<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
COMMISSION FILE NUMBER: 0-21541
BITSTREAM INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2744890
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
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(Address of principal executive offices) (Zip Code)
(617) 497-6222
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On August 10, 1998 there were 6,721,072 shares of Class A Common Stock, par
value $0.01 per share, and no shares of Class B Common Stock, par value $0.01
per share, outstanding.
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<TABLE>
<CAPTION>
INDEX
PAGE
NUMBERS
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 (UNAUDITED) AND
DECEMBER 31, 1997 (AUDITED)......................................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
AND SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED). 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED) AND 1997 (UNAUDITED) ..................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................... 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................... 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS...................... 14
ITEM 5. OTHER INFORMATION....................................................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................ 15
SIGNATURES....................................................... 16
</TABLE>
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PART I -- FINANCIAL STATEMENTS
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
BITSTREAM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
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(UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,843,000 $ 6,364,000
Accounts receivable, net of allowance for doubtful 3,114,000 3,694,000
accounts
Current portion of long-term accounts receivable
and extended plan accounts receivable, net of
allowance for doubtful accounts 769,000 1,855,000
Deferred income taxes 868,000 868,000
Other current assets 446,000 684,000
----------- ------------
Total current assets 11,040,000 13,465,000
----------- ------------
Property and equipment, net 1,299,000 1,399,000
----------- ------------
Other assets
Long-term accounts receivable, net of current portion 49,000 39,000
Goodwill, net of amortization 1,719,000 1,948,000
Investment in DiamondSoft, Inc. 450,000 --
Other assets 186,000 158,000
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Total other assets 2,404,000 2,145,000
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Total assets $14,743,000 $ 17,009,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of capital lease obligations $ 27,000 $ 28,000
Accounts payable 713,000 753,000
Accrued expenses 3,569,000 3,472,000
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Total current liabilities 4,309,000 4,253,000
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Capital lease obligations, less current maturities 42,000 54,000
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Other long-term liabilities 1,000 19,000
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Total long-term liabilities 43,000 73,000
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Stockholders' equity
Common stock 67,000 65,000
Additional paid-in capital 30,402,000 29,940,000
Accumulated deficit (20,039,000) (17,283,000)
Cumulative translation adjustment (39,000) (39,000)
----------- ------------
Total stockholders' equity 10,391,000 12,683,000
----------- ------------
Total liabilities and stockholders' equity $14,743,000 $ 17,009,000
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
BITSTREAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ---------------------------
1998 1997 1998 1997
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 3,304,000 $ 3,163,000 $ 6,145,000 $ 5,685,000
Cost of revenues 691,000 485,000 884,000 774,000
----------- ----------- ----------- -----------
Gross Profit 2,613,000 2,678,000 5,261,000 4,911,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling and marketing 1,980,000 1,603,000 3,871,000 2,819,000
Research and development 1,304,000 649,000 2,625,000 1,157,000
General and administrative 437,000 564,000 613,000 989,000
Acquired in-process
research and development -- 4,930,000 4,930,000 --
Severance and other
non-recurring compensation 520,000 1,371,000 960,000 1,371,000
----------- ----------- ----------- -----------
Total operating expenses 4,241,000 9,117,000 8,069,000 11,266,000
----------- ----------- ----------- -----------
Loss from operations (1,628,000) (6,439,000) (2,808,000) (6,355,000)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Equity in loss of investment
in DiamondSoft, Inc. (50,000) -- (50,000) --
Other income, net 64,000 171,000 170,000 342,000
----------- ----------- ----------- -----------
Total other income 14,000 171,000 120,000 342,000
----------- ----------- ----------- -----------
Loss before provision for income (1,614,000) (6,268,000) (2,688,000) (6,013,000)
taxes ----------- ----------- ----------- -----------
Provision for income taxes 45,000 118,000 69,000 141,000
----------- ----------- ----------- -----------
Net loss $(1,659,000) $(6,386,000) $(2,757,000) $(6,154,000)
=========== =========== =========== ===========
Basic and diluted net loss $ (0.25) $ (1.02) $ (0.42) $ (1.01)
=========== =========== =========== ===========
per share Shares used in computing basic
and diluted net loss per common share 6,701,002 6,285,567 6,650,360 6,108,613
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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BITSTREAM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................. (2,757,000) (6,154,000)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Acquired In-process research and development ........... -- 4,930,000
Depreciation and amortization .......................... 575,000 201,000
Compensation on grant of stock options ................. 322,000 --
Equity in loss of DiamondSoft, Inc. .................... 50,000 --
Changes in current assets and liabilities:
Accounts receivable .................................. 579,000 (180,000)
Long-term accounts receivable ........................ 1,087,000 104,000
Other current assets ................................. 228,000 278,000
Accounts payable ..................................... (39,000) (297,000)
Accrued expenses ..................................... 96,000 1,852,000
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Net cash provided by operating activities............. 141,000 734,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ....................... (246,000) (130,000)
Acquisition of businesses ................................. -- (4,141,000)
Investment in DiamondSoft, Inc. ........................... (500,000) --
Change in other assets .................................... (27,000) 81,000
Change in other long term liabilities ..................... -- 18,000
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Net cash used in investing activities ................ (773,000) (4,172,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations ..................... (13,000) (23,000)
Payments on IPO offering expenses ......................... -- (68,000)
Change in other long term liabilities ..................... (18,000) --
Proceeds from the exercise of stock options and warrants .. 142,000 49,000
----------- ------------
Net cash provided by (used in) financing activities . 111,000 (42,000)
----------- ------------
Net decrease in cash and cash equivalents ................... (521,000) (3,480,000)
Cash and cash equivalents, beginning of period .............. 6,364,000 11,718,000
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Cash and cash equivalents, end of period .................... $ 5,843,000 $ 8,238,000
----------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .................................... $ 4,000 $ 2,000
=========== ============
Cash paid for income taxes ................................ $ -- $ 118,000
=========== ============
IN CONNECTION WITH THE ACQUISITION OF BUSINESSES (SEE NOTE 6)
THE FOLLOWING NON-CASH TRANSACTIONS OCCURRED:
Fair value of assets acquired ............................. -- $ 7,959,000
Liabilities assumed ....................................... -- (914,000)
Issuance of common stock .................................. -- (1,608,000)
Issuance of options to purchase common stock .............. -- (1,296,000)
----------- ------------
Cash paid for acquisition and acquisition costs ........... -- $ 4,141,000
=========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
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BITSTREAM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(1) BASIS OF PRESENTATION
The consolidated financial statements of Bitstream Inc. (the "Company" or
"Bitstream") presented herein, without audit, have been prepared pursuant to the
rules of the Securities and Exchange Commission (the "SEC") for quarterly
reports on Form 10-Q and do not include all of the information and footnote
disclosures required by generally accepted accounting principles. The balance
sheet information at December 31, 1997 has been derived from the Company's
audited consolidated financial statements. These statements should be read in
conjunction with the financial statements and notes thereto for the period ended
December 31, 1997 included in the Company's Annual Report on Form 10-K which was
filed by the Company with the SEC on March 31, 1998.
The balance sheet as of June 30, 1998, the statements of operations for the
three and six months ended June 30, 1998 and 1997, the statements of cash flows
for the six months ended June 30, 1998 and 1997, and the notes to each thereof
are unaudited, but in the opinion of management include all adjustments
necessary for a fair presentation of the consolidated financial position,
results of operations, and cash flows of the Company and its subsidiaries for
these interim periods.
The results of operations for the three and six months ended June 30, 1998
may not necessarily be indicative of the results to be expected for any future
interim period or for the year ending December 31, 1998.
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, BV (a Dutch
corporation); Bitstream S.A.R.L. (a French corporation); Bitstream BV France (a
French corporation); Mainstream Software Solutions (an English corporation) and
Archetype, Inc. (a Delaware corporation). All material intercompany transactions
and balances have been eliminated in consolidation.
(2) NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. SFAS No. 128 established standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. The Company has applied the provisions
of SFAS No. 128 and SEC Staff Accounting Bulletin (SAB) No. 98 retroactively to
all periods presented.
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Diluted net loss
per share for the three and six month periods ended June 30, 1998 are the same
as basic net loss per share as the inclusion of the potential common stock
equivalents would be antidilutive. Antidilutive securities which consist of
options and warrants that are not included in diluted net loss per common share
are 2,903,084 for the three and six month periods ended June 30, 1998 and
2,891,127 for the three and six month periods ended June 30, 1997.
(3) 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.
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For the three months ended June 30, 1998, no customer represented greater
than 10% of revenues. For the three months ended June 30, 1997, two customers
represented 11.8% and 13.5% of revenues, respectively.
For the six months ended June 30, 1998 and 1997, no customer represented
greater than 10% of revenues.
(4) COMPREHENSIVE LOSS
The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The components of the Company's comprehensive
income are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss........................... $(1,659,000) $(6,386,000) $(2,757,000) $(6,154,000)
Cumulative translation adjustment,
net of tax........................ (39,000) (41,000) (39,000) (41,000)
----------- ----------- ----------- -----------
Total comprehensive loss........... $(1,698,000) $(6,427,000) $(2,796,000) $(6,195,000)
=========== =========== =========== ===========
</TABLE>
(5) RECENTLY ISSUED ACCOUNTING STANDARDS
In July 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, Disclosures About Segments of an Enterprise and Related Information.
SFAS No. 131 requires certain financial and supplementary information to be
disclosed on an annual and interim basis for each reportable segment of an
enterprise. Reportable segments, as defined by this statement, correspond to the
way management organizes units and evaluates performance internally, and may be
based upon products, geography, legal entity, management structure or a
combination of these methods. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997, and interim period reporting is not required
until interim periods beginning after December 15, 1998. The Company believes
that the adoption of SFAS No. 131 will not have a material impact on its
financial results or financial position.
(6) ACQUISITIONS
MAINSTREAM SOFTWARE SOLUTIONS, LTD.
In January 1997, the Company purchased substantially all of the assets of
Mainstream Software Solutions Ltd., a corporation organized under the laws of
England primarily engaged in the business of marketing, selling, distributing
and supporting the Company's type products in the United Kingdom, for
approximately $505,000. As a result, the Company directly distributes its own
products in the United Kingdom. The acquisition was accounted for as a purchase
and resulted in approximately $450,000 of goodwill.
ARCHETYPE, INC.
In April 1997, the Company acquired Archetype, Inc. ("Archetype"), a
Delaware corporation primarily engaged in the business of developing and
marketing server-based information management computer software for the graphic
arts industry, pursuant to an Agreement and Plan of Merger, dated March 27, 1997
among the Company, Archetype, and Archetype Acquisition Corporation, a newly
organized wholly owned subsidiary of the Company. Archetype's products include:
MediaBank(TM), a digital asset management product that allows for the
cataloging, archiving, and management of electronic images, text and documents;
InterSep(TM) OPI and InterSep
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Output Manager, advanced open prepress interfaCE and print management products
for raster image processors and servers; and NuDoc(TM), AN advanced document
composition technology.
In connection with the Merger, Archetype stockholders received an aggregate
of approximately $1.3 million in cash and 510,000 shares of the Company's Class
A Common Stock in exchange for their shares of Archetype capital stock. In
addition, the Company satisfied approximately $1.8 million of obligations and
indebtedness owed by Archetype, and issued options and warrants (the "Options")
to purchase approximately 605,000 shares of the Company's Class A Common Stock,
in order to induce the former Archetype employees and other persons receiving
such Options to become employees of, or perform certain services for, the
Company and/or to replace certain outstanding options and warrants issued by
Archetype. Of these options, 405,000 have an exercise price of $.90 per share
and were issued under the Company's 1996 Stock Plan and the remaining 200,000
have an exercise price of $3.94 per share and were issued under the Company's
1997 Stock Plan.
The Merger was accounted for as a purchase, and accordingly, the initial
purchase price and acquisition costs aggregating approximately $7.5 million has
been allocated to the assets acquired as described below. The aggregate purchase
price of $7,454,000 consisted of the following:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ----------
<S> <C>
Common stock and stock options.......... $2,904,000
Cash paid to shareholders and for the
retirement of certain obligations..... 3,056,000
Assumed liabilities..................... 1,094,000
Acquisition costs....................... 400,000
----------
Total purchase price.................... $7,454,000
==========
</TABLE>
The purchase price allocations represent the fair values of assets acquired
determined by an independent appraisal. The appraisal incorporated established
valuation procedures and techniques in determining the fair value of each asset.
The purchase price has been allocated as follows:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
------------ ----------
<S> <C>
Current assets......................... $ 431,000
Property, plant and equipment.......... 207,000
Other assets........................... 54,000
In-process research and development.... 4,930,000
Other acquired intangible assets....... 1,832,000
----------
Total assets acquired.................. $7,454,000
==========
</TABLE>
The amount allocated to in-process research and development related to
projects that had not yet reached technological feasibility and that, until
completion of the development, had no alternative future use. These projects
will require substantial high risk development and testing by the Company prior
to reaching technological feasibility. Accordingly, the Company charged the
purchase price to operations in the year ended December 31, 1997.
Based on the unaudited data, the following table presents selected financial
information for Bitstream and Archetype on a pro forma basis for the three and
six month periods ended June 30, 1997, assuming the companies had been combined
since the beginning of 1997.
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<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1997
------------------------------
<S> <C> <C>
Revenues ................................... $ 3,467,000 $ 6,747,000
----------- -----------
Net loss ................................... (6,858,000) (6,797,000)
----------- -----------
Basic and diluted net loss per share........ $ (1.02) $ (1.03)
=========== ===========
</TABLE>
The pro forma results are not necessarily indicative of future operations or
the actual results that would have occurred had the acquisition been made on
January 1, 1997.
(7) INVESTMENTS
On March 13, 1998, the Company made a $500,000 equity investment in
DiamondSoft, Inc. ("DiamondSoft"), a California corporation primarily engaged in
the business of developing, marketing and distributing software tools to a
variety of professional markets. This equity investment involved the purchase of
250,000 shares of DiamondSoft's Series A Convertible Preferred Stock at a price
of $2.00 per share representing a 25% ownership interest. In addition, pursuant
to a letter agreement with DiamondSoft dated March 17, 1998, the Company will
market DiamondSoft's FontReserve software to hardware and software developers
and DiamondSoft will license the Company's Font Navigator software to retailers
and corporate users.
(8) SEVERANCE AND OTHER NON-RECURRING CHARGES
Included in operating expenses for the three and six month periods ended
June 30, 1998 are $520,000 and $960,000, respectively, of severance and other
non-recurring compensation expenses incurred in connection with certain
severance arrangements between the Company and certain former employees and
executives. Operating expenses for the three and six months ended June 30, 1997
reflect $1.4 million for severance and other non-recurring compensation expenses
incurred in connection with the acquisition of Archetype and certain
arrangements between the Company and certain former executives.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Bitstream Inc. develops, markets and supports software products and
technologies to enhance the creation, management and transport of electronic
documents. The Company is organized into two operating divisions. The Type and
Technology division primarily licenses its products, including text imaging and
page layout 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 Archetype Applications division develops
server-based publishing applications that are sold to publishers, advertising
agencies, and other major corporations.
The Company's products and technologies consist of: (i) MediaBank, a
digital asset management product that allows for the cataloging, archiving, and
management of electronic images, text and documents; (ii) InterSep OPI and
InterSep Output Manager, advanced open prepress interface and print management
for clients working with raster image processors and servers; (iii) NuDoc, an
advanced document composition technology; (iv) type products, such as libraries
of type designs (fonts) and custom type products; (v) enabling technologies,
which deliver typographic capabilities to hardware output devices and software
applications; and (vi) TrueDoc(R), a portable type technologY providing for the
efficient distribution of text, with fidelity, in a highly compact format.
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. The Company
has focused its product development and marketing efforts on technology
solutions that address the font-related issues of document creation and
portability in the Internet and corporate intranets.
The Company derives revenues principally from the following sources: (i)
licensing fees and royalty payments paid by OEM and ISV customers for text
imaging and page layout technologies; (ii) direct and indirect sales of software
publishing applications for the creation, enhancement, management, transport,
viewing and printing of electronic information; (iii) direct sales of custom and
other type products to end users such as graphic artists, desktop publishers and
corporations; and (iv) 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, and
any royalty fees paid to third parties for rights to license typefaces.
Operating expenses consist primarily of sales and marketing expenses
(principally compensation and marketing programs), research and development
expenses and general and administrative expenses.
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IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue results from computer programs that do not
differentiate between the year 1900 and the year 2000 because they are written
using two digits rather than four to define the applicable year. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. The Company is in the process of updating its accounting
and information systems, where applicable, to ensure that its computer systems
are Year 2000 compliant. In addition, the Company maintains a Year 2000 expert
on its staff. The financial impact to the Company of its Year 2000 compliance
programs has not been and is not anticipated to be material to its financial
position or results of operations in any given year. While the Company does not
believe it will suffer any major effects from the Year 2000 issue, it is
possible that such effects could materially impact future financial results, or
cause reported financial information not to be necessarily indicative of future
operating results or future financial condition.
RESULTS OF OPERATIONS
REVENUES. Total revenues for the three months ended June 30, 1998
increased by $140,000 or 4.4%, to approximately $3.30 million, as compared to
approximately $3.16 million for the three months ended June 30, 1997.
Total revenues for the six months ended June 30, 1998 increased by
$460,000 or 8.1%, to approximately $6.15 million, as compared to approximately
$5.69 million for the six months ended June 30, 1997.
The increase in revenues for the three and six months ended June 30, 1998
as compared to the three and six months ended June 30, 1997, respectively, is
due to additional revenues from the inclusion of Archetype revenues for entire
periods ended June 30, 1998 versus inclusion of Archetype revenues from April
28, 1997 in the periods ended June 30, 1997 offset by a decrease in revenues due
to a decrease in demand in OEM channels for the Company's traditional type
products and slower than anticipated growth in emerging markets for the
Company's type and technology products.
GROSS PROFIT. Gross profit for the three months ended June 30, 1998
decreased by $70,000, or 2.6%, to approximately $2.61 million compared to
approximately $2.68 million for the three months ended June 30, 1997. Gross
profit as a percentage of revenues for the three months ended June 30, 1998
decreased to 79.1% compared to 84.7% for the three months ended June 30, 1997.
Gross profit for the six months ended June 30, 1998 increased by
$350,000, or 7.1%, to approximately $5.26 million compared to approximately
$4.91 million for the six months ended June 30, 1997. Gross profit as a
percentage of revenues for the six months ended June 30, 1998 decreased to 85.6%
compared to 86.4% for the six months ended June 30, 1997. The decrease in gross
profit, as a percentage of revenues, reflects the increase in the cost of third
party royalties for the mix of products sold during the three and six months
ended June 30, 1998.
SELLING AND MARKETING. Selling and marketing expenses for the three
months ended June 30, 1998 increased by $380,000, or 23.8%, to approximately
$1.98 million compared to approximately $1.60 million for the three months ended
June 30, 1997. Selling and marketing expenses as a percentage of revenues for
the three months ended June 30, 1998 increased to 59.9% from 50.7% for the three
months ended June 30, 1997.
Selling and marketing expenses for the six months ended June 30, 1998
increased by $1.05 million, or 37.2%, to approximately $3.87 million compared to
approximately $2.82 million for the six months ended June 30, 1997. Selling and
marketing expenses as a percentage of revenues for the six months ended June 30,
1998 increased to 63.0% from 49.5% for the six months ended June 30, 1997.
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<PAGE> 12
The increase in selling and marketing expenses in dollars, and as a
percentage of revenues, for the three and six months ended June 30, 1998 as
compared to the three and six months ended June 30, 1997, respectively, reflect
the addition of travel, trade show and other marketing program expenses from
Archetype operations for the entire three and six months ended June 30, 1998
compared to the inclusion of Archetype operations only from April 28, 1997 in
the three and six months ended June 30, 1997
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
months ended June 30, 1998 increased by $651,000, or 100.3%, to $1.30 million
compared to $649,000 for the three months ended June 30, 1997. Research and
development expenses as a percentage of revenues for the three months ended June
30, 1998 increased to 39.5% from 20.5% for the three months ended June 30, 1997.
Research and development expenses for the six months ended June 30, 1998
increased by $1.47 million, or 126.7%, to $2.63 million compared to $1.16
million for the six months ended June 30, 1997. Research and development
expenses as a percentage of revenues for the six months ended June 30, 1998
increased to 42.7% compared to 20.4% for the six months ended June 30, 1997.
The increase in research and development expenses in dollars, and as a
percentage of sales, for the three and six months ended June 30, 1998 as
compared to the three and six months ended June 30, 1997, respectively, reflect
the ongoing investment in additional research and development personnel to
support expanded development of the Company's enabling technologies, as well as
the addition of Archetype research and development expenses for the entire three
and six months ended June 30, 1998 compared to the inclusion of Archetype
operations only from April 28, 1997 in the three and six months ended June 30,
1997. Research and development expenses consist primarily of personnel costs and
fees paid for outside software development and consulting fees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended June 30, 1998 decreased by $127,000, or 22.5%, to $437,000
compared to $564,000 for the three months ended June 30, 1997. As a percentage
of revenues, general and administrative expenses represented 13.2% for the three
months ended June 30, 1998 as compared to 17.8% for the three months ended June
30, 1997.
General and administrative expenses for the six months ended June 30,
1998 decreased by $376,000, or 38.0%, to $613,000 compared to $989,000 for the
six months ended June 30, 1997. General and administrative expenses represented
9.9% of revenues for the six months ended June 30, 1998 compared to 17.4% for
the six months ended June 30, 1997.
The decreases in general and administrative expenses in dollars, and as a
percentage of sales, for the three and six months ended June 30, 1998 as
compared to the three and six months ended June 30, 1997, respectively, are
primarily due to the elimination of duplicative general and administrative
functions and administrative costs, including rent, utilities and other costs
associated with Archetype's Burlington, Massachusetts office.
Operating expenses for the three and six months ended June 30, 1998
include $520,000 and $960,000, respectively, for severance and other
non-recurring compensation expenses. Operating expenses for the three and six
months ended June 30, 1997 reflect $1.4 million for severance and other
non-recurring compensation expenses incurred in connection with the acquisition
of Archetype and certain arrangements between the Company and certain former
high-level executives.
The Company recorded a tax provision consisting of foreign tax
liabilities, relating mainly to sales to customers in Japan, for the three and
six months ended June 30, 1998 of $45,000 and $69,000, respectively, as compared
to $118,000 and $141,000 for the three and six months ended June 30, 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through the public sale
of equity securities and cash flow from operations.
-12-
<PAGE> 13
The Company's operating activities provided cash of approximately
$141,000 for the six months ended June 30, 1998 as compared to $734,000 for the
six months ended June 30, 1997. The cash provided during the six months ended
June 30, 1998 was primarily due to the operating loss of $2.76 million offset by
non-cash charges of $947,000 as well as cash provided by the net change in
accounts receivable balances of approximately $1.1 million.
The Company's investing activities used cash of approximately $773,000
for the six months ended June 30, 1998 as compared to $4.17 million for the six
months ended June 30, 1997. Investing activities for the six months ended June
30, 1998 consisted primarily of an equity investment of $500,000 in DiamondSoft,
Inc., a California corporation primarily engaged in the business of developing,
marketing and distributing software tools to a variety of professional markets
and the purchase of property and equipment of $246,000. For the six months ended
June 30, 1997, investing activities consisted primarily of the purchase of
Archetype, as well as the purchase of substantially all of the assets of
Mainstream Software Solutions, Ltd.
The Company's financing activities provided cash of $111,000 for the six
months ended June 30, 1998 and used cash of $42,000 for the six months ended
June 30, 1997. The cash provided in the six months ended June 30, 1998 was
primarily due to proceeds from the exercise of stock options.
In August, the Company obtained a three-month $1 million revolving line
of credit from a commercial lender. This line bears interest at the bank's base
rate and is secured by all of the Company's investment property. This line
replaces the Company's $2 million unsecured working capital line of credit which
expired on July 15, 1998. There were no borrowings outstanding under this line
of credit at June 30, 1998.
The Company believes its current cash balances and the availability of
its revolving line of credit will be sufficient to meet the Company's operating
and 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.
From time to time, the Company evaluates potential acquisitions of
products, businesses and technologies that may complement or expand the
Company's business. Any such transactions consummated may use a portion of the
Company's working capital or require the issuance of equity or debt.
Except for the historical information contained herein, this Quarterly
Report on Form 10-Q may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Investors are cautioned that
forward-looking statements are inherently uncertain. Actual performance and
results of operations may differ materially from those projected or suggested in
the forward-looking statements due to certain risks and uncertainties,
including, without limitation, market acceptance of the Company's products,
competition and the timely introduction of new products. Additional information
concerning certain risks and uncertainties that would cause actual results to
differ materially from those projected or suggested in the forward-looking
statements is contained in the Company's filings with the Securities and
Exchange Commission, including those risks and uncertainties discussed in the
Company's final Prospectus, dated October 30, 1996, included as part of the
Company's Registration Statement on Form S-1 (Commission File No. 333-11519), in
the section entitled "Risk Factors." The forward-looking statements contained
herein represent the Company's judgment as of the date of this report, and the
Company cautions readers not to place undue reliance on such statements.
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<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) There were no unregistered securities sold by the Company during the six
months ended June 30, 1998.
(b) Use of Proceeds
As of June 30, 1998, the net proceeds of the Company's initial public
offering (IPO) of its Class A Common Stock pursuant to its Registration
Statement on Form S-1, Commission File No. 333-11519, declared effective October
30, 1996, have been used as follows: (i) approximately $200,000 for the buildout
of Bitstream's leased facilities in Cambridge, Massachusetts to accommodate the
additional personnel that joined the Company as a result of the acquisition of
Archetype; (ii) approximately $4,141,000 for the acquisition of Mainstream
Software Solutions, Ltd. and Archetype, Inc.; (iii) approximately $1,500,000 for
the repayment of indebtedness, of which approximately $548,000 was paid to
officers, directors and 10% stockholders of the Company and approximately
$762,000 of which was paid to third parties; (iv) approximately $404,000 for
royalty payments to others; (v) $500,000 for the investment in DiamondSoft,
Inc.; and (vi) approximately $700,000 for the purchase and installation of
equipment. The remaining of the net proceeds from the IPO are invested in
short-term, interest-bearing, investment-grade securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On June 9, 1998, the Annual Meeting of Stockholders of the Company was
held at the Royal Sonesta Hotel, 5 Cambridge Parkway, Cambridge, Massachusetts
02142.
(b) George B. Beitzel, Charles Ying, Amos Kaminski and David G. Lubrano
were elected at the Annual Meeting to serve as directors of the Company.
(c) At the Annual Meeting, the Stockholders also voted to approve and ratify
the adoption of an amendment to the Company's 1997 Stock Plan to increase the
number of shares of Class A Common Stock reserved under such Plan by 500,000
shares and to ratify the action of the Board of Directors in appointing Arthur
Andersen LLP as auditors for the Company for the fiscal year ending December 31,
1998.
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<PAGE> 15
The following votes were tabulated on the aforementioned proposals:
1. To elect a board of four (4) directors to serve until the next Annual Meeting
of Stockholders or until their respective successors are elected and qualified.
Nominee For Withheld Authority
------- --- ------------------
George B. Beitzel 5,351,699 53,500
Charles Ying 5,351,699 53,500
Amos Kaminski 5,350,699 53,400
David G. Lubrano 5,350,699 53,500
2. To approve and ratify the adoption of an amendment to the Company's 1997
Stock Plan to increase the number of shares of Class A Common Stock reserved
under such Plan by 500,000 shares.
For Against Abstain Broker Non-vote
--- ------- ------- ---------------
1,650,291 101,302 980,990 2,672,616
3. To ratify the action of the Board of Directors in appointing Arthur Andersen
LLP as auditors for the Company for the fiscal year ending December 31, 1998.
For Against Abstain Broker Non-vote
--- ------- ------- ---------------
5,346,079 47,930 11,190 0
(d) Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.4.9 Fourth Amendment to Amended and Restated Credit Agreement dated
as of July 15, 1998 between BankBoston, N.A. and Company.
10.4.10 Commercial Demand Note dated August 10, 1998 between BankBoston,
N.A. and the Company.
10.4.11 Pledge Agreement dated August 10, 1998 between BankBoston, N.A.
and the Company.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BITSTREAM INC.
---------------------
(Registrant)
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Anna M. Chagnon Vice President, Finance and August 14, 1998
- ------------------- Administration, Chief Financial
Anna M. Chagnon Officer and General Counsel
(Principal Financial Officer)
/s/ Keith J. Maffiore Director of Finance and Corporate August 14, 1998
- --------------------- Controller (Principal Accounting
Keith J. Maffiore Officer)
-16-
<PAGE> 1
EXHIBIT 10.4.9
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Fourth Amendment to Amended and Restated Credit Agreement (this
"Agreement") is made as of July 15, 1998 by and between BITSTREAM INC., a
Delaware corporation with a place of business at 215 First Street, Cambridge,
Massachusetts 02142 (the "Borrower") and BANKBOSTON, N.A., successor by merger
with BayBank, N.A., formerly known as BayBank, with an address at 100 Federal
Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Bank and the Borrower have entered into a loan arrangement
as of July 14, 1995, evidenced by, among other documents (the "Loan Documents"),
a certain Credit Agreement dated as of July 14, 1995 by and between Borrower and
Bank, as amended and restated by a certain Amended and Restated Credit Agreement
dated March 18, 1996, as amended by a certain First Amendment to Amended and
Restated Credit Agreement dated June 28, 1996, as amended by a certain Second
Amendment to Amended and Restated Credit Agreement dated August 29, 1997, as
amended by a certain Third Amendment to Amended and Restated Credit Agreement
dated March 20, 1998 (as amended, the "Credit Agreement"). Terms used but not
defined herein are used with the meanings ascribed to them in the Credit
Agreement.
WHEREAS, the Borrower has requested, and the Bank has agreed, to amend
certain terms of the Loan Documents, as more particularly set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt, adequacy
and sufficiency of which is hereby acknowledged, the parties hereto agree,
effective as of the date hereof, as follows:
The Credit Agreement shall be amended by deleting the following text
appearing as Section 9.1 on Page 30 thereof:
"9.1 PROFITABILITY. The Borrower shall not incur an operating
loss of greater than: (i) $1,000,000.00 for fiscal year 1997,
exclusive of acquisition and non-recurring charges incurred during
the second quarter of 1997, and (ii) $500,000.00 for the first two
quarters of fiscal 1998."
and substituting in lieu thereof the following text:
"9.1 PROFITABILITY. The Borrower shall not incur an operating
loss of greater than: (i) $1,000,000.00 for fiscal year 1997,
exclusive of acquisition and non-recurring charges incurred during
the second quarter of 1997, and (ii) $2,800,000.00 for the first two
quarters of fiscal 1998."
CONDITIONS. The effectiveness of this Agreement shall be subject to
the compliance by the Borrower with its representations, warranties,
covenants and agreements contained herein and in the Loan Documents after
giving effect to the amendments thereto contemplated hereby, and to the
prior satisfaction of the following further conditions:
CORPORATE DUE DILIGENCE. The Borrower shall deliver to the
Bank evidence that all necessary corporate actions in connection
with the making of this Agreement and the transactions contemplated
hereby and thereby have been taken by the Borrower.
BANK'S EXPENSES. The Borrower shall pay all of the Bank's
reasonable out-of-pocket expenses, including the attorneys' fees
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<PAGE> 2
and disbursements of the Bank's counsel, Riemer & Braunstein, in
connection with this Agreement, the transactions contemplated hereby
and the matters referred to herein and the Loan Documents.
GENERAL. All instruments and legal and corporate proceedings
in connection with this Agreement and the transactions contemplated
hereby shall be satisfactory in form and substance to the Bank and
its counsel, and the Bank and its counsel shall have received copies
of all documents, including records of corporate authority, which
the Bank and its counsel may have requested in connection therewith.
REPRESENTATIONS AND WARRANTIES. The Borrower hereby represent
and warrants that:
AUTHORITY. The Borrower has taken all action necessary to
enter into this Agreement and all agreements and instruments
executed by the Borrower in connection herewith.
INCORPORATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in each of the Loan
Documents, after giving effect to the within amendments, are true
and correct on and as of the date hereof.
NO DEFAULT, ETC. No breach of any of the Loan Documents,
as amended by this Amendment, exists on the date hereof.
COVENANTS AND AGREEMENTS. The Borrower hereby reaffirms each of the
covenants and agreements of the Borrower set forth in each of the Loan
Documents. As hereby amended, the Loan Documents are hereby ratified and
confirmed in all respects.
MISCELLANEOUS. The invalidity or uneforceability of any term or
provision hereof shall not affect the validity or enforceability of any
other term or provision hereof. The headings in this Agreement are for
convenience of reference only and shall not alter or otherwise affect the
meaning hereof.
This Agreement may be executed in any number of counterparts which
together shall constitute one instrument and shall be governed by and construed
in accordance with the laws (other than the conflict of law rules) of The
Commonwealth of Massachusetts and shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
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<PAGE> 3
Executed as a sealed instrument as of the day and year first written
above.
WITNESS: BITSTREAM INC.
/s/ Paul Trevithick By: /s/ Anna Chagnon
---------------- ----------------
Name: Anna Chagnon
Title: Vice President, Finance And
Administration
WITNESS: BANKBOSTON, N.A.
By:
- ---------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 1
EXHIBIT 10.4.10
COMMERCIAL DEMAND NOTE
- ----------------------
$1,000,000.00 Boston, Massachusetts
August 10, 1998
FOR VALUE RECEIVED, the undersigned (hereinafter, referred to as the
"Borrower") promises to pay to the order of BANKBOSTON, N.A. (together with any
successors or assigns, the "Bank"), ON DEMAND, at the Head Office of the Bank,
100 Federal Street, Boston, Massachusetts, One Million Dollars ($1,000,000.00)
with interest thereon at a floating rate equal to the Base Rate.
Interest shall be payable in arrears on the last day of the month
following the date hereof and on the same day of each month thereafter, and
otherwise, ON DEMAND by the Bank. The interest rate hereunder shall change as
and when the Base Rate changes. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed including holidays and days
on which the Bank is not open for the conduct of banking business.
SECTION 1. REVOLVING CREDIT; PAYMENT TERMS.
--------------------------------
1-1. ESTABLISHMENT OF REVOLVING CREDIT. The Bank hereby establishes a
revolving line of credit (hereinafter, the "Revolving Credit") in the Borrower's
favor pursuant to which the Bank shall make loans and advances and otherwise
provide financial accommodations to and for the account of the Borrower as
provided herein. The amount of the Revolving Credit shall be an amount equal to
One Million Dollars ($1,000,000.00) (the "Revolving Credit Amount"). All loans
made by the Bank under this Note, and all of the Borrower's other Obligations
(as defined below) to the Bank under or pursuant to this Note, are payable the
earlier of: (i) DEMAND by the Bank, and (ii) October 24, 1998. Prior to October
24, 1998 or the making of DEMAND hereunder, whichever is earlier, the Borrower
may request financial accommodations in an amount equal to the Revolving Credit
Amount, less any outstanding advances hereunder, the aggregate amounts then
undrawn on all outstanding letters of credit, acceptances, or any other
accommodations issued or incurred by the Bank for the account and/or benefit of
the Borrower.
1-2. PROCEDURES FOR BORROWING.
(a) The Borrower may request loans pursuant to the Revolving Credit
from time to time hereafter in accordance with the procedures set forth in
Section 1-2(b), below. At the time of each loan made under or pursuant to this
Note, the Borrower shall immediately become indebted to the Bank for the amount
thereof.
(b) The Borrower may request loans under the Revolving Credit in
multiples of One Hundred Thousand Dollars ($100,000.00) in such manner as may
from time to time be acceptable to the Bank, and which may include, without
limitation, (i) telephone notice to such person as may be designated by the Bank
or (ii) written notice.
(c) Upon the making of any request by or on behalf of the Borrower
for a loan, advance, or credit under the Revolving Credit, the Borrower shall be
deemed to have certified that as of the date of such request, the following
representations above, are each true and correct:
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<PAGE> 2
(i) there has been no material adverse change in the
Borrower's financial condition from the most recent financial information
furnished the Bank pursuant to this Note; and
(ii) the Borrower is in compliance with, and has not
breached any of, its covenants contained in this Note; and
(iii) no Suspension Event (as that term is defined herein) is
then occurring; and
(iv) no event has occurred nor failed to occur which
occurrence or failure is, or with the passage of time or giving of notice
(or both), would constitute, an Event of Default (as described herein),
whether or not the Bank has exercised any of its rights upon such
occurrence or failure.
(c) As used herein, the term "Suspension Event" means and refers to any
occurrence (A) which is an Event of Default or (B) which would become an
Event of Default if the notice and/or the running of the period of time
specified for that occurrence were to be given and/or were to run and such
occurrence were not cured within any applicable grace period, if any.
1-3. USE OF PROCEEDS. The proceeds from this Note shall be used
solely to fund the working capital requirements of the Borrower.
1-4. PAYMENTS; PREPAYMENTS. All payments hereunder shall be made by the
Borrower to the Bank in United States currency at the Bank's address specified
above (or at such other address as the Bank may specify), in immediately
available funds, on or before 2:00 p.m. (Boston, Massachusetts time) on the due
date thereof. Payments received by the Bank prior to the occurrence of an Event
of Default will be applied FIRST to fees, expenses and other amounts due
hereunder (excluding principal and interest); SECOND, to accrued interest; and
THIRD to outstanding principal. After the occurrence of an Event of Default
payments will be applied to the Obligations under this Note as the Bank
determines in its sole discretion. Unless this Note bears interest at a fixed
rate, the Borrower may pay all or a portion of the amount owed earlier than it
is due without penalty. If this Note is payable in installments, prepayments
shall be applied to installments of principal in the inverse order of the date
on which they become due. AMOUNTS PREPAID MAY BE REBORROWED AT ANY TIME.
1-5. DEFAULT RATE. To the extent permitted by applicable law, upon and
after the Bank has made DEMAND on this Note, interest on principal and overdue
interest shall, at the option of the Bank, be payable at a rate per annum (the
"Default Rate") equal to three percent (3.0%) per annum above the rate of
interest otherwise payable hereunder.
1-6. LATE PAYMENT CHARGE. Without limitation of the foregoing Section 1.5,
if a payment of principal or interest hereunder is not made on its due date, the
Borrower shall pay a late charge equal to two percent (2.0%) of any payment not
made when due. Nothing in the preceding sentence shall affect the Bank's right
to make DEMAND at any time on this Note.
1-7. DEPOSIT ACCOUNT. The Borrower shall maintain with the Bank a
commercial demand deposit account. The Borrower requests and authorizes the
Bank to debit such account in an amount equal to the amount of principal,
interest, fees, charges or expenses due and payable under the terms of this
Note on each date such amounts become due and payable. The Borrower shall
maintain sufficient collected balances in this account to pay any such amounts
as they become due.
1-8. REPAYMENTS. In the event that the amount of the Revolving Credit
Amount decreases below the then principal balance of such loans, the Borrower
shall immediately pay to the Bank the amount by which such principal balance
exceeds the Revolving Credit Amount.
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<PAGE> 3
1-9. STATEMENTS RENDERED BY BANK. Any statement rendered by the Bank to
the Borrower concerning the Obligations shall be considered correct and accepted
by the Borrower and shall be conclusively binding upon the Borrower unless the
Borrower provides the Bank with written objection thereto within twenty (20)
days from the mailing of such statement, which written objection shall indicate,
with particularity, the reason for such objection. The Bank's books and records
concerning the loan arrangement contemplated herein and the Borrower's
Obligations shall be prima facie evidence and proof of the items described
therein.
SECTION 2. DEFAULTS AND REMEDIES.
----------------------
2-1. DEFAULT. The occurrence of any of the following events or
conditions shall constitute an "Event of Default" hereunder:
(a) (i) default in the payment when due of the principal of or
interest on this Note or (ii) any other default in the payment or performance of
this Note or of any other Obligation or (iii) default in the payment or
performance of any obligation of the Borrower to others for borrowed money or in
respect of any extension of credit or accommodation or under any lease;
(b) failure of any representation or warranty of the Borrower
hereunder or under any agreement or instrument constituting or relating to any
collateral for the Obligations or of any representation of warranty, statement
or information in any documents or financial statements delivered to the Bank in
connection herewith to be true and correct;
(c) failure to furnish the Bank promptly on request with financial
information about, or to permit inspection by the Bank of any books, records and
properties of, the Borrower;
(d) default or breach of any condition under any mortgage, security
agreement, assignment of lease, or other agreement securing or otherwise
relating to any collateral for the Obligations, including, without limitation, a
certain Pledge Agreement between Borrower and Bank of even date;
(e) the Borrower generally not paying its debts as they become
due;
(f) death, dissolution, termination of existence, insolvency,
appointment of a receiver or other custodian of any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceedings under any bankruptcy or insolvency laws by or against, or any change
in control of the Borrower; or
(g) change in the condition or affairs (financial or otherwise) of
the Borrower which in the opinion of the Bank will increase its risk.
The occurrence of an Event of Default hereunder shall constitute an Event of
Default under all other loan arrangements between the Borrower and the Bank.
2-2. REMEDIES. Upon DEMAND made by the Bank (whether or not an Event of
Default has occurred), all Obligations of the Borrower shall become immediately
due and payable without notice and, if the Obligations are secured, the Bank
shall then have in any jurisdiction where enforcement hereof is sought, in
addition to all other rights and remedies provided by agreement or at law or in
equity, the rights and remedies of a secured party under the Uniform Commercial
Code of Massachusetts. All rights and remedies of the Bank are cumulative and
are exclusive of any rights or remedies provided by law or any other agreement,
and may be exercised separately or concurrently.
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<PAGE> 4
SECTION 3. DEFINITIONS.
------------
For purposes of this Note, the following definitions shall apply:
"Base Rate" means the higher of (a) the annual rate of interest announced
from time to time by the Bank at its head office in Boston, Massachusetts as its
"base rate" and (b) one half of one percent (1/2%) above the overnight federal
funds effective rate as published by the Board of Governors of the Federal
Reserve System, as in effect from time to time;
"Obligation" means any obligation hereunder or otherwise of the Borrower
to the Bank or to any of its Affiliates, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising; and
"Obligor" means the Borrower, any guarantor or any other person primarily
or secondarily liable hereunder or in respect hereof, including any person or
entity who has pledged or granted to the Bank a security interest or other lien
in property on behalf of the Borrower to constitute collateral for the
Obligations.
SECTION 4. MISCELLANEOUS.
--------------
4-1. DUE ORGANIZATION AND CORPORATE AUTHORIZATION. The Borrower presently
is and shall hereafter remain in good standing as a corporation in that State in
which it was incorporated and is and shall hereafter remain duly qualified and
in good standing in every other State in which, by reason of the nature or
location of the Borrower's assets or operation of the Borrower's business, such
qualification may be necessary. The execution and delivery of this Note and of
any other documents, instruments, and agreements executed in connection herewith
constitute representations by the individual signing this Note and said
instruments and by the Borrower that such execution and delivery have received
all such corporate authorization as may be necessary to permit such execution
and delivery to, and that they do, bind the Borrower.
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<PAGE> 5
4-2. WAIVER; AMENDMENT. No delay or omission on the part of the Bank in
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Note. No waiver of any right or amendment hereto shall be
effective unless in writing and signed by the Bank nor shall a waiver on one
occasion be construed as a bar to or waiver of any such right on any future
occasion. Without limiting the generality of the foregoing, the acceptance by
the Bank of any late payment shall not be deemed to be a waiver of the Event of
Default arising as a consequence thereof. Each Obligor waives presentment,
demand, notice, protest, and all other demands and notices in connection with
the delivery, acceptance, performance, default or enforcement of this Note or of
any collateral for the Obligations, and assents to any extensions or
postponements of the time of payment or any and all other indulgences under this
Note or with respect to any such collateral, to any and all substitutions,
exchanges or releases of any such collateral, or to any and all additions or
releases of any other parties or persons primarily or secondarily liable
hereunder, which from time to time be granted by the Bank in connection herewith
regardless of the number or period of any extensions.
4-3. SECURITY; SET-OFF. The Borrower grants to the Bank, as security for
the full and punctual payment and performance of the Obligations, a continuing
lien on and security interest in all securities or other property belonging to
the Borrower now or hereafter held by the Bank and in all deposits (general or
special, time or demand, provisional or final) and other sums credited by or due
from the Bank to the Borrower or subject to withdrawal by the Borrower; and
regardless of the adequacy of any collateral or other means of obtaining
repayment of the Obligations, the Bank is hereby authorized at any time and from
time to time, without notice to the Borrower (any such notice being expressly
waived by the Borrower) and to the fullest extent permitted by law, to set off
and apply such deposits and other sums against the Obligations of the Borrower,
whether or not the Bank shall have made any demand under this Note and although
such Obligations may be contingent or unmatured.
4-4. EXPENSES. The Borrower will pay on demand all reasonable expenses of
the Bank in connection with the preparation, default, collection or enforcement
of this Note or any collateral for the Obligations, or any waiver or amendment
of any provision of any of the foregoing, including, without limitation,
attorneys fees of outside legal counsel, and including, without limitation, any
fees or expenses associated with any travel, and the amount of all such expenses
shall, until paid, bear interest at the rate applicable to principal hereunder
(including any default rate) and be an Obligation secured by such collateral.
4-5. BANK RECORDS. The entries on the records of the Bank (including
any appearing on this Note) shall be prima facie evidence of the aggregate
principal amount outstanding under this Note and interest accrued thereon.
4-6. FINANCIAL INFORMATION. The Borrower shall furnish the Bank from time
to time with such financial statements and other information relating to the
Borrower as the Bank may require. Financial information about the Borrower
furnished to the Bank shall be true and correct and fairly represent the
financial condition of the Borrower as of the date(s) furnished and the
operating results of the Borrower for the periods for which the same are
furnished. The Borrower shall permit representatives of the Bank to inspect its
books and records, and to make copies or abstracts thereof.
4-7. GOVERNING LAW, CONSENT TO JURISDICTION. This Note is intended to take
effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its conflicts of laws rules. The Borrower agrees that any suit for the
enforcement of this Note may be brought in the courts of The Commonwealth of
Massachusetts or any Federal Court sitting in such Commonwealth and consents to
the non-exclusive jurisdiction of each such court and to service of process in
any such suit being made upon the Borrower by mail at the address specified
below. The Borrower hereby waives any objection that it may now or hereafter
have to the venue of any such suit or any such court or that such suit was
brought in an inconvenient court.
4-8. SEVERABILITY; AUTHORIZATION TO COMPLETE; PARAGRAPH HEADINGS. If any
provision of this Note shall be invalid, illegal or unenforceable, such
provisions shall be severable from the remainder of this Note and the validity,
legality and enforceability of the remaining provisions shall not in any way
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<PAGE> 6
be affected or impaired thereby. Paragraph headings are for the convenience of
reference only and are not a part of this Note and shall not affect its
interpretation.
4-9. JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE
BORROWER AGREE THAT NEITHER OF THEM, INCLUDING ANY ASSIGNEE OR SUCCESSOR SHALL
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER
LITIGATION PROCEDURE BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG
ANY OF THEM. NEITHER THE BANK NOR THE BORROWER SHALL SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE
BANK AND THE BORROWER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER THE BANK NOR THE BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
4-10. DEMAND NATURE OF OBLIGATIONS. The Borrower acknowledges and agrees
that all principal, interest and other fees, charges, costs and expenses now or
hereafter advanced, accrued or otherwise outstanding or owing pursuant to this
Note are payable ON DEMAND. NOTWITHSTANDING ANY PROVISION CONTAINED IN ANY OTHER
DOCUMENT TO THE CONTRARY, THE BANK'S RIGHT TO MAKE DEMAND IS UNCONDITIONAL AND
UNLIMITED. Provisions contained in this Note providing times or schedules for
periodic payments are intended to govern payments hereunder unless and until
demand for payment is made. The Borrower hereby acknowledges and agrees that the
occurrence or continuance of any event of default or any failure by the Borrower
to observe or perform any covenant or agreement contained in this Note or in any
other instrument, document or agreement securing or otherwise entered into in
connection with this Note shall not be required in order to make any such
demand. The Borrower agrees that the Bank may make demand, at any time, in the
exercise of Bank's sole discretion, for immediate payment of any or all
principal, interest and other fees, charges, costs and expenses now or hereafter
outstanding under this Note, notwithstanding timely payments by the Borrower in
accordance with the times and schedules for payments hereunder, and whether or
not any such default or failure has occurred. The Borrower agrees that, in
exercising its discretion, the Bank may make demand for any reasons which it
deems appropriate, and such reasons may be related or unrelated to the Borrower,
its business or financial condition or prospects. The Bank's right to make
demand is a continuing right, and acceptance by the Bank of any payment after
demand shall not be deemed a waiver of such right to make demand on any other
occasion.
Witness: BITSTREAM INC.
By: /s/ Anna M. Chagnon
/s/ Paul Trevithick --------------------
- -------------------
Name: Anna Chagnon
-------------------
Title: Vice President, Finance
And Administration
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<PAGE> 1
EXHIBIT 10.4.11
PLEDGE AGREEMENT
- -----------------------------------------------------------------
Date August 10, 1998
1. To secure the prompt, punctual, and faithful performance of all and
each of the Liabilities (as that term is defined herein) of the undersigned
(hereinafter, the "Borrower") to BANKBOSTON, N.A., a national banking
association with its principal office at 100 Federal Street, Boston,
Massachusetts (hereinafter, the "Bank"), the Borrower hereby grants to the Bank
a security interest in and to, and assigns, pledges, and delivers to the Bank
the following property, and all products, proceeds, substitutions, additions,
interest, dividends, and other distributions (including, without limitation,
stock splits) in respect thereto, and all books, records, and papers relating to
the foregoing (all of which is referred to hereinafter as the "Collateral"):
CASH AND CASH EQUIVALENTS (AS DEFINED HEREIN) CONTAINED IN BORROWER'S
ACCOUNT NO. 527000017 WITH THE BANK ENTITLED "BITSTREAM AS COLLATERAL TO
BKB - INTRADER"
2. The Borrower represents that the Collateral is held and owned by the
Borrower free and clear of all liens, encumbrances, attachments, security
interests, pledges, and charges, and if the Collateral is securities, is fully
paid for and nonassessable.
3. The Borrower shall
(1) execute all such instruments, documents, and papers, and will do
all such acts as the Bank may request from time to time to carry into
effect the provisions and intent of this Agreement, including, without
limitation, the execution of stop transfer orders, stock powers,
notifications to obligors on the Collateral, the providing of
notifications in connection with book entry securities or general
intangibles, and the providing of instructions to the issuers of
uncertificated securities, and will do all such other acts as the Bank
may request with respect to the perfection and protection of the
security interest granted herein and the assignment effected hereby;
(2) keep the Collateral free and clear of all liens, encumbrances,
attachments, security interests, pledges, and charges;
(3) deliver to the Bank, if and when received by the Borrower, any
item representing or constituting any of the Collateral, including,
without limitation, all cash dividends and all stock certificates
whether now existing or hereafter received as a result of any stock
dividends, stock splits or other transaction;
(4) upon the request of the Bank, cause the issuer of any
uncertificated securities comprising any of the Collateral to issue
certificates with respect thereto;
(5) upon the request of the Bank, cause certificated securities
comprising any of the Collateral to be issued in the name of the Bank,
as pledgee;
(6) not cause or permit any of the Collateral presently evidenced by
written certificates to be converted to uncertificated securities;
(7) not exercise any right with respect to the Collateral which
would dilute or adversely affect the Bank's rights in the Collateral;
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<PAGE> 2
(8) not file any affidavit for replacement of lost stock
certificates or bonds with respect to the Collateral; and
(9) not vote the Collateral in favor of or consent to any resolution
which might
(1) impose any restrictions upon the sale, transfer, or disposition
of the Collateral; or
(2) result in the issuance of any additional shares of stock of any
class; or
(3) vest additional powers, privileges, preferences, or priorities
to any other class of stock; and
(10) maintain at all times the value of the Collateral at an amount
no less than One Million One Hundred Thousand Dollars ($1,100,000.00).
If the value of the Collateral at any time is less than $1,100,000.00,
the Borrower shall immediately furnish the Bank with additional
Collateral in the form of cash or Cash Equivalents (as defined herein)
acceptable to the Bank at an amount equal to said deficit.
4. Upon the occurrence of any one or more of the following events of
default (herein, "Events of Default"), any and all Liabilities of the Borrower
to the Bank shall become immediately due and payable at the option of the Bank
and without notice or demand, in addition to which the Bank may exercise the
Bank's rights and remedies upon default. The occurrence of any such Event of
Default shall also constitute, without notice or demand, a default under all
other agreements between the Bank and the Borrower and instruments and papers
given the Bank by the Borrower, whether now existing or hereafter arising: (a)
The failure by the Borrower to pay upon demand (or when due, if not payable on
demand) any of the Liabilities; (b) The failure by the Borrower to promptly,
punctually, and faithfully perform, discharge, or comply with any Liability; (c)
The determination by the Bank that any representation or warranty heretofore,
now or hereafter made by the Borrower to the Bank, in any document, instrument,
agreement, or paper was not true or accurate when given; (d) The occurrence of
any event such that any indebtedness of the Borrower from any lender other than
the Bank could be accelerated, notwithstanding that such acceleration has not
taken place; (e) The occurrence of any event of default under any agreement
between the Bank and the Borrower or instrument or paper given the Bank by the
Borrower, whether such agreement, instrument, or paper now exists or hereafter
arises (notwithstanding that the Bank may not have exercised its rights upon
default under any such other agreement, instrument or paper); (f) Any act by,
against, or relating to the Borrower, or its property or assets, which act
constitutes the application for, consent to, or sufferance of the appointment of
a receiver, trustee, or other person, pursuant to court action or otherwise,
over all, or any part of the Borrower's property; the granting of any trust
mortgage or execution of an assignment for the benefit of the creditors of the
Borrower, or the occurrence of any other voluntary or involuntary liquidation or
extension of debt agreement for the Borrower; the failure by the Borrower to
generally pay the debts of the Borrower as they mature; adjudication of
bankruptcy or insolvency relative to the Borrower; the entry of an order for
relief or similar order with respect to the Borrower in any proceeding pursuant
to the Bankruptcy Reform Act of 1978 (commonly referred to as the Bankruptcy
Code) or any other federal bankruptcy law; the filing of any complaint,
application, or petition by or against the Borrower initiating any matter in
which the Borrower is or may be granted any relief from the debts of the
Borrower pursuant to the Bankruptcy Code or any other insolvency statute or
procedure; the calling or sufferance of a meeting of creditors of the Borrower;
the meeting by the Borrower with a formal or informal creditors' committee; the
offering by or entering into by the Borrower of any composition, extension or
any other arrangement seeking relief or extension for the debts of the Borrower,
or the initiation of any other judicial or non-judicial proceeding or agreement
by, against, or including the Borrower which seeks or intends to accomplish a
reorganization or arrangement with creditors; (g) The imposition of any lien
upon any assets of the Borrower or the entry of any judgment against the
Borrower, which lien is not discharged or judgment is not satisfied or appealed
from (with execution or similar process stayed) within fifteen (15) days of its
imposition or entry; (h) The occurrence of any event or circumstance with
respect to the Borrower such that the Bank deems itself insecure; (i) The entry
of any court order which enjoins, restrains or in any way prevents the Borrower
from conducting all or any part of its business affairs in the ordinary course;
(j) The service
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<PAGE> 3
of any process upon the Bank seeking to attach by mesne or trustee process any
funds of the Borrower on deposit with the Bank; (k) Any material change in the
identity, authority, or responsibilities of any person having management or
policy authority with respect to the Borrower from that existing at the
execution of this Agreement; (l) The occurrence of any loss, theft, damage,
destruction, sale (other than sales in the ordinary course of business) or
encumbrance to or of any of the assets of the Borrower; (m) Any act by, against,
or relating to the Borrower or its assets pursuant to which any creditor of the
Borrower seeks to reclaim or repossess or reclaims or repossesses all or any
portion of the Borrower's assets; (n) The death, termination of existence,
dissolution, winding up, or liquidation of the Borrower; (o) The merger or
consolidation of the Borrower with or into any other corporation or other
entity; (p) The occurrence of any of the foregoing Events of Default with
respect to any guarantor, endorser, or surety to the Bank of the Liabilities, or
the occurrence of any of the foregoing Events of Default with respect to any
parent (if the Borrower is a corporation), subsidiary, or affiliate of the
Borrower, as if such guarantor, endorser, surety, parent, subsidiary, or
affiliate were the "Borrower" described therein; (q) The termination of any
guaranty by any guarantor of the Liabilities.
5. Upon the occurrence of any Event of Default, and at any time
thereafter, the Bank shall have all of the rights and remedies of a secured
party upon default under the Uniform Commercial Code as adopted in
Massachusetts, in addition to which the Bank may sell or otherwise dispose of
the Collateral and/or enforce and collect the Collateral (including, without
limitation, the liquidation of debt instruments or securities and the exercise
of conversion rights with respect to convertible securities, whether or not such
instruments or securities have matured and whether or not any penalties or other
charges are imposed on account of such action), for application towards (but not
necessarily in complete satisfaction of) the Liabilities. The Borrower shall
remain liable to the Bank for any deficiency remaining following such
application. Unless the Collateral is perishable, threatens to decline speedily
in value, or is of a type customarily sold on a recognized market (in which
event the Bank shall give the Borrower such notice as may be practicable under
the circumstances), the Bank shall give the Borrower at least the greater of the
minimum notice required by law or seven (7) days prior written notice of the
date, time, and place of any public sale thereof or of the time after which any
private sale or any other intended disposition is to be made. The Borrower
acknowledges that any exercise by the Bank of the Bank's rights upon default may
be subject to compliance by the Bank with any statute, regulation, ordinance,
directive, or order of any federal, state, municipal, or other governmental
authority, including, without limitation, any of the foregoing restricting the
sale of securities. The Bank, in its sole discretion at any such sale, may
restrict the prospective bidders or purchasers as to their number, nature of
business and investment intention, and impose without limitation, a requirement
that the persons making such purchases represent and agree, to the satisfaction
of the Bank, that they are purchasing the Collateral for their own account, for
investment, and not with a view to the distribution or resale thereof. The
proceeds of any collection or of any sale or disposition of the Collateral held
pursuant to this Agreement shall be applied towards the Liabilities in such
order and manner as the Bank determines in its sole discretion, any statute,
custom, or usage to the contrary notwithstanding.
6. The Borrower hereby designates the Bank as and for the attorney-in-
fact of the Borrower to: endorse in favor of the Bank any of the Collateral;
cause the transfer of any of the Collateral in such name as the Bank may, from
time to time, determine; cause the issuance of certificates for book entry
and/or uncertificated securities; renew, extend, or roll over any Collateral;
and make demand and initiate actions to enforce any of the Collateral. The Bank
may take such action with respect to the Collateral as the Bank may reasonably
determine to be necessary to protect and preserve its interest in the
Collateral. The Bank shall also have and may exercise at any time all rights,
remedies, powers, privileges, and discretions of the Borrower with respect to
and under the Collateral, provided, however, the Bank shall have no right to
exercise any voting rights available to holders of the Collateral at any time
the Collateral is held by the Bank solely as pledgee hereunder, and whether or
not an Event of Default has occurred. All of the rights, remedies, powers,
privileges and discretions included in this Paragraph 6, may be exercised by the
Bank whether or not any of the Liabilities are then due and whether or not an
Event of Default has occurred. The within designation, being coupled with an
interest, is irrevocable until the within instrument is terminated by a written
instrument executed by a duly authorized officer of the Bank. The power of
attorney shall not be affected by subsequent disability or incapacity of the
Borrower. The Bank shall not be liable for any act or omission to act pursuant
to this Paragraph except for any act or omission to act which is in actual bad
faith.
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<PAGE> 4
7. The rights, remedies, powers, privileges, and discretions of the
Bank hereunder (hereinafter, the "Bank's Rights and Remedies") shall be
cumulative and not exclusive of any rights, remedies, powers, privileges or
discretions which it otherwise may have. No delay or omission by the Bank in
exercising or enforcing any of the Bank's Rights and Remedies shall operate as,
or constitute, a waiver thereof. No waiver by the Bank of any Event of Default
or of any default under any other agreement shall operate as a waiver of any
other default hereunder or under any other agreement. No exercise of any of the
Bank's Rights and Remedies and no other agreement or transaction of whatever
nature entered into between the Bank and the Borrower at any time shall preclude
any other exercise of the Bank's Rights and Remedies. No waiver by the Bank of
any of the Bank's Rights and Remedies on any one occasion shall be deemed a
waiver on any subsequent occasion, nor shall it be deemed a continuing waiver.
All of the Bank's Rights and Remedies and all of the Bank's rights, remedies,
powers, privileges, and discretions under any other agreement or transaction are
cumulative and not alternative or exclusive and may be exercised by the Bank at
such time or times and in such order of preference as the Bank in its sole
discretion may determine.
8. As used herein, the following terms have the following meanings:
(1) "Liability" and "Liabilities" include, without limitation, any
and all liabilities, debts, and obligations of the Borrower to the Bank
and any and all liabilities, debts, and obligations of every endorser,
guarantor, and surety of the Borrower to the Bank, each of every kind,
nature and description now existing or hereafter arising, whether under
this Agreement or otherwise. "Liabilities" also includes, without
limitation, each obligation to repay all loans, advances, indebtedness,
notes, obligations, overdrafts, and amounts now or hereafter at any
time owing by the Borrower to the Bank (including all future advances
or the like whether or not given pursuant to a commitment by the Bank),
whether or not any of such are liquidated, unliquidated, primary,
secondary, secured, unsecured, direct, indirect, absolute, contingent,
or of any other type, nature, or description, or by reason of any cause
of action which the Bank may hold against the Borrower. "Liabilities"
also includes, without limitation, all notes and other obligations of
the Borrower now or hereafter assigned to or held by the Bank, each of
every kind, nature, and description. "Liabilities" also includes,
without limitation, all interest and other amounts which may be charged
to the Borrower and/or which may be due from the Borrower to the Bank
from time to time; all fees and charges in connection with any account
maintained by the Borrower with the Bank or any service rendered by the
Bank; and all costs and expenses incurred or paid by the Bank in
respect of this and any other agreement between the Borrower and the
Bank or instrument furnished by the Borrower to the Bank (including,
without limitation, Costs of Collection, attorneys' reasonable fees,
and all court and litigation costs and expenses). "Liabilities" also
includes, without limitation, any and all obligations of the Borrower
to act or to refrain from acting in accordance with the terms,
provisions, and covenants of this Agreement and of any other agreement
between the Borrower and the Bank or instrument furnished by the
Borrower to the Bank. As used herein, the term "indirect" includes,
without limitation, all obligations and liabilities which the Bank may
incur or become liable for, on account of, or as a result of any
transactions between the Bank and the Borrower including, without
limitation, any which may arise out of any Letter of Credit or
acceptance, or similar instrument issued or obligation incurred by the
Bank for the account of the Borrower; any which may arise out of any
action brought or threatened against the Bank by the Borrower, any
guarantor or endorser of the Liabilities of the Borrower, or by any
other person in connection with the Liabilities; and any obligation of
the Borrower which may arise as endorser or guarantor of any third
party, or as obligor to any third party which obligation has been
endorsed, participated, or assigned to the Bank. The term "indirect"
also refers to any direct or contingent liability of the Borrower to
make payment towards any obligation held by the Bank (including,
without limitation, on account of any industrial revenue bond) to the
extent so held by the Bank. The Bank's books and records shall be prima
facie evidence of the Borrower's indebtedness to the Bank.
(2) "Costs of Collection" includes, without limitation, all
attorneys' reasonable fees, and out-of-pocket expenses incurred by the
Bank's attorneys, and all costs incurred by the Bank in the
administration of the Liabilities, this Agreement, and all other
instruments and agreements executed in
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<PAGE> 5
connection with or relating to the Liabilities including, without
limitation, costs and expenses associated with travel on behalf of the
Bank. Costs of Collection also includes, without limitation, all
attorneys' fees, out-of-pocket expenses incurred by the Bank's
attorneys, and all costs and expenses incurred by the Bank, including,
without limitation, costs and expenses associated with travel on behalf
of the Bank, which costs and expenses are directly or indirectly
related to or in respect of the Bank's efforts to preserve, protect,
collect, or enforce the Collateral, the Liabilities and/or the Bank's
Rights and Remedies or any of the Bank's rights and remedies against or
in respect of the any guarantor or other person liable in respect of
the Liabilities (whether or not suit is instituted in connection with
such efforts). The Costs of Collection shall be added to the
Liabilities of the Borrower to the Bank, as if such had been lent,
advanced, and credited by the Bank to, or for the benefit of, the
Borrower.
(3) "Cash Equivalents" shall mean, as of any date of determination,
(i) marketable securities (a) issued or directly and unconditionally
guaranteed as to interest and principal by the United States Government
or (b) issued by any agency of the United States the obligations of
which are backed by the full faith and credit of the United States, in
each case maturing within one year after such date; (ii) marketable
direct obligations issued by any state of the United States of America
or any political subdivision of any such state or any public
instrumentally thereof, in each case maturing within one year after
such date and having, at the time of the acquisition thereof, the
highest rating obtainable from either Standard & Poor's ("S&P") or
Moody's; (iii) commercial paper maturing no more than one year from the
date of creation thereof and having, at the time of the acquisition
thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing
within one year after such date and issued or accepted by the Bank or
by any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia having, at the
time of acquisition thereof, a rating of at least A-1 from S&P and at
least P-1 from Moody's; (v) shares of any money market mutual fund that
(a) has at least 95% of its assets invested continuously in the types
of investments referred to in clauses (i), (ii), (iii), and (iv) above,
(b) has net assets of not less than $500,000,000; and (c) has the
highest rating obtainable from either S&P or Moody's; (vi) repurchase
agreements collateralized by investments referred to in clause (i)
above; and (vii) loan participations maturing within one year of
acquisition thereof of obligors having, at the time of acquisition
thereof, a rating of at least A-1 from S&P and at least P-1 from
Moody's.
9. The Borrower (a) waives presentment, demand, notice, and protest
with respect to the Liabilities and the Collateral; and (b) waives any delay on
the part of the Bank without notice to or consent from the Borrower; (c) assents
to any indulgence or waiver which the Bank may grant or give any other person
liable or obliged to the Bank for or on the Liabilities without notice to or
consent from the Borrower; and (d) authorizes the Bank to alter, amend, cancel,
waive, or modify any term or condition of the obligations of any other person
liable or obligated to the Bank for or on the Liabilities, without notice to or
consent from the Borrower; and (e) agrees that no release of any property
securing the Liabilities, without notice to or consent from the Borrower, shall
affect the rights of the Bank with respect to the Collateral hereunder; and if
entitled thereto, (f) waives the right to notice and/or hearing prior to the
Bank's exercising of the Bank's rights and remedies hereunder upon default.
10. The Bank shall have no duty as to the collection or protection of
the Collateral or any income or distribution thereon, beyond the safe custody of
such of the Collateral as may come into the possession of the Bank and shall
have no duty as to the preservation of rights against prior parties or any other
rights pertaining thereto. The Bank's Rights and Remedies may be exercised
without resort or regard to any other source of satisfaction of the Liabilities.
11. This Agreement shall be binding upon the Borrower and upon the
Borrower's heirs, executors, administrators, representatives, successors, and
assigns, and shall inure to the benefit of the Bank and the Bank's successors
and assigns.
12. This Agreement and all other instruments executed in connection
with the Liabilities incorporate all discussions and negotiations between the
Borrower and the Bank concerning the matters included herein and in
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<PAGE> 6
such other instruments. No such discussions or negotiations shall limit, modify,
or otherwise affect the provisions hereof. No modification, amendment, or waiver
of any provision of the within Agreement or of any provision of any other
agreement between the Borrower and the Bank shall be effective unless executed
in writing by the party to be charged with such modification, amendment of
waiver, and if such party be the Bank, then by a duly authorized officer
thereof.
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<PAGE> 7
13. This Agreement and all other documents in the Bank's possession
which relate to the Liabilities may be reproduced by the Bank by any
photographic, photostatic, microfilm, micro-card, miniature photographic,
xerographic, or similar process, and, with the exception of instruments
constituting the Collateral, the Bank may destroy the original from which any
document was so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made in the regular course of business) and any enlargement,
facsimile, or further reproduction shall likewise be admissible in evidence.
14. This Agreement, and all rights and obligations hereunder, including
matters of construction, validity, and performance, shall be governed by the
laws of The Commonwealth of Massachusetts. The Borrower submits to the
jurisdiction of the courts of said Commonwealth for all purposes with respect to
the within Agreement and the Borrower's relationships with the Bank.
15. The Borrower shall indemnify, defend, and hold the Bank harmless of
and from any claim brought or threatened against the Bank by the Borrower, any
guarantor or endorser of the Liabilities, or any other person (as well as from
attorneys' reasonable fees and expenses in connection therewith) on account of
the Bank's relationship with the Borrower or any other guarantor or endorser of
the Liabilities (each of which may be defended, compromised, settled, or pursued
by the Bank with counsel of the Bank's selection, but at the expense of the
Borrower). The within indemnification shall survive payment of the Liabilities,
and/or any termination, release, or discharge executed by the Bank in favor of
the Borrower.
16. It is intended that this Agreement take effect as a sealed
instrument.
Signed in my Presence BITSTREAM INC.
("Borrower")
/s/ Paul Trevithick /s/ Anna Chagnon
----------------- --------------
Print Name: Paul Trevithick Print Name: Anna Chagnon
----------------- ------------
Title: Vice President, Finance And
---------------------------
Administration
----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SIX MONTHS ENDED 6-30-98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED IN THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<CIK> 0000818813
<NAME> BITSTREAM INC
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,843,000
<SECURITIES> 0
<RECEIVABLES> 4,229,000
<ALLOWANCES> (345,000)
<INVENTORY> 31,000
<CURRENT-ASSETS> 11,040,000
<PP&E> 4,408,000
<DEPRECIATION> 3,109,000
<TOTAL-ASSETS> 14,743,000
<CURRENT-LIABILITIES> 4,309,000
<BONDS> 0
0
0
<COMMON> 67,000
<OTHER-SE> 10,324,000
<TOTAL-LIABILITY-AND-EQUITY> 14,743,000
<SALES> 6,145,000
<TOTAL-REVENUES> 6,145,000
<CGS> 884,000
<TOTAL-COSTS> 8,069,000
<OTHER-EXPENSES> (120,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,688,000)
<INCOME-TAX> 69,000
<INCOME-CONTINUING> (2,757,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,757,000)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
