR within said five (5)
business-day period. If LESSEE timely exercises its right to lease First Refusal
Space, LESSOR and LESSEE shall, within the next ten (10) business days, enter
into an amendment to this Lease which amendment shall reflect the Offered
Terms, shall be coterminous with this Lease, shall reflect appropriate
adjustments to CAO shares, and otherwise contain the same terms and conditions
as stated in this Lease. In the event LESSEE fails to properly exercise its
right to lease first Refusal Space and/or to properly enter into the said lease
amendment covering the First Refusal Space, LESSOR shall be free to lease First
Refusal
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Space to another party on the Offered Terms or on terms substantially similar
to the Offered Terms, and should a lease be consummated the First Refusal Right
under this paragraph will expire and be null and void as to such space as the
case may be.
7. ADDITIONAL OCCUPANCY, FIT-UP AND RENT ADJUSTMENT: At such time as
LESSEE takes additional space which requires fit-up, LESSOR will, subject to
financiability on a best efforts basis, provide a $47.18 per square foot
buildout allowance. The maximum total allowance will be $400,000.00. If and
when these funds are provided, LESSEE will pay an additional improvements
charge equivalent to $1.30 per annum per useable square foot for 54,032 square
feet for five (5) years. This improvements charge shall be adjusted
proportionately for the term remaining on the Lease and the actual total
improvement allowance received by LESSEE.
Base Rent on additional space shall be $10.00 per square foot per year.
At such time as LESSEE occupies 54,032 square feet, Base Rent on all the leased
premises will be $9 per square feet or Four hundred eighty-six thousand two
hundred eighty-eight dollars and 00/100 ($486,288.00) per year.
8. UTILITIES: (a) The LESSOR shall provide and LESSEE shall pay for
all LESSEE's utilities, including heat, electricity, gas, and water and sewer
use charges as separately metered.
(b) LESSOR agrees to furnish reasonable heat to the hallways, and to
heat the stairways, elevators and public lavatories during normal business
hours on regular business days of the heating season of each year, and to light
passageways and stairways during normal business hours, and to furnish such
cleaning service to such common areas
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and snow and ice removal from the sidewalk bordering the Leased Premises and
the parking areas as is customary in similar buildings in said city, all
subject to interruption due to any accident, to the making of repairs,
alterations, or improvements, to labor difficulties, to trouble in obtaining
fuel, electricity, service, or supplies from the sources from which they are
usually obtained for said building, or to any cause beyond the LESSOR'S
control. LESSEE shall pay its proportionate share for these utilities and
services as set out in Paragraph 5 above.
(c) LESSOR has installed at its own expense separate meters for all
utilities including heat, electricity, gas, water and sewer, and air
conditioning, and shall record LESSEE'S utility charges, which will be paid for
directly by LESSEE, as billed by the LESSOR within ten (10) days of receipt of
said bill. The LESSEE shall have the right to audit said charges and payments
upon reasonable notice.
9. USE OF LEASED PREMISES: The LESSEE shall use the Leased Premises
only for the purpose of first-class offices and its related uses including but
not limited to computers.
LESSOR warrants that it has the right and is authorized to grant the
rights set forth in this lease and to lease the demised premises to LESSEE
under the terms and conditions set forth in this lease. LESSOR warrants that
LESSEE, upon performing its obligations under this lease, may freely,
peaceably, and quietly occupy and enjoy the demised premises without
interference of any kind.
10. COMPLIANCE WITH LAWS: The LESSEE acknowledges that no trade or
occupation shall be conducted in the Leased Premises or use made thereof which
shall be unlawful, improper, noisy or offensive or will
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include excess public access, or be contrary to any law or any municipal by-law
or ordinance in force in the city in which the premises are situated.
11. FIRE INSURANCE: The LESSEE shall not permit any use of the Leased
Premises which will make voidable any insurance on the property of which said
Leased Premises are a part, or on the contents of said property, or which shall
be contrary to any law or regulation from time to time established by the
Insurance Services Office of New England, or any similar body succeeding to its
powers. The LESSEE shall on demand reimburse the LESSOR, and all other Lessees,
all extra insurance premiums caused by the LESSEE'S use of the premises.
11A. WAIVER OF SUBROGATION: LESSOR and LESSEE mutually agree to keep
their respective properties insured against fire and other perils included in a
standard extended coverage endorsement and that with respect to any loss which
is covered by insurance then being carried by them respectively, the one
carrying such insurance and suffering said loss releases the other of and from
any and all claims with respect to such loss; and they further mutually agree
that their respective insurance companies shall have no right of SUBROGATION
against the other on account thereof.
12. MAINTENANCE OF PREMISES: The LESSEE agrees to maintain the Leased
Premises in the same condition as they are at the commencement of the term or as
they may be put in during the term of this Lease, reasonable wear and tear,
damage by fire, and other casualty only expected, to provide its own interior
janitorial service, and, whenever necessary, to replace plate glass and other
glass therein, damaged due to
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<PAGE> 8
negligence of the LESSEE or his agents, acknowledging that the Leased Premises
are now in good order and the glass whole. LESSEE agrees to maintain the HVAC
system servicing the Leased Premises. The LESSEE shall not permit the Leased
Premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste.
LESSEE shall obtain written consent of LESSOR before erecting any sign on the
premises, which consent shall not be unreasonably withheld or delayed. LESSEE
shall have the right to keep all existing signage in place for the full term of
this Lease. LESSOR agrees to be responsible for required capital improvements
of the HVAC system, as defined under generally accepted accounting principles
and all improvements to the HVAC system required to provide good quality air
throughout the Leased Premises; except that any changes caused by LESSEE
altered conditions shall be paid for by LESSEE.
13. ALTERATIONS -- ADDITIONS: The LESSEE shall not make structural
alterations or additions to the Leased Premises, but may make nonstructural
alterations, provided the LESSOR consents in writing, which consent shall not be
unreasonably withheld or delayed. All such allowed alterations shall be at
LESSEE'S expense and shall be in quality at least equal to the present
construction. LESSEE shall not permit any mechanics' liens, or similar liens,
to remain upon the Leased Premises for labor and materials furnished to LESSEE
or claimed to have been furnished to LESSEE in connection with work of any
character performed or claimed to have been performed at the direction of
LESSEE, and shall cause any such lien to be released of record forthwith
without cost to LESSOR. Any alterations, or improvements made by the LESSOR,
excluding moveable partitions and furnishings, shall become the property of the
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LESSOR at the termination of occupancy as provided herein.
14. ASSIGNMENT -- SUBLETTING: The LESSEE shall not assign or sublet the whole
or any part of the Leased Premises without the LESSOR'S prior written consent,
which consent shall not be unreasonably withheld or delayed. Notwithstanding
such consent, LESSEE shall remain liable to LESSOR for the payments of all rent
and for the full performance of the covenants and conditions of this Lease.
15. SUBORDINATION: The Lease and LESSEE'S interest hereunder, except as
hereinafter provided, shall be subordinate to the lien of any present or future
mortgage or mortgages upon the Leased Premises or any property of which the
Leased Premises are a part, irrespective of the time of execution or the time
of recording of any such mortgage or mortgages. The word "mortgage" as used in
this Paragraph shall mean mortgages, deeds of trust, and other similar
instruments held by any lender and all modifications, extensions, renewals and
replacements thereof. This Paragraph is self-operative, and no further
instrument of subordination shall be required by the holder of any such mortgage
so long as the subordination is made and granted upon the condition that, in
the event of any entry by the holder of any such mortgage to foreclose, a
foreclosure of any such mortgage by entry or by sale, or an acquisition by the
holder of any such mortgage of LESSOR'S interest under this Lease or in the
Leased Premises through foreclosure or otherwise, LESSEE shall peaceably hold
and enjoy the Leased Premises as a lessee of such holder, upon the same terms,
covenants and conditions as set forth in this Lease without any hindrance or
interruption from such holder. In the event of such entry, foreclosure or
acquisition, LESSEE shall recognize the holder
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<PAGE> 10
of the mortgage with respect to which such action is taken as the LESSOR under
this Lease. As used in this Paragraph, the word "holder" includes any person
claiming through or under any such mortgage, including any purchaser at a
foreclosure sale, and the word "LESSEE" shall include LESSEE'S successors and
assigns.
Notwithstanding the self-operative effect of this Paragraph, the LESSEE
agrees to execute such further documents in recordable form as the LESSOR or any
lender may reasonably require, consistent with the terms of this Paragraph.
16. LESSOR'S ACCESS: The LESSOR or agents of the LESSOR may, at reasonable
times, upon reasonable prior notice, enter to view the Leased Premises, and may
remove placards and signs not approved and affixed as herein provided, and make
repairs and alterations as LESSOR should elect to do, and may show the Leased
Premises to others, with reasonable prior notice at any time within four (4)
months before the expiration of the term, may affix to any suitable part of the
Leased Premises a notice for letting or selling the Leased Premises or property
of which the Leased Premises are a part and keep the same so affixed without
hindrance or molestation. LESSOR agrees to use reasonable efforts when accessing
the Leased Premises to minimize the interference with LESSEE'S business
activities.
17. INDEMNIFICATION AND LIABILITY: The LESSEE shall save the LESSOR
harmless from all loss and damage occasioned by the use or escape of water or by
the bursting of pipes, or by any nuisance made or suffered on the Leased
Premises, unless such loss is caused by the neglect of the LESSOR.
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18. LIABILITY INSURANCE: The LESSEE shall maintain with respect to the
Leased Premises and the property of which the Leased Premises are a part,
comprehensive public lability insurance in the amount of One Million
($1,000,000.00) Dollars, with property damage insurance in limits of Five
Hundred Thousand Dollars ($500,000.00) in responsible companies qualified to do
business in Massachusetts and in good standing therein, insuring the LESSOR as
well as LESSEE against injury to persons or damage to property as provided. The
LESSEE shall deposit with the LESSOR certificates for such insurance at or
prior to the commencement of the term, and thereafter within thirty (30) days
prior to the expiration of any such policies. All such insurance certificates
shall provide that such policies shall not be cancelled without at least ten
(10) days' prior written notice to each assured name therein.
19. FIRE, CASUALTY -- EMINENT DOMAIN: Should a substantial portion of
the Leased Premises, or of the property of which they are a part, be
substantially damaged by fire or other casualty, or be taken by eminent domain,
the LESSOR may elect to terminate this Lease. When such fire, casualty, or
taking renders the Leased Premises substantially unsuitable for their intended
use, a just and proportionate abatement of rent shall be made, and the LESSEE
may elect to terminate this Lease if:
(a) The LESSOR fails to file written notice within thirty
(30) days of intention to restore Leased premises; or
(b) The LESSOR fails to restore the Leased Premises to a
condition substantially suitable for their intended
<PAGE> 12
use within ninety (90) days of said fire, casualty, or taking.
The LESSOR reserves, and the LESSEE grants to the LESSOR, all rights
which the LESSEE may have for damages or injury to the Leased Premises for
any taking by eminent domain, except for damage to the LESSEE'S fixtures,
property or equipment.
20. DEFAULT AND BANKRUPTCY: In the event that:
(a) The LESSEE shall default in the payment of any installment of
rent or other sum herein specified and such default shall continue for
twenty (20) days after written notice thereof; or
(b) The LESSEE shall default in the observance or performance of the
LESSEE'S covenants, agreements, or obligations hereunder and such default
shall not be corrected within thirty (30) days after written notice thereof;
or
(c) The LESSEE shall be declared bankrupt or insolvent according to
law, or if any assignment shall be made of LESSEE'S property for the benefit
or creditors; then the LESSOR shall have the right thereafter, while such
default continues, to re-enter and take complete possession of the Leased
Premises, to declare the term of this Lease ended, and remove the LESSEE'S
effects, without prejudice to any remedies which might be otherwise used
for arrears of rent or other default. The LESSEE shall indemnify the
LESSOR against all loss and reasonable payment of rent and other payments
which the LESSOR may incur by reason of such termination during the
residue of the term. In the event of default, LESSOR shall take reasonable
effort to re-let the premises. If LESSOR re-lets the
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premises, LESSEE may off-set its payable rent by the amount of rent
received by LESSOR. If the LESSEE shall default, after reasonable notice
thereof, in the observance or performance of any conditions or covenants
on LESSEE'S part to be observed or performed under or by virtue of any of
the provisions in any article of this Lease, the LESSOR, without being
under any obligation to do so and without thereby waiving such default,
may remedy such default for the account and at the expense of the LESSEE.
If the LESSOR makes any expenditures or incurs any obligation for the
payment of money in connection therewith, including but not limited to,
reasonable attorney's fees, in instituting, prosecuting, or defending any
action or proceeding, such sums paid or obligations incurred, with
interest at the rate of twelve percent (12%) per annum and costs, shall
be paid to the LESSOR by the LESSEE as additional rent.
21. NOTICE: Any notice from the LESSOR to the LESSEE relating to the
Leased Premises or to the occupancy thereof shall be deemed duly served, if
delivered by hand to a responsible employee of LESSEE or if mailed, return
receipt requested, postage prepaid, addressed to the LESSEE, BITSTREAM, INC.,
Attention: President at the Leased Premises. Any notice from the LESSEE to the
LESSOR relating to the Leased Premises or to the occupancy thereof, shall be
deemed duly served, if delivered by hand to a responsible employee of LESSOR or
if mailed to the LESSOR by registered or certified mail, return receipt
requested, postage prepaid, addressed to the LESSOR at such address as the
LESSOR may from time to time advise in writing. All rent and notices shall be
paid and sent to the LESSOR at:
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ATHENAEUM REALTY NOMINEE TRUST
The Athenaeum Group
215 First Street
Cambridge, MA 02142
22. SURRENDER: The LESSEE shall at the expiration or other termination
of this Lease remove all LESSEE'S goods and effects from the Leased
Premises (including, without hereby limiting the generality of the foregoing,
all signs and lettering affixed or painted by the LESSEE, either inside or
outside the Leased Premises). LESSEE shall deliver to the LESSOR the Leased
Premises and all keys, locks thereto, and other fixtures connected therewith,
and all alterations and additions made to or upon the Leased Premises, in the
same condition as they were at the commencement of the term, or as they were
put in during the term hereof, reasonable wear and tear and damage by fire or
other casualty only excepted. In the event of the LESSEE'S failure to remove
any of the LESSEE'S property from the premises, LESSOR is hereby authorized
without liability to LESSEE for loss or damage thereto, and at the sole risk
of LESSEE, to remove and store any of the property at LESSEE'S expense or to
retain the same under LESSOR'S control or to sell at public or private sale,
with reasonable notice any or all of the property not so removed, and to
apply the net proceeds of such sale to the payment of any sum due hereunder.
23. OPTION TO EXTEND: If the LESSEE is not then in default, the term
of this LEASE may be extended at the option of the LESSEE for two (2)
periods of five (5) years, such periods of five (5) years being herein
sometimes referred to as the "first extended term" and "second extended
term" as follows.
The first extended term shall commence at the expiration of
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the initial term, five (5) years after the commencement date exercisable by
written notice from the LESSEE to the LESSOR given not more than eight (8)
months and not less than four (4) months prior to the expiration of the
initial term.
The second extended term shall commence at the expiration of the first
extended term, five (5) years after the commencement date of the first extended
term and exercisable by written notice from the LESSEE to the LESSOR given not
more than eight (8) months and not less than four (4) months prior to the
expiration of the first extended term.
The annual Base Rent for each extended term shall be adjusted at the
commencement of each extended term and its Base Rent shall be the lesser of
either fair market rental value of the Leased Premises, or, shall be the sum of
the following:
(i) The Base Rent of the last year of the previous term; plus,
(ii) The result obtained by multiplying the Base Rent of the last
year of the previous term by 90% of the increase, in the Consumer Price Index
from the month preceding the Commencement Date to the month preceding the month
of adjustment.
For this purpose, "Consumer Price Index" shall mean the Consumer Price
Index for the Urban Wage Earners and Clerical Workers - Boston, Massachusetts,
established by the U.S. Department of Labor, or the most nearly comparable
successor index.
The fair market rental value of the Leased Premises as of the Commencement
of each Extended Term shall be determined as follows: LESSOR and LESSEE shall
each determine their opinion of the fair market
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rental value of the Leased Premises taking into account the quality, size,
configuration, location, parking, comparable values and all other facts which
each determined to be relevant. At least ninety (90) days prior to the
expiration of the then term of the lease, at a mutually agreeable time and
place, the LESSOR and LESSEE shall simultaneously exchange in writing their
respective opinions of the fair market rental value for the Leased Premises. If
the respective opinions of LESSOR and LESSEE are within ten (10%) percent of
each other, the fair market rental value of the Leased Premises shall be
determined to be the average of the two opinions. If the respective opinions of
the LESSEE and LESSOR are not with ten (10%) percent of each other, the LESSOR
and LESSEE shall promptly select a disinterested real estate appraiser familiar
with values in Cambridge, Massachusetts, and the sole function of the agreed
upon real estate appraiser shall be to choose either the opinion of the LESSOR
or the opinion of the LESSEE of the fair market rental value which most closely
reflects the fair market rental value of the Leased Premises. The LESSOR and
the LESSEE will equally share the compensation of the real estate appraiser
selected. The determination as to the fair market rental value of the Leased
Premises shall be final and conclusively binding on the parties and may be
enforced by legal proceedings. In the event the LESSOR and LESSEE are unable to
agree upon a disinterested appraiser, either party may apply to any court of
competent jurisdiction for the appointment of a disinterested appraiser. In the
event the annual Base Rent for an Extended Term has not been finally determined
under the aforesaid procedure prior to the commencement of the Extended Term,
the LESSEE shall pay at the
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<PAGE> 17
commencement of the Extended Term, the greater of the annual Base Rent of the
previous term of the lease or the fair market rental value of the Leased
Premises submitted by LESSOR, all to be retroactively adjusted immediately upon
the final determination of the annual Base Rent, if necessary.
24. BROKER: LESSOR represents to LESSEE and LESSEE represents to
LESSOR that they respectively have not dealt with any real estate broker, sales
person, or finder in connection with this Lease other than Ian Grant of
Spaulding and Slye Colliers International and Robert A. Jones & Company, and
LESSOR agrees to pay any and all fees due to said brokers.
LESSOR agrees to pay Spaulding and Slye Colliers a total fee of
$40,000.00 as follows:
$10,000.00 March 15, 1992
$10,000.00 September 15, 1992
$10,000.00 March 15, 1993
$10,000.00 September 15, 1993
If LESSOR fails to perform its obligation under this section above
within 30 days of the dates prescribed, LESSEE shall have the right to withhold
such amount from the next rental amount owed and make said payment directly to
Spaulding and Slye Colliers International.
LESSEE shall not have any other rights to self-help under this
Lease.
17
<PAGE> 18
Notwithstanding the foregoing, in no event shall the annual Base Rent
during an Extended Term be less than the annual Base Rent of the last year of
the previous term.
IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands and
common seals this 17th day of March, 1992.
LESSOR:
ATHENAEUM REALTY NOMINEE TRUST
/s/ Robert A. Jones /s/ Elaine W. Giles
- -------------------------------- -----------------------------------
Robert A. Jones, Trustee Witness
/s/ K. George Najarian, Trustee /s/ Elaine W. Giles
- -------------------------------- -----------------------------------
LESSEE:
BITSTREAM, INC.
/s/ James W. Sole /s/ Peter T. Johnson
- -------------------------------- -----------------------------------
President Witness
/s/ James W. Sole /s/ Peter T. Johnson
- -------------------------------- -----------------------------------
Treasurer Witness
18
<PAGE> 19
ATHENAEUM STREET BITSTREAM
EXHIBIT A
1 OF 3
F S
I E
R C
S O
T N
D
S S
T T
R R
E E
E E
T T
MONROE STREET
LINSKY WAY
FIRST FLOOR PLAN
THE ATHENAEUM HOUSE
215 First Street, Cambridge
<PAGE> 20
EXHIBIT A
2 OF 3
[SECOND FLOOR PLAN]
The Athenaeum House 16 January 1991
215 First Street, Cambridge
<PAGE> 21
EXHIBIT A
3 OF 3
[THIRD FLOOR PLAN]
The Athenaeum House 16 January 1991
215 First Street, Cambridge
<PAGE> 22
EXHIBIT B
RIGHT OF FIRST REFUSAL SPAC
[THIRD FLOOR PLAN]
The Athenaeum House 16 January 1991
215 First Street, Cambridge
<PAGE> 1
EXHIBIT 10.4.1
LEASE AMENDMENT
LESSOR: ATHENAEUM REALTY NOMINEE TRUST
LESSEE: BITSTREAM, INC.
DATE OF LEASE: MARCH 17, 1992
PREMISES: ATHENAEUM HOUSE, 215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS
- -------------------------------------------------------------------------------
WHEREAS, The LESSEE is in arrears on the payment of past rent due LESSOR;
and
WHEREAS, the LESSEE is desirous of surrendering its occupancy of the third
floor of the Leased Premises while continuing occupancy on the first and second
floor, and continuing to use storage space in the basement;
WHEREAS, the LESSOR is desirous of recouping back rent and is amenable to
the proposed reduction in the Leased Premises, but only on certain conditions;
NOW THERFORE, the parties agree as follows:
1. Effective May 1, 1993 (the "Effective Date"), the Leased Premises shall
be reconstituted to include only the following:
a) 17,174 rentable square feet, more or less, on the first and second
floor in the Building as shown on Exhibit A.
b) 5,000 rentable square feet, more or less, in the basement of the
Building, in such location as the LESSOR may designate, provided that any
such location can be reasonably secured from entry by others. LESSOR
reserves the right to relocate LESSEE'S basement space on reasonable notice
and upon payment of the cost of relocation the items stored in the basement
into the replacement basement space.
2. The Base Rent for the Leased Premises shall be as of the Effective
Date, $214,914.00; calculated as 17, 174 square feet of first and second floor
space at $11.00 per rentable square feet. LESSEE shall pay gross rent on the
5,000 square feet of basement space at $5.00 per rentable square foot.
3. As of the Effective Date, the number of parking spaces shall be reduced
from 142 to 60; the Rent Adjustment percentage in Paragraph 5 shall be reduced
from 14.5% to 6.03%; and LESSEE's right of first refusal and
<PAGE> 2
fit-up requirements set forth in Paragraphs 6 and 7 respectively shall be
extinguished and deemed of no further force and effect.
4. LESSEE shall make the following payments for past due amounts to
LESSOR, which payments shall be in addition to any payments of Base Rent and/or
operating expenses due on or after the August 1, 1993;
a) On or before July 16, 1993 the sum of $30,000.00;
b) On or before August 16, 1993 the sum of $50,000.00;
c) On or before September 16, 1993 the sum of $50,000.00;
d) On or before October 15, 1993 the sum of $20,137.25;
e) On or before December 17, 1993 the sum of $20,137.25;
f) On or before January 21, 1994 the sum of $20,137.25;
g) On or before February 11, 1994 the sum of $21,243.25.
5. LESSEE shall also make the following payments to LESSOR as
compensation for the release of LESSEE's being released from rent obligations
after April 30, 1993 on its occupancy of the third floor;
a) On or before September 1, 1993, the sum of $35,000;
b) On or before January 7, 1993, the sum of $35,000;
c) On or before the first of each month from February 1994 through
April 1994, the sum of $10,000.
6. The term of the Lease shall be extended through October 1, 1998.
LESSEE shall have the option to terminate the Lease on September 30, 1995
(original expiration date) with ninety (90) days prior notice and the payment
of a $10,000 termination payment at the time of said notice.
7. If LESSEE makes the payments described in Paragraph 4 and 5 to
LESSOR when due, LESSOR shall and does hereby release LESSEE from any and all
claims for the monetary damages arising out of LESSEE's tenancy prior to the
Effective Date of this Lease Amendment. In the event LESSEE fails to make the
payments described in Paragraph 4 and 5 when due, LESSOR reserves any and all
claims for damages it may have against LESSEE arising out of LESSEE's tenancy
at the Leased Premises, and may seek damages either under the Lease or this
Lease Amendment, whichever recovery may be greater.
8. LESSEE releases any claims it had or may have had against LESSOR
arising out of its tenancy of the Leased Premises prior to the Effective Date.
<PAGE> 3
9. Other than as set forth herein, the Lease between the parties
shall be and is hereby affirmed in all respects.
EXECUTED AS A SEALED INSTRUMENT THIS 7TH DAY OF SEPTEMBER, 1993.
ATHENAEUM NOMINEE REALTY TRUST BITSTREAM, INC.
By /s/ Robert H. Jones /s/ C. Ray Boelig
---------------------------- -----------------------------
Trustee President
Duly Authorized Hereunto Duly Authorized Hereunto
-3-
<PAGE> 1
EXHIBIT 10.4.2
WILLIAM F. SWIGGART
ATTORNEY AT LAW
Bitstream Inc. * Athenaeum House * 215 First Street, Suite 208 *
Cambridge, Massachusetts * 02142-1270
Tel : 617/868-8867, x 312
Fax: 617/868-0784
July 13, 1994
HAND DELIVERED
- --------------
Mr. Allan R. Jones
Partner
The Athenaeum Group
215 First Street
Boston, MA 02142-1268
Re: Lease dated March 17, 1992 between Athenaeum
Realty Nominee Trust and Bitstream, Inc.;
Elimination of Storage Space; Our File No. 217.10.1
Dear Mr. Jones:
This is to respond to your letter to Ray Boelig of June 30. The Athenaeum
Group offered to amend the above captioned lease by eliminating Bitstream's
rental obligation for the 5,000 square feet of storage space on the third floor
in return for a $10,000 "break" payment.
Bitstream hereby accepts your offer and agrees to pay $10,000. Bitstream
will pay the first $5,000 as soon as you have signed and returned the enclosed
copy of this letter (no later than July 15th), and will pay the $5,000 balance
due by August 15, 1994.
Your signature below shall complete the said amendment of lease. Thank you
for your attention to this matter.
Very truly yours,
/s/ William Swiggart
-------------------
William F. Swiggart
General Counsel
cc: Donna B. Held
C. Ray Boelig
ACCEPTED AND AGREED:
THE ATHENAEUM GROUP
By: /s/ Allan R. Jones Dated: 7-14-94
---------------------------- --------------
Allan R. Jones
<PAGE> 1
EXHIBIT 10.4.3
THIRD AMENDMENT TO LEASE
LESSOR: ATHENAEUM REALTY NOMINEE TRUST
LESSEE: BITSTREAM, INC.
DATE OF LEASE: MARCH 17, 1992;
(FIRST AMENDMENT SEPTEMBER 7, 1993;
SECOND AMENDMENT JULY 14, 1994)
PREMISES: ATHENAEUM HOUSE, 215 FIRST STREET,
CAMBRIDGE, MASSACHUSETTS
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the lease between Athenaeum Realty Nominee Trust
as Lessor and Bitstream Inc., a Delaware corporation, as Lessee dated March 17,
1992, and amended on September 7, 1993 and by letter agreement on July 14,
1994), is hereby amended for the third time effective July 15, 1996, as follows:
1. "EXPANDED LEASED PREMISES." Effective July 15, 1996 (the
"Effective Date"), the Leased Premises shall be expanded to
include approximately 2,800 rentable square feet ("Expanded
Leased Premises"), more or less, on the ground floor of the
Building as shown on Exhibit A hereto. Lessee agrees it is
leasing the Expanded Leased Premises in its "as is" condition,
except that the Expanded Leased Premises shall be delivered in
vacuumed clean condition, free of debris and personal effects,
and all systems to be maintained by Landlord under the lease
shall be in good working order. The "Action Items" on the punch
list attached as Exhibit C also should be addressed by Lessor.
2. INCREASED RENT. The Base Rent for the Leased Premises shall be
increased as of the Effective Date by $28,000 per year,
calculated as 2,800 square feet at $10.00 per rentable square
feet.
3. INCREASED RENT ADJUSTMENT. As of the Effective Date, the Rent
Adjustment percentage in Paragraph 5 shall be increased from
6.03 percent to 7.01 percent.
4. TERM; OPTION TO EXTEND. The term of the Lease shall remain
unchanged. Lessee may elect to exclude the Expanded Leased
Premises from its exercise of any option to extend the Lease.
<PAGE> 2
Third Amendment to Lease dated March 17, 1992 June 15, 1996
Athenaeum Realty Nominee Trust and Bitstream Inc. Page 2
5. RIGHT OF FIRST REFUSAL. Lessee shall enjoy the right, provided that
Lessee then occupies the Leased Premises and is not in default
hereunder, of first refusal to lease the ground floor space containing
approximately 4,700 RSF (as shown on Exhibit B hereto), ("First Refusal
Space") if it should become available during the Term, as set forth
below:
5.1. Upon the First Refusal Space becoming vacant, and prior to listing
it with any broker (or otherwise offering First Refusal Space for
rent to any party other than the party currently occupying the
First Refusal Space), Lessor shall notify Lessee in writing of the
availability of the First Refusal Space, stating its rentable
square footage and the terms and conditions upon which it is being
offered ("First Refusal Space Notice").
5.2. Lessee shall then have until 5:00 p.m. on the tenth (10th) business
day following receipt of the First Refusal Space Notice with which
to accept the offer.
5.3. If Lessee accepts the offer within the time period above described,
then the First Refusal Space shall automatically be added to the
Leased Premises on the terms set forth in the First Refusal Space
Notice, and the terms of this lease shall automatically be adjusted
to reflect the First Refusal Space.
5.4. If, by the end of time period above described in Section 5.2 above,
Lessee has failed or declined to accept such offer, Lessor may rent
the First Refusal Space to any proposed tenant for the offered
price or higher (but not a lower one).
6. RIGHT TO TERMINATE. If, during the Lease Term, upon mutual agreement and
execution of a mutually satisfactory lease by both parties, the Lessee
occupies the 4700 RSF space referenced in Section 5 above, Lessee shall
have the right to require the Lessor to terminate Lessee's lease
obligations on the Expanded Leased Premises effective upon Lessee's said
occupation of the First Refusal Space.
7. BROKER. The Lessor and Lessee each represent and warrant to the other
that each has had no dealings with any Brokers concerning this lease
other than Robert A. Jones & Co., and each party agrees to indemnify and
hold the other harmless for any damages occasioned to the other by
reason of a breach of this representation and warranty.
<PAGE> 3
Third Amendment to Lease dated March 17, 1992 June 15, 1996
Athenaeum Realty Nominee Trust and Bitstream Inc. Page 3
8. CONSTRUCTION; INTERPRETATION. To the extent this lease amendment
conflicts with the existing lease, this amendment shall control.
Both parties acknowledge the lease remains in full force and effect.
Other than stated in this amendment, all other terms and conditions
remain the same.
EXECUTED as a sealed instrument this 15th day of June 1996.
ATHENAEUM NOMINEE REALTY TRUST
By: /s/ /s/
------------------------------ ----------------------------
Trustee Witness
BITSTREAM INC.
By: /s/ /s/
------------------------------ ----------------------------
Vice president, Treasurer and Witness
Chief Financial Officer
<PAGE> 4
EXHIBIT A
Floor Plan
SUITE # USE AREA SUITE # USE AREA
001 OF 4700 008 OF 3000
002 OF 8030 009 STG 300
003 OF 1400
004 OF 100 "Expanded Leased
005 OF 350 Premises"
006 OF 8800
006A-6000 RSF
006B-2800 RSF
007 SPE 8351 (2800 RSF)
THE ATHENAEUM HOUSE
215 First Street, Cambridge Lower Level Rev. May 1, 1993
<PAGE> 5
EXHIBIT B
Floor Plan
SUITE # USE AREA SUITE # USE AREA
001 OF 4700 008 OF 3000
002 OF 8030 009 STG 300
003 OF 1400
004 OF 100 "Right of First Refusal
005 OF 350 Space"
006 OF 8800
007 SPE 8351
THE ATHENAEUM HOUSE
215 First Street, Cambridge Lower Level Rev. May 1, 1993
<PAGE> 6
Exhibit C
---------
2,800 SQ. FEET, FIRST STREET ("EXPANDED LEASED PREMISES")
PUNCH LIST FOR THE ATHENAEUM GROUP ("TAG")
June 10, 1996
Action Items
1. Space shall be delivered clean.
2. Two of the offices have had wall holes patched for painting,
with no paint applied. These patches should be painted.
3. Two of the office doors are missing hardware (strike plates and
latches) for the door knobs. They should be repaired/replaced in advance of
our occupancy.
4. One of the offices is missing a door stop, and it should be replaced
to avoid damage to the wall.
5. Have the front door lock changed.
6. The walls are loaded with hollow wall anchors that were used to
hold up whiteboards.
7. There is large hole in the wall in the back of one of the HVAC
rooms.
<PAGE> 1
EXHIBIT 10.5
BITSTREAM INC.
LOAN AGREEMENT
This is a loan agreement with an effective date of February 22, 1996 by and
among Bitstream Inc., a Massachusetts corporation, having its principal
executive office at 215 First Street, Cambridge, Mass. 02142 (the "Company"),
and the undersigned lenders of the Company ("Lenders").
WHEREAS, The current primary secured lender of the Company is BayBank, N.A.
("BayBank"); and
WHEREAS, The undersigned Lenders wish to lend a total amount of $600,000,
each in the amount shown below:
<TABLE>
<CAPTION>
No. Lender Loan Amount
<S> <C> <C>
1. Morton E. Goulder $ 16,000
2. David G. Lubrano $ 18,000
3.a. BVB Grantor Retained Income Trust I $ 11,500
3.b. George B. Beitzel $ 11,500
4. Amos Kaminski $ 24,000
5. BancBoston Ventures, Inc. $ 83,000
6. JHI Development Capital Limited $155,000
7. Gotthard Bank (Nassau Branch) $281,000
--------
Total $600,000
</TABLE>
NOW THEREFORE, for good and valuable consideration, the Company hereby
adopts and the Lenders hereby agree as follows:
1. Notes.
1.1 The Company shall issue a promissory note (in the form attached
hereto Exhibit A(1) A(2) A(3a) A(3b) A(4) A(5) or A(6) with respect to the
Lender to which it applies) to each of the Lenders (except Gotthard Bank)
for the amount set for to his name above.
1.2 Gotthard Bank Note. The form of note attached hereto as A(7) shall
be the form of note used for Gotthard Bank ("Gotthard"), the
<PAGE> 2
Loan Agreement Page 2
Bitstream Inc. Effective Date: February 22, 1996
terms of which shall differ from notes A(1) through A(6) only in respect to
the inclusion of registration provisions.
2. Gotthard Registration Provisions. The following registration
provisions shall bind only the Company and Gotthard:
2.1. Registration, Transfer and Exchange of Promissory Notes Payable
to Gotthard. The promissory note issued to Gotthard (the "Gotthard Note")
shall be registered as herein provided.:
2.1.1. The Company shall keep at its principal executive office,
or any other place of which the Company shall have given notice to
Gotthard, appropriate books for the registration of the Gotthard Note
and transfers thereof, and at such office the Company, under such
reasonable regulations as it may prescribe but at its own expense
(other than transfer taxes, if any), will register the Gotthard Note,
and transfers thereof.
2.1.2. No transfer of the Gotthard Note shall be registered
unless evidenced by a written instrument of transfer in form
reasonably satisfactory to the Company, duly executed by the
registered owner or by his duly authorized attorney-in-fact.
2.2. Withholding Tax. Gotthard and each registered assign of Gotthard
that is organized under the laws of any jurisdiction other than the United
States of America or any political subdivision thereof hereby represents
and warrants to the Company that:
(i) the Company's payments to Gotthard and such assign of all
amounts payable under the Gotthard Note or pursuant to this Agreement
are not subject to any United States federal income withholding taxes
("Withholding Taxes") as of the date hereof (or, in the case of a
registered assign, on the date such registered assign becomes the
registered holder of the Gotthard Note), and
(ii) from time to time, as and when requested by the Company,
Gotthard and each such registered assign shall execute and deliver to
the Company any and all Internal Revenue Service forms, and shall
provide the Company with any information, necessary to establish
Gotthard's or such registered assign's continued exemption from
Withholding Taxes under Section 35a.39999-(b) of the United States
Treasury Regulations.
If Withholding Taxes are imposed upon the Company other than as a result
off any act or omission to act on the part of Gotthard, the
<PAGE> 3
Loan Agreement Page 3
Bitstream Inc. Effective Date: February 22, 1996
Company shall either (x) on 15 days' prior written notice, prepay to the
date of payment the principal together with accrued interest (and the
applicable prepayment penalty) of any Gotthard Note held by a party subject
to Withholding Taxes prior to the effective date of such Withholding Taxes
or (y) from and after the effective date of the Withholding Taxes, in lieu
of paying interest at the rates otherwise provided for herein and in the
Gotthard Note, pay interest on the Gotthard Note at a rate equal to the
quotient obtained by dividing the interest rate otherwise provided for
herein (expressed as a percentage) by the difference between 100 and the
rate at which the applicable Withholding Taxes are imposed (expressed as a
percentage) such that the amount of interest payable to Gotthard or such
registered assign, after deducting and withholding therefrom Withholding
Taxes for all periods after the effective date thereof, shall be the same
as the amount payable were the Withholding Taxes not imposed.
3. Use of Proceeds. The Company covenants and agrees that it shall use
the loan proceeds approximately as follows: 50% for capital expenditures, and
50% for working capital.
4. Subordination. Each Lender shall subordinate his loan hereunder to
BayBank in accordance with the subordination agreement (in the form attached
hereto Exhibit B(1) B(2) B(3) B(4) B(5) B(6), or B(7) with respect to the Lender
to which it applies).
5. Source of Repayment. Repayment shall come either from operating cash
flow, the proceeds of an initial public offering of the Company, or other source
of equity capital, as needed.
6. Closing.
6.1. The closings of the loans hereunder shall occur either by wire
transfer and/or courier, or in person at the Company premises at 10:00 a.m.
on the said effective date, according to each Lender's preference.
6.2. Payment of proceeds shall be made either by personal or corporate
check, or by wire transfer, as follows:
BayBank
Burlington, MA 01803 U.S.A.
ABA #011302357
Bitstream Inc.
Business Checking Account #030038650556
Attn: Stephen C. Buzzell, Vice President.
<PAGE> 4
Loan Agreement Page 4
Bitstream Inc. Effective Date: February 22, 1996
6.3. Each Lender shall also forward, by courier to the Company, an
executed Subordination Agreement with BayBank.
6.4. Upon receipt of the proceeds and the executed subordination
agreement from each Lender, the Company shall deliver the applicable
promissory note, together with an executed copy hereof, to the applicable
Lender.
7. General:
7.1. Survival. The covenant stated at Section 2 hereof shall survive
the Closing.
7.2. Notices. All notices hereunder shall be conveyed in writing to
the Company at its headquarters address (cc: Legal Department) and to each
applicable Lender at his address as stated in the stockholder records of
the Company, or at such other address as any party hereto may designate in
writing. If faxed the original notice shall follow by regular mail.
7.3. Costs, Expenses and Taxes. Each party to this Agreement shall
bear his own legal or other related expenses in connection with the
preparation and/or negotiation of this Agreement.
7.4. Brokers, etc. There is no broker, finder, etc. with any right to
any commission in connection with this Agreement.
7.5. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company, each of the Lenders, and their
respective successors and assigns.
7.6. Governing Law. The laws of the Commonwealth of Massachusetts
shall govern this Agreement.
7.7. Execution in Counterparts. This Agreement may be executed in
counterpart copies via fax, and/or mailed original, all of which combined
shall have the binding effect of a single agreement.
<PAGE> 5
Loan Agreement Page 5
Bitstream Inc. Effective Date: February 22, 1996
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the Effective Date.
JHI DEVELOPMENT CAPITAL LIMITED GOTTHARD BANK (NASSAU BRANCH)
ACTING FOR THE ACCOUNT OF CERTAIN OF ITS
CLIENTS AND THEIR RESPECTIVE REGISTERED
ASSIGNS
By: /s/ By: /s/
--------------------------------- ---------------------------------
BANCBOSTON VENTURES, INC. BVB GRANTOR RETAINED INCOME TRUST I
By: /s/ By: /s/
--------------------------------- ---------------------------------
/s/ Amos Kaminski /s/ George B. Beitzel
- ------------------------------------ ------------------------------------
Amos Kaminski George B. Beitzel
/s/ David G. Lubrano /s/ Morton E. Goulder
- ------------------------------------ ------------------------------------
David G. Lubrano Morton E. Goulder
BITSTREAM INC.
By: /s/ C. Ray Boelig
---------------------------------
C. Ray Boelig
President and CEO
<PAGE> 6
Exhibit A(1-7)
PROMISSORY NOTE
(AMOUNT) Cambridge, Massachusetts
BITSTREAM INC. promises to pay to the order of (LENDER) the principal sum
of (AMOUNT), plus simple interest at twelve percent (12%) per annum, such
principal and interest to fall due and payable in full on August 22, 1996 (the
"Payment Date").
Maker agrees, in the event of prepayment in whole or in part, to a penalty
equal to the said interest on all prepaid principal from the date of prepayment
through the Payment Date, less simple interest from the date of prepayment
through the Payment Date equal to the rate for U.S. Treasury bills maturing on
or near the Payment Date, as reported in the Wall Street Journal on the day of
pre-payment.
EXECUTED AND DELIVERED as an instrument under seal this 22d day of
February, 1996.
BITSTREAM INC.
By:
-------------------------------------
Name: C. Ray Boelig
Title: President and CEO
<PAGE> 7
Exhibit B(1-7)
WAIVER AND SUBORDINATION AGREEMENT
This is an Agreement dated February 22, 1996 by and between BayBank, N.A.
("BayBank"), Bitstream Inc. ("Bitstream") and (LENDER) ("Lender") regarding the
subordination of an unsecured loan made by Lender to Bitstream in the amount of
(AMOUNT) in accordance with a Loan Agreement of even date (the "Junior Debt") to
the liabilities of Bitstream to BayBank under a Credit Agreement dated July 14,
1995, and all amendments thereto (the "Loan Agreement"). This Agreement is made
for good and valuable consideration, and as an inducement for BayBank to provide
financial accommodations from time to time to and for Bitstream in reliance
hereon, as follows:
1. Lender and Bitstream agree with BayBank that all Junior Debt is and
shall remain subject to the Obligations (as such term is defined in the Loan
Agreement), and that all rights and remedies of Lender under the Junior Debt are
and shall remain subject to and subordinate to the Obligations.
2. BayBank hereby waives any restrictions under the Loan Agreement that
would prevent Bitstream from incurring, accepting or remaining obligated in
respect of the Junior Debt (including, without limitation, Sections 11.1 & 11.9
of the Loan Agreement).
3. Unless and until the Obligations are repaid in full or the within
Agreement is terminated by written agreement of BayBank, Lender shall not
3.1. Demand, accept, or receive from Bitstream any payment or other
value on account of the Junior Debt;
3.2. Set off or otherwise apply all or any part of the Junior Debt
towards satisfaction of any obligation of Lender to Bitstream; or
3.3. Exercise any of Lender's rights or remedies with respect to the
Junior Debt.
4. Notwithstanding anything to the contrary in the foregoing Section 3,
BayBank shall terminate the within Agreement promptly upon the written request
of Bitstream for the purpose of enabling Bitstream to repay the Junior Debt as
long as the following condition is met prior to the planned repayment, and would
continue to be met after such repayment is taken into account:
4.1. Bitstream shall not be in default of any of Bitstream's financial
covenants under the Loan Agreement, as measured for the most recent full
quarter immediately preceding the Bitstream's planned repayment.
<PAGE> 8
5. Unless and until the within Agreement is terminated as provided
herein, Bitstream shall not make any payment or give any value to Lender on
account of the Junior Debt, nor execute, give, or deliver any evidence of,
collateral for, or payment of the Junior Debt.
6. The within Agreement shall be binding upon the Lender, Bitstream and
their respective heirs, executors, administrators, representatives, successors,
and assigns, and shall enure to the benefit of BayBank, and BayBank's successors
and assigns.
7. It is intended that this Agreement take effect as a sealed instrument
and be governed by the laws of the Commonwealth of Massachusetts. Bitstream and
Lender submit to the jurisdiction of the courts of said Commonwealth for all
purposes in connection with the within instrument.
BayBank: Dated: February 22, 1996
---------------------------
By: Stephen C. Buzzell
Vice President, High Technology Group
Bitstream: Dated: February 22, 1996
--------------------------
By: C. Ray Boelig
President & CEO
Lender: Dated:
----------------------------- ----------------------
(LENDER)
<PAGE> 1
Exhibit 10.5.1
AMENDMENT
TO
LOAN AGREEMENT
AND TO
WAIVER AND SUBORDINATION AGREEMENTS
This is an amendment to the loan agreement dated February 22, 1996 (the
"Loan Agreement") by and among Bitstream Inc., a Massachusetts corporation
having its principal executive office at 215 First Street, Cambridge, Mass.
02142 (the "Company"), and the undersigned lenders of the Company pursuant to
the Loan Agreement ("Lenders"), and to the Waiver and Subordination Agreements,
also dated February 22, 1996 (the "Subordination Agreements"), by and among the
Lenders, the Company, and BayBank, N.A. ("BayBank"). The effective date of this
Amendment is August 22, 1996.
A. The Loan Agreement provided for the Lenders to loan to the
Company various sums comprising a total amount of $600,000, and the Company
gave each of the Lenders a promissory note (the "Note" or, collectively, the
"Notes") for each such sum providing for all principal and interest under each
Note to fall due and payable on August 22, 1996;
B. The Subordination Agreements among the parties were premised on
the said August 22, 1996 due date under the Notes; and
C. All of the parties to the Loan Agreement wish to extend the due
date for the Company to repay the Notes to October 22, 1996.
NOW THEREFORE, for good and valuable consideration, the Company, the
Lenders and BayBank hereby agree as follows:
1. Loan Agreement.
1.1. Each of the undersigned Lenders hereby waives the August 22,
1996 payment due date under the Note given to him or it by the Company,
and agrees to extend the said due date to October 22, 1996.
1.2. The Company hereby agrees to honor and abide by the said
extended due date of October 22, 1996, agrees that all other terms of
all Notes shall remain unchanged, including that the prepayment
penalties provided therein shall apply to the said extended date.
2. Subordination Agreements.
2.1. BayBank hereby consents and agrees to the said extended due
date with respect to each Subordination Agreement, such that all rights,
remedies, and penalties provided for therein shall apply to the
<PAGE> 2
AMENDMENT TO LOAN AGREEMENT AND TO PAGE 2
WAIVER AND SUBORDINATION AGREEMENTS AUGUST 22, 1996
said date as though that were the repayment date originally
contemplated by the parties.
2.2 Each of the Lenders and the Company hereby reaffirm to
BayBank their obligations under each of their respective
Subordination Agreements as they apply to the said extended due
date.
3. All other provisions of the Loan Agreement and the
Subordination Agreements shall remain unchanged hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the effective date.
JHI DEVELOPMENT CAPITAL GOTTHARD BANK (NASSAU BRANCH)
LIMITED ACTING FOR THE ACCOUNT OF CERTAIN OF ITS
CLIENTS AND THEIR RESPECTIVE REGISTERED ASSIGNS
By: By:
-------------------------- -----------------------------
BANCBOSTON VENTURES, INC. BVB GRANTOR RETAINED INCOME
TRUST I
By: By:
-------------------------- -----------------------------
- ----------------------------- --------------------------------
Amos Kaminski George B. Beitzel
- ----------------------------- --------------------------------
David G. Lubrano Morton E. Goulder
BITSTREAM INC.
By: /s/ James D. Hart
-------------------------------------
James D. Hart
Treasurer and Chief Financial Officer
BAYBANK, N.A.
By: /s/ Stephen C. Buzzell
-------------------------------------
Stephen C. Buzzell
V.P., High Technology Group
<PAGE> 1
EXHIBIT 10.8
BITSTREAM INC.
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
Dated as of May 1, 1996
Mr. James D. Hart
19 Skywood Road
Chappaqua, New York 10514
Re: Terms of Employment with Bitstream Inc.
Dear Mr. Hart:
Bitstream Inc., a Massachusetts corporation (the "Company"), hereby
agrees to employ you and, upon your execution of this letter in the space set
forth for your signature below, you hereby agree to serve as the Chief Financial
Officer, Vice-President and Treasurer of the Company (or any successor thereto
in the event of the consummation of the contemplated merger of the Company with
and into its wholly-owned subsidiary, Bitstream Inc., a Delaware corporation).
In addition, you shall, if requested by the Chairman of the Board of Directors
of the Company, serve as a director of the Company and as a director and/or
senior officer of any affiliate of the Company, if so elected or named, without
any additional salary or other compensation or benefits.
Subject to the control and direction of the Chairman, the President and
the Board of Directors of the Company and any committees thereof, you shall have
such powers and duties as generally pertain to a Chief Financial Officer,
Vice-President and Treasurer and you shall perform your duties diligently,
faithfully and to the best of you ability and in accordance with sound business
practices.
Your employment with the Company shall commence as of the date hereof
and shall be terminable at the will of the Company. During the first year of
your employment with the Company, you shall receive a base salary of one hundred
thirty thousand dollars ($130,000), payable in accordance with the standard
payroll practices of the Company. In addition, upon your execution and delivery
of this letter, you will be provided with a signing bonus in the amount of
fifteen thousand dollars ($15,000). While you are an employee of the Company you
shall be entitled to participate in all group health and insurance programs and
all other fringe benefit or retirement plans or other plans effective generally
with respect to senior executives of the Company, subject to your satisfying all
of the eligibility requirements thereof.
To assist you with the moving and relocation expenses you and your
family will incur in relocating from Chappaqua, New York to the Boston,
Massachusetts area, the Company shall provide you with a one-time payment of
thirty-five thousand dollars ($35,000) (the "Relocation Payment"), such
Relocation Payment to be provided to you no later than July 31, 1996. In
consideration of such Relocation Payment and the other compensation payable to
you by the
<PAGE> 2
Mr. James D. Hart
Page 2
Company pursuant to the terms hereof, you hereby agree to relocate to the
Boston, Massachusetts area promptly after your execution of this letter, and in
any event no later than August 31, 1996. In addition to the Relocation Payment
which the Company has agreed to provide to you pursuant to the terms hereof, in
order to assist you and your family with your moving and relocation expenses,
the Company hereby agrees to provide you with a loan in the aggregate amount of
sixty-five thousand dollars ($65,000) (the "Loan"), such Loan to be provided to
you on the earlier of (i) May 31, 1996, or (ii) the date of your relocation to
the Boston, Massachusetts area. The Loan shall be repayable on the terms and
subject to the conditions set forth in the promissory note annexed hereto as
Exhibit A (the "Note"), such Note to be executed and delivered by you to the
Company in conjunction with the making of the Loan to you by the Company.
The terms and conditions of this letter constitute the entire agreement
between you and the Company with respect to your employment with the Company and
supersede all prior agreements and understandings between you and the Company
with respect to the subject matter hereof.
Please acknowledge your consent and agreement to the foregoing terms of
this letter by signing the enclosed three (3) extra copies of this letter in the
space provided for your signature below. Please retain one (1) signed copy of
this letter for your records and return the other two (2) signed copies of this
letter to the Company's President and Chief Executive Officer, C. Raymond Boelig
at your earliest convenience.
Very truly yours,
BITSTREAM INC.
By: /s/ C. Raymond Boelig
---------------------------------
Name: C. Raymond Boelig
Title: President
ACCEPTED AND AGREED
IN ALL RESPECTS:
By: /s/ James D. Hart
--------------------------------
JAMES D. HART
<PAGE> 3
EXHIBIT A
PROMISSORY NOTE
$65,000 Dated as of May 31, 1996
Cambridge, Massachusetts
FOR VALUE RECEIVED, JAMES D. HART (the "Maker"), hereby
promises to pay to the order of BITSTREAM INC., a Massachusetts corporation, or
any successor, assignee or transferee thereof (the "Payee"), in lawful money of
the United States of America and in immediately available funds, the principal
sum of Sixty-Five Thousand Dollars ($65,000) (the "Loan"). The Loan shall bear
interest at the per annum rate of 6.66% from and after the date of the making of
the Loan through the date of the payment in full of all interest and principal
amounts payable hereunder.
Interest on the outstanding principal amount of this Loan
shall be due and payable in arrears on the last day of each and every March,
June, September and December, commencing on September 30, 1996 (each such date
to be a "Payment Date"), until the obligations evidenced by this Note are paid
in full. The principal amount of this Loan shall be repaid in twenty-eight (28)
equal installments of two thousand three hundred twenty-one dollars and
forty-three cents ($2,321.43) each, such payments to commence on September 30,
1999 and to be made on each and every Payment Date thereafter, with the
twenty-eighth and final such installment to be due and payable on May 31, 2006
and to be in the amount of the unpaid balance of the Loan. In the event that the
date on which any payment of principal or interest hereunder would otherwise be
due and payable is a Saturday or Sunday or a day on which banks in the City of
Boston, Massachusetts are not open for the transaction of regular business, such
payment shall be due and payable on the next business day following such date.
Payments of both principal and interest hereunder shall be
made to the Payee at 215 First Street, Cambridge, Massachu- setts 02142, or at
such other place as the Payee shall from time to time designate to the Maker in
writing.
If the Maker shall default in the payment of the principal or
interest hereof, the Maker promises, on demand, to pay interest on any overdue
amount at a rate equal to five (5%) percent per annum above the applicable rate
of interest payable on this Note at the time that such default shall occur, or
the maximum rate permitted by applicable law to be charged to the Maker,
whichever is less, from the date such payment is due to the date of actual
payment.
The Maker may prepay this Note in whole or in part, together
with all accrued and unpaid interest hereon to and including the date of such
prepayment, without the prior consent of the Payee and without penalty or
premium.
The Maker waives presentment, demand for payment, notice of
dishonor, notice of protest, notice of demand and all
<PAGE> 4
other notices or demands in connection with the delivery, acceptance,
performance or default of this Note. No delay or failure on the part of the
Payee to exercise any right or power shall operate as a waiver thereof and such
rights and powers shall be deemed continuous, nor shall a partial exercise
preclude full exercise thereof; and no right or remedy of the Payee shall be
deemed abridged or modified by any course of conduct and no waiver thereof shall
be predicated thereon, nor shall the failure to exercise any such right or power
subject the Payee to any liability.
If this Note is not paid in full on the Due Date, the Maker
agrees to pay all costs and expenses of collection, including, without
limitation, reasonable attorneys' fees and expenses.
If the Maker's employment with the Payee, or any affiliate
thereof, continues without interruption from the date hereof through May 31,
1999, the Payee shall forgive the repayment by the Maker of the unpaid principal
amount outstanding with respect to the Loan and all interest accrued and unpaid
hereunder on such date; provided, however, that if the Maker's employment with
the Payee and all affiliates thereof, is terminated prior to May 31, 1999, by
reason of the Maker's death or disability (i.e. the Maker shall be unable for a
period of six (6) consecutive months or nine (9) months in any twelve (12) month
period, because of a physical or mental illness or condition, to substantially
render the services and duties he performs on behalf of the Payee, or any
affiliate thereof) or by reason of a termination of the Maker without "Cause"
(as hereinafter defined) by the Payee (or any successor thereto in the event of
a change in control of the Payee resulting from the acquisition of fifty percent
(50%) or more of the voting securities of the Payee by any person or persons,
whether by tender or exchange offer or otherwise, or a merger, consolidation or
other disposition or transfer of all or substantially all of the business or
assets of the Payee), the Payee shall forgive the repayment by the Maker of the
unpaid principal amount outstanding with respect to the Loan and all interest
accrued and unpaid hereunder on the date of such termination. The Maker shall be
solely responsible for the Maker's own federal, state and local taxes of any
kind or nature whatsoever, arising out of, or resulting from, the forgiveness by
the Payee of the repayment of the principal amount due and payable with respect
to the Loan and the payment of any interest accrued and unpaid thereon.
Upon the termination of Maker's employment with the Payee (i)
by the Maker prior to May 31, 1999, for any reason whatsoever (other than the
Maker's death or disability), or (ii) by the Payee for "Cause" (as hereinafter
defined), the unpaid principal amount outstanding with respect to the Loan shall
become immediately due and payable on the date of termination of the Maker's
employment with the Payee, together with all accrued and unpaid interest thereon
and together with all other amounts payable under this Note, without
presentment, demand of payment or notice of any kind.
-2-
<PAGE> 5
As used in this Note, the term for "Cause" shall mean and
include any of the following events:
(i) fraud, misappropriation or embezzlement of
funds or property by the Maker involving the Payee or any
affiliate thereof;
(ii) the conviction of the Maker in any jurisdiction
for any crime which constitutes a felony, or which constitutes
a misdemeanor that involves fraud, moral turpitude or material
loss to the Payee or any affiliate thereof, or any of their
respective businesses or reputations;
(iii) the Maker's willful misconduct in, or neglect
of, the performance of his duties and responsibilities on
behalf of the Payee or any affiliate thereof, or the Maker's
repeated violation of any reasonable specific written
directions of the Chairman, the President or the Board of
Directors of the Payee or any committee thereof; or
(iv) the Maker's breach of the agreements and
covenants set forth in any confidentiality or noncompetition
agreement he has entered into with the Payee or any affiliate
thereof, whether prior to or from and after the date hereof.
The Maker agrees that this Note and the rights and obligations
of the parties hereunder shall be governed by and construed in accordance with
the laws and decisions of the Commonwealth of Massachusetts without reference to
conflict of laws principles. This Note shall not be changed or terminated orally
and shall be binding upon and inure to the benefit of the Maker and the Payee,
and their respective successors, transferees and assigns.
IN WITNESS WHEREOF, the undersigned has signed this Note as of
May 31, 1996.
By:
------------------------------
JAMES D. HART
-3-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Bitstream World Trade, Inc. a Delaware corporation
Bitstream, B.V., a Dutch corporation
Bitstream S.A.R.L., a French corporation
Bitstream Pacific Pty. Ltd., an Australian corporation
Bitstream B.V. France, a French corporation
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
To Bitstream Inc.:
As independent public accountants, we hereby consent to the use of our
reports dated April 30, 1996 (except with respect to the matters discussed in
Note 1(k) and Note 10(d), as to which the date is May 21, 1996) (and to all
references to our Firm) included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER
ENDED 3-31-96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1
REGISTRATION STATEMENT #33- .
</LEGEND>
<CIK> 0000818813
<NAME> BITSTREAM, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 686,000
<SECURITIES> 0
<RECEIVABLES> 3,346,000
<ALLOWANCES> 375,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,542,000
<PP&E> 3,207,000
<DEPRECIATION> 2,356,000
<TOTAL-ASSETS> 5,957,000
<CURRENT-LIABILITIES> 2,813,000
<BONDS> 0
0
32,000
<COMMON> 3,000
<OTHER-SE> 2,817,000
<TOTAL-LIABILITY-AND-EQUITY> 5,957,000
<SALES> 5,411,000
<TOTAL-REVENUES> 5,411,000
<CGS> 808,000
<TOTAL-COSTS> 808,000
<OTHER-EXPENSES> 3,601,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,000
<INCOME-PRETAX> 1,002,000
<INCOME-TAX> (86,000)
<INCOME-CONTINUING> 1,044,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,044,000
<EPS-PRIMARY> .24
<EPS-DILUTED> 0
</TABLE>
