-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rv4REzfBIEPkvyM0syp3q7p2CFx73bq57WfiNKIXoNdIBao8t3Y05f/y7Z5uglw2 V01LDkGMkZHAH2tTXqGF5Q== 0000950128-02-000316.txt : 20020415 0000950128-02-000316.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950128-02-000316 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 27 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRINTCAFE SOFTWARE INC CENTRAL INDEX KEY: 0001108507 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-82646 FILM NUMBER: 02587553 BUSINESS ADDRESS: STREET 1: 40 24TH STREET 5TH FLOOR CITY: PITTSBURGH STATE: PA ZIP: 15222 MAIL ADDRESS: STREET 1: 40 24TH STREET 5TH FLOOR CITY: PITTSBURGH STATE: PA ZIP: 15222 FORMER COMPANY: FORMER CONFORMED NAME: PRINTCAFE INC DATE OF NAME CHANGE: 20000306 S-1/A 1 j9249402s-1a.txt AMENDMENT #1 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2002 REGISTRATION NO. 333-82646 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- PRINTCAFE SOFTWARE, INC. (Exact name of registrant as specified in its charter) --------------------- DELAWARE 7379 25-1854929 (State or other jurisdiction of (Primary standard industrial (I.R.S. employer incorporation or organization) classification code number) identification number)
FORTY 24TH STREET PITTSBURGH, PA 15222 (412) 456-1141 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------------- MARC D. OLIN PRESIDENT AND CHIEF EXECUTIVE OFFICER FORTY 24TH STREET PITTSBURGH, PA 15222 (412) 456-1141 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES TO: DAVID A. GERSON, ESQ. MARK G. BORDEN, ESQ. KIMBERLY A. TAYLOR, ESQ. PETER N. HANDRINOS, ESQ. MORGAN, LEWIS & BOCKIUS LLP HALE AND DORR LLP ONE OXFORD CENTRE 60 STATE STREET THIRTY-SECOND FLOOR BOSTON, MA 02109 PITTSBURGH, PA 15219 TELEPHONE: (617) 526-6000 TELEPHONE: (412) 560-3300 FACSIMILE: (617) 526-5000 FACSIMILE: (412) 560-3399
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. --------------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) AGGREGATE OFFERING PRICE REGISTRATION FEE(3) - ------------------------------------------------------------------------------------------------------------------------------- Common Stock, $0.0001 par value......................... 8,625,000 $9.00 $77,625,000 $7,142 - ------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------
(1) Includes 1,125,000 shares issuable to the underwriters pursuant to an over-allotment option. (2) Estimated solely for the purpose of computing the amount of the registration fee; based on a bona fide estimate of the maximum offering price per share of the securities being registered in accordance with Rule 457(a). (3) The registrant previously paid a registration fee of $37,950 on March 14, 2000 in connection with the filing of a Registration Statement on Form S-1 (File No. 333-32388), which was subsequently withdrawn. The registration fee due for this filing is $7,142, $6,900 of which was previously offset by the amount previously paid and $242 of which is currently being offset by the amount previously paid, in accordance with Rule 457(p). THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PRELIMINARY PROSPECTUS Subject to completion March 27, 2002 - -------------------------------------------------------------------------------- 7,500,000 Shares [Printcafe Logo] Printcafe Software, Inc. Common Stock - -------------------------------------------------------------------------------- This is our initial public offering of shares of our common stock. No public market currently exists for our common stock. All of the shares of common stock are being sold by Printcafe Software. We expect the public offering price to be between $7.00 and $9.00 per share. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol "PCAF." BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 4. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER SHARE TOTAL - ---------------------------------------------------------------------------------- Public offering price $ $ - ---------------------------------------------------------------------------------- Underwriting discounts and commissions $ $ - ---------------------------------------------------------------------------------- Proceeds, before expenses, to Printcafe Software, Inc. $ $ - ----------------------------------------------------------------------------------
The underwriters may also purchase up to 1,125,000 shares of common stock from us at the public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus. The underwriters may exercise this option only to cover over-allotments, if any. The underwriters are offering the common stock as set forth under "Underwriting." Delivery of the shares will be made on or about , 2002. UBS Warburg Robertson Stephens U.S. Bancorp Piper Jaffray McDonald Investments Inc. [Inside front cover] This graphic describes the complex interactions between parties in the printing industry supply chain. The graphic depicts ten labeled symbols representing parties in the printing industry supply chain and directional arrows running between the parties to illustrate their interaction with one another. The title "The $240B* printing industry supply chain: complex and inefficient" with the word "Problem" showing behind the text appears above the graphic. The words "Source *U.S. Department of Commerce, 2000" and "Covers printed using Printcafe Web-based products." appear at the bottom of the page. [Gate-fold] This graphic depicts the utilization of three of our software products (EnterpriseSite, PrinterSite, and SupplierSite (which includes a notation stating, "Expected to be available Q4 2002")) by target segments in the printing industry supply chain (print buyers, printers, and print industry suppliers). Our three software products are represented by rectangles. Directional arrows between the products and the target market segments illustrate the types of customers that could use our products. The arrows and bullet points illustrate how we enable printers and print buyers to increase efficiencies in each stage of the printing process. The title "The Printcafe Software Solution" and the subtitle "An integrated, direct flow of information from one end of the supply chain to the other" appears above the graphic in the upper left corner of the page, with the word "Solution" showing behind the text. Two sentences appear below the subtitle that describe the benefits to print buyers and printers: "Fortune 1000 print buyers reduce their cost of print with clear visibility into their expenditures, increased ability to manage print, purchase policy enforcement and vendor pricing control." and "Printers of all types increase profits and customer satisfaction with a more efficient workflow, faster response, enhanced win rate and lower cost of sales." In addition, the caption "Printcafe Software offers:" appears to the left of the graphics followed by three bullet points: "o Collaboration and procurement solutions", "o Enterprise resource planning and supply chain planning applications", and "o Manufacturing and supply chain execution solutions". The logo "printCafe(TM) The operating system for print.(TM)" appears in the lower right corner of the page. - -------------------------------------------------------------------------------- You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. TABLE OF CONTENTS - -------------------------------------------------------------------------------- Prospectus summary.................... 1 The offering.......................... 2 Summary consolidated financial data... 3 Risk factors.......................... 4 Information regarding forward-looking statements.......................... 16 Use of proceeds....................... 17 Dividend policy....................... 17 Capitalization........................ 18 Dilution.............................. 20 Selected consolidated financial data................................ 21 Management's discussion and analysis of financial condition and results of operations....................... 22 Business.............................. 37 Management............................ 48 Related party transactions............ 57 Principal stockholders................ 61 Description of capital stock.......... 63 Shares eligible for future sale....... 66 Underwriting.......................... 68 Legal matters......................... 71 Experts............................... 71 Where you can find more information... 71 Index to consolidated financial statements.......................... F-1
- -------------------------------------------------------------------------------- Logic(R), PrintSmith(R), Proteus(R), and Prograph(R) are our registered trademarks and printCafe, the printCafe logo, and all other names of our products are our trademarks. All other brand names or trademarks appearing in this prospectus are the property of their respective holders. DEALER PROSPECTUS DELIVERY OBLIGATION Through and including , 2002 (the 25th day after commencement of this offering), all dealers that buy, sell, or trade the common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to its unsold allotments or subscriptions. - -------------------------------------------------------------------------------- Prospectus summary You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and our consolidated financial statements and notes to those statements appearing elsewhere in this prospectus. OUR BUSINESS We offer integrated software solutions designed specifically for the printing industry supply chain. Our enterprise resource planning and collaborative supply chain software solutions enable printers and print buyers to lower costs and improve productivity and enable printers to increase revenues. Our procurement applications, which are designed for print buyers, integrate with our software solutions designed for printers, and facilitate collaboration between printers and print buyers over the Web. Our software solutions for the printing industry supply chain have been installed by more than 4,000 customers in over 8,000 facilities worldwide, including 24 of the 25 largest printing companies in North America and over 50 businesses in the Fortune 1000. We believe that we offer the only integrated software solutions that enable printers and print buyers to increase efficiencies in each stage of the print production process, from specification and purchasing to manufacturing and distribution. We provide enterprise resource planning systems, which enable printers to manage internal business systems and processes; procurement systems, which streamline the purchasing process; and collaborative supply chain planning and execution systems, which automate the print production process for printers and print buyers. Since our inception in 1987, we have continually developed our software, targeted to the specific needs of the printing industry supply chain, by drawing on our years of experience in the printing industry and leveraging our relationships with our strategic partners and customers. We also provide our customers with maintenance and professional services, including consulting, implementation, and training. Our objective is to be the leading developer and provider of software solutions for the global printing industry supply chain. The production of printed material is complex and requires collaboration among multiple parties throughout the process to ensure that the final product accurately reflects the print buyer's design and meets its quality, cost, and delivery expectations. Printing jobs are often highly customized, involving last minute changes, and requiring numerous interactions among print buyers, printers, and print industry raw material suppliers. The characteristics of the printing industry lead to production inefficiencies throughout the supply chain. Printers, print buyers, and print industry raw material suppliers seek solutions that enable them to interact more efficiently with other participants in the print production process. Our solutions consist of both client/server software applications and hosted Web-based products. Our client/server-based enterprise resource planning systems and supply chain management products operate with a variety of databases and operating systems. Our Web-based products, which we host at our facility, are deployed on an Oracle database and are developed using readily available Web development tools. We expect to release an international version of our enterprise resource planning system for large commercial printers in the second quarter of 2002, expanding our reach into global markets. For the year ended December 31, 2001, we had $41.9 million of total revenue, $(8.7) million of EBITDA, net of other charges, which represents the net loss we would have shown if we did not take into consideration our total other expense (which includes interest expense), depreciation, amortization, stock-based compensation and warrants, and restructuring charges, and $80.5 million of net loss attributable to common stock. For the quarter ended December 31, 2001, we had $11.3 million of total revenue, $167,000 of EBITDA, net of other charges, and $13.0 million of net loss attributable to common stock. ------------------------ Founded in 1987 as Prograph Management Systems, Inc., our predecessor company, Prograph Systems, Inc., reincorporated in Delaware in February 2000 and changed its name to printCafe, Inc. in February 2000. In February 2002, printCafe, Inc. changed its name to Printcafe Software, Inc. Creo Inc., formerly Creo Products Inc., a leading supplier of pre-press equipment and workflow software to the graphic arts industry and a publicly-traded Canadian corporation, is our largest stockholder, through its wholly-owned subsidiary Creo SRL. Creo has two representatives on our board of directors and is a party to several commercial agreements with us, including a $23.6 million loan agreement through its wholly-owned subsidiary, Iris Graphics Inc., and a sales channel agreement with another wholly-owned subsidiary, Creo Scitex America, Inc. We intend to repay this loan in full with a portion of the net proceeds of this offering. Our principal executive offices are located at Forty 24th Street, Pittsburgh, PA 15222, and our telephone number at that location is (412) 456-1141. Our Web site address is www.printcafe.com. The information contained on our Web site is not a part of this prospectus. Unless the context requires otherwise, references in this prospectus to "we," "our," and "us" refer to Printcafe Software, Inc. and its subsidiaries. 1 The offering Common stock offered by Printcafe Software............................ 7,500,000 shares Common stock outstanding after this offering............................ 22,696,272 shares Use of proceeds..................... For repayment of $34.5 million in debt, for working capital, and for general corporate purposes. Proposed Nasdaq National Market symbol.............................. PCAF Unless otherwise stated, all information in this prospectus assumes: - - the automatic conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering; and - - no exercise of the over-allotment option granted to the underwriters. The number of shares of common stock to be outstanding immediately after this offering is based upon the number of shares of common stock outstanding as of March 15, 2002 and excludes the following as of March 15, 2002: - - 21,872 shares of our common stock reserved for issuance under our 1999 stock option plan, all of which are subject to outstanding options, with a weighted average exercise price of $35.32 per share; - - 263,761 shares of our common stock reserved for issuance under our 2000 stock incentive plan, all of which are subject to outstanding options, with a weighted average exercise price of $94.35 per share; - - 1,701,698 shares of our common stock reserved for issuance under our 2002 key executive stock incentive plan, all of which are subject to outstanding options, with a weighted average exercise price of $1.90 per share; - - 1,700,000 shares of our common stock reserved for issuance under our 2002 stock incentive plan, none of which shares are subject to outstanding options; we anticipate granting options to purchase 850,000 shares to employees, at an exercise price of $7.00 per share, prior to the completion of this offering; - - 750,000 shares of our common stock reserved for issuance under our 2002 employee stock purchase plan, none of which shares are outstanding; and - - 296,069 shares of our common stock issuable upon exercise of outstanding warrants, with a weighted average exercise price of $111.87 per share. 2 Summary consolidated financial data The following summary consolidated financial data should be read in conjunction with "Management's discussion and analysis of financial condition and results of operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.
YEARS ENDED DECEMBER 31, ------------------------------------- 1999 2000 2001 CONSOLIDATED STATEMENTS OF OPERATIONS DATA (in thousands, except per share data) - -------------------------------------------------------------------------------------------------- Total revenue.............................................. $ 4,411 $ 25,334 $ 41,868 Gross profit............................................... 2,996 14,676 30,272 Loss from operations....................................... (10,736) (89,568) (64,741) Net loss attributable to common stock...................... (10,919) (100,576) (80,452) Net loss per share, basic and diluted...................... $ (43.41) $ (309.76) $(224.55) Weighted average shares, basic and diluted................. 252 325 358
YEARS ENDED DECEMBER 31, ------------------------------- 1999 2000 2001 OTHER FINANCIAL DATA (in thousands) - -------------------------------------------------------------------------------------------- EBITDA, net of other charges(1)............................ $ (2,456) $ (41,698) $ (8,667) Net cash used in operating activities...................... (531) (39,720) (17,863) Net cash used in investing activities...................... (88) (30,005) (2,488) Net cash provided by financing activities.................. 563 84,931 13,793
(1) EBITDA, net of other charges, is not a measurement that is in accordance with generally accepted accounting principles and is presented as other financial data. EBITDA, net of other charges, represents the net loss we would have shown if we did not take into consideration our total other expense (which includes interest expense), depreciation, amortization, stock-based compensation and warrants, and restructuring charges. EBITDA, net of other charges, is presented as supplemental information and should not be considered as an alternative to net income as an indicator of our operating performance, or to cash flow from operating activities as an indicator of our liquidity. EBITDA, net of other charges, as presented herein may not be comparable to similarly titled measures reported by other companies. We believe that EBITDA, net of other charges, serves as an important operating measurement when evaluating our performance.
DECEMBER 31, 2001 ----------------------- PRO FORMA AS ADJUSTED ACTUAL (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA (in thousands) - ------------------------------------------------------------------------------------- Cash and cash equivalents................................... $ 8,648 $ 25,510 Working capital (deficit)................................... (985) 24,710 Total assets................................................ 79,503 96,364 Long-term obligations, less current portion................. 33,365 4,000 Obligations under capital leases, less current portion...... 34 34 Redeemable preferred stock.................................. 137,489 -- Total stockholders' equity (deficit)........................ (110,186) 75,714
The preceding table presents a summary of our balance sheet data as of December 31, 2001: - - on an actual basis; and - - on a pro forma as adjusted basis to give effect to: (i) the automatic conversion of all outstanding shares of our preferred stock into shares of our common stock; (ii) the sale of 7,500,000 shares of common stock in this offering, after deducting the estimated underwriting discounts and commissions, the estimated offering expenses, the repayment of $34.1 million of debt outstanding as of December 31, 2001, and a debt prepayment fee of $3.5 million; and (iii) the classification of debt origination costs of $2.6 million as an extraordinary item upon consummation of this offering. 3 - -------------------------------------------------------------------------------- Risk factors You should carefully consider the risks described below as well as all of the other information contained in this prospectus before making a decision to buy our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case, the trading price of our common stock could decline and you might lose all or part of your investment. You should also refer to the other information set forth in this prospectus, including our consolidated financial statements and the related notes. RISKS RELATED TO OUR BUSINESS CREO COULD SUBSTANTIALLY INFLUENCE CORPORATE ACTIONS THAT CONFLICT WITH THE INTERESTS OF OUR PUBLIC STOCKHOLDERS. Creo Inc. is our largest stockholder, has two representatives on our board of directors, and is a party to several commercial agreements with us. After this offering, Creo, through its wholly-owned subsidiary, Creo SRL, will beneficially own 6,291,672 shares of our common stock, which currently represents 41.3% of the voting power of our common stock and will represent 27.7% of the voting power of our common stock immediately after this offering. In addition, the two members of our board of directors appointed by Creo, Amos Michelson, chairman of our board of directors, and Judi Hess, are employees of Creo. Creo could use its stock ownership or representation on our board of directors to substantially influence corporate actions that conflict with the interests of our public stockholders, such as: - - approving or defeating mergers or takeover attempts; - - changing the size and composition of our board of directors and committees of our board of directors; - - causing us to issue or dispose of securities; - - amending our governing documents; - - determining the amount and timing of any dividends paid to holders of our common stock; and - - otherwise controlling the outcome of stockholder votes. OUR LIMITED OPERATING HISTORY AS A COMBINED ENTITY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND OUR PROSPECTS. We completed six acquisitions between October 1999 and April 2000. Our limited operating history as a combined entity makes an evaluation of our current business and prospects difficult. Due to our limited operating history as a combined entity, we believe that period-to-period comparisons of our revenue and results of operations are not meaningful. As a result, you should not rely on results of our operations for any prior period as an indication of future performance. IF OUR SOFTWARE PRODUCTS DO NOT ACHIEVE BROAD MARKET ACCEPTANCE, WE MAY NOT BECOME PROFITABLE AND OUR STOCK PRICE COULD DECLINE. Most print buyers, printers, and print industry raw material suppliers currently coordinate the design, specification, purchasing, and manufacture of print orders either through a combination of telephone, - -------------------------------------------------------------------------------- 4 RISK FACTORS - -------------------------------------------------------------------------------- facsimile, e-mail, and paperwork or through proprietary software solutions. Web-based products are relatively new and rapidly evolving, and these products change the way in which print buyers, printers, and print industry raw material suppliers interact with one another. Widespread commercial acceptance of our Web-based products is important to our future success. To date, most of our sales have been to printers, and our future growth is dependent upon our ability to increase sales to print buyers. The growth of our business also depends on our ability to enhance and develop our software products and to identify and develop new products that serve the needs of our customers. The adoption of our products may be hindered by: - - the reluctance of existing and potential customers to change their current print management practices; - - the emergence of new technologies that cause our products to be less competitive or obsolete; - - the reluctance of our existing and potential customers to accept our prices; and - - the decision by existing or potential customers to use the products and services of our competitors. If our existing and potential customers do not adopt our software products, we may be unable to continue to grow our business and increase our revenues. As a result, we may not become profitable, or maintain profitability, and our stock price could decline. THE TERMINATION OF OUR AGREEMENTS WITH CREO WOULD SERIOUSLY HARM OUR OPERATING RESULTS. We have a strategic alliance agreement and sales channel agreement with Creo. We also have a license agreement with Creo and a loan agreement with Iris Graphics, a wholly-owned subsidiary of Creo. We intend to use a portion of the proceeds of this offering to repay the loan to Iris Graphics. The license agreement, which grants Creo a non-exclusive, royalty-bearing, world-wide license of substantially all of our intellectual property in the event of our failure to carry on our business or certain other events, will terminate upon repayment in full of the Iris Graphics loan. Under the strategic alliance agreement, we agreed with Creo to undertake joint sales and marketing efforts, not to compete with each other's business, and not to solicit the employment of each other's employees. In addition, we granted Creo an exclusive and perpetual right to provide, and a right of first refusal to develop, any content management and workflow products for us. Because we have granted these rights to Creo, we may not obtain terms as favorable as those available if we were able to negotiate freely with third parties. If Creo develops any of these products for us, we are required to reimburse Creo's development costs, which would increase our expenses, and we and Creo would jointly own the technology, which could limit our ability to use or modify the technology. Any improvement, modification, or development of an existing Creo product would remain the sole property of Creo, and we would have to license it from Creo, which would increase our expenses. Under the sales channel agreement, Creo has agreed to provide sales representatives to sell our Web-based products in North America. The strategic alliance agreement does not specify a termination date. The sales channel agreement renews annually if the parties agree upon renewal terms. Creo may terminate the strategic alliance agreement or the sales channel agreement if we breach any provision of the agreements and do not remedy that breach within 30 days. If the agreements were to terminate, we would lose access to Creo's sales force and the other benefits derived from our joint marketing efforts, and Creo would be permitted to compete with us. The termination of these agreements and the resulting loss of these benefits would, among other things, reduce our revenues and significantly harm our business. - -------------------------------------------------------------------------------- 5 RISK FACTORS - -------------------------------------------------------------------------------- THE SALES CYCLE FOR MANY OF OUR PRODUCTS IS LONG, WHICH COULD CAUSE OUR REVENUE AND OPERATING RESULTS TO VARY SIGNIFICANTLY AND INCREASE THE RISK OF AN OPERATING LOSS FOR ANY GIVEN FISCAL QUARTER. A customer's decision to purchase and implement many of our products often involves a significant commitment of its resources and a lengthy product evaluation and qualification process. Approval at a number of management levels within a customer's organization is typical for many of our products. Companies often consider a wide range of issues before committing to purchase our software, including anticipated benefits and cost savings, ease of installation, ability to work with existing computer systems, functionality, and reliability. Many of our potential customers may be addressing these issues for the first time, and the use of our products may represent a significant change in their current practices related to the printing industry supply chain. As a result, we often devote significant time and resources to educate potential customers about the use and benefits of our products. The sales process for most of our products frequently takes several months to complete, which may have an adverse impact on the timing of our revenue, and our operating results could be adversely affected. IF THE WEB DOES NOT CONTINUE TO DEVELOP AS A MEDIUM FOR CONDUCTING BUSINESS TRANSACTIONS, THE DEMAND FOR OUR WEB-BASED PRODUCTS MAY DECLINE. The failure of the Web to develop as a medium for conducting business transactions could be limited by a number of factors, including the use of the Web in general, the relative ease of conducting business on the Web, concerns about transaction security, and potential taxation of transactions on the Web. A decline in the demand for Web-based products capable of connecting large numbers of print buyers, printers, and print industry raw material suppliers, enabling automated transaction execution, and integrating complex supply chains could diminish the market for our Web-based products. If the market for Web-based print management products fails to grow or grows more slowly than we anticipate, then our operating results would be adversely affected. FOLLOWING THIS OFFERING, WE WILL HAVE $4.0 MILLION OF DEBT OUTSTANDING, WHICH IS SECURED BY SOME OF OUR TANGIBLE AND INTANGIBLE PROPERTY. WE MAY REQUIRE ADDITIONAL FUNDING TO REPAY THIS DEBT AND TO FUND OPERATIONS. IF WE ARE UNABLE TO OBTAIN FUNDS ON ACCEPTABLE TERMS, OUR BUSINESS WILL BE HARMED. As of December 31, 2001, we had an accumulated deficit of $192.5 million. As of March 15, 2002, we had a total of $38.5 million in debt outstanding, including $23.9 million under a term loan from Iris Graphics Inc., a wholly-owned subsidiary of Creo. As of December 31, 2001, we were not in compliance with a cash flow covenant of this term loan and obtained a waiver of this default. We intend to repay this term loan in full with a portion of the proceeds of this offering. As of December 31, 2001, we were also in default of certain covenants contained in our loan agreement with National City Bank. We obtained a waiver of this default through January 2003. We intend to repay the National City loan with a portion of the proceeds of this offering. We currently anticipate that $34.5 million of our total debt outstanding as of March 15, 2002 will be repaid with the proceeds of this offering. However, we may need to raise additional funds to pay off our remaining debt. Our lenders have security interests in some of our assets. If we fail to comply with the terms of these loan arrangements, these lenders could proceed against the collateral securing their loans. We cannot assure you that any financing arrangements will be available in amounts or on terms acceptable to us or at all. If adequate funds are not available to us on acceptable terms, our business will be harmed. - -------------------------------------------------------------------------------- 6 RISK FACTORS - -------------------------------------------------------------------------------- THE CHAIRMAN OF OUR BOARD OF DIRECTORS MAY HAVE DUTIES TO CREO THAT CONFLICT WITH HIS DUTIES TO PRINTCAFE SOFTWARE AND OUR STOCKHOLDERS, AND WE DO NOT HAVE ANY PLAN OR AGREEMENT TO RESOLVE POTENTIAL CONFLICTS. Currently, Amos Michelson is both the chairman of our board of directors and the chief executive officer and a director of Creo. Mr. Michelson has fiduciary duties to manage Creo, including its investments in subsidiaries and affiliates, in a manner beneficial to Creo and its stockholders. Similarly, our directors and officers, including Mr. Michelson, have fiduciary duties to manage our company in a manner beneficial to us and our stockholders. In some circumstances, Mr. Michelson's duties to Creo and its stockholders, including his time commitments, may conflict with his duties, as a director of our company, to us and our stockholders. Judi Hess, President of Graphic Arts for Creo, is also a member of our board of directors. We do not have any plan or agreement with Creo that would determine how to resolve potential conflicts of interest. Moreover, we may not be able to resolve any potential conflicts, and any resolution may be less favorable than if we were dealing with an unaffiliated party. Mr. Michelson and Ms. Hess were elected to our board of directors under the terms of a voting agreement between us and some of our stockholders. The voting agreement terminates upon the completion of this offering. THE SLOWDOWN IN THE ECONOMY HAS AFFECTED THE MARKET FOR INFORMATION TECHNOLOGY SOLUTIONS, INCLUDING DEMAND FOR OUR SOFTWARE PRODUCTS, AND OUR FUTURE FINANCIAL RESULTS MAY DEPEND, IN PART, UPON WHETHER THIS SLOWDOWN CONTINUES. A downturn in the demand for information technology products among our current and potential customers may result in decreased revenues or a lower growth rate for us. Potential customers may delay or forego the purchase of our products or may demand lower prices in order to purchase our products. A reduction in the demand for our software products or in the average selling price of our products would reduce our operating margins and adversely affect our operating results. COMPETITION IN THE PRINTING INDUSTRY SUPPLY CHAIN FOR SOFTWARE PRODUCTS IS INTENSE, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY. Our current and potential competitors include companies that offer software products and services to the printing industry supply chain, and companies that offer software products for enterprise resource planning, supply chain management, and procurement that are not customized for the printing industry. We expect competition to increase in the future. Some of our current or potential competitors have longer operating histories, larger customer bases, greater brand recognition, and significantly greater financial, marketing, and other resources. As a result, these competitors may be able to devote greater resources to the development, promotion, sale, and support of their products. In addition, these companies may adopt aggressive pricing policies and leverage their customer bases to gain market share. Moreover, our current and potential competitors may develop software products that are superior to or achieve greater market acceptance than ours. If we are unable to offer competitive software products and services, then our revenues will decline. IF OUR SOFTWARE PRODUCTS DO NOT INTEGRATE WITH OUR CUSTOMERS' EXISTING SYSTEMS, ORDERS FOR OUR SOFTWARE PRODUCTS WILL BE DELAYED OR CANCELED, WHICH WOULD HARM OUR BUSINESS. Many of our customers require that our software products be designed to integrate with their existing systems. We may be required to modify our software product designs to achieve a sale, which may result in a longer sales cycle, reduced operating margins, and increased research and development expense. In some cases, we may be unable to adapt or enhance our software products to meet these challenges in a timely and cost-effective manner, or at all. If our software products do not integrate - -------------------------------------------------------------------------------- 7 RISK FACTORS - -------------------------------------------------------------------------------- with our customers' existing systems, implementations could be delayed or orders for our software products could be canceled, which would harm our business, financial condition, and results of operations. IF WE FAIL TO DEVELOP AND SELL NEW PRODUCTS THAT MEET THE EVOLVING NEEDS OF OUR CUSTOMERS, OR IF OUR NEW PRODUCTS FAIL TO ACHIEVE MARKET ACCEPTANCE, OUR BUSINESS AND RESULTS OF OPERATIONS WOULD BE HARMED. Our success depends on our ability to anticipate our customers' evolving needs and to develop and market products that address those needs. The timely development of these products, as well as any additional new or enhanced products, is a complex and uncertain process. We may experience design, marketing, and other difficulties that could delay or prevent our development, introduction, or marketing of these and other new products and enhancements. We may not have sufficient resources to anticipate technological and market trends, or to manage long development cycles. The introduction of new or enhanced products also requires that we manage the transition from existing products to these new or enhanced products in order to minimize disruption in customer ordering patterns. We are currently in the process of developing software for print industry raw material suppliers. If we are unable to attract raw material suppliers as customers, then our Web-based products may not be as attractive to printers and print buyers and our business may be harmed. If we are not able to develop new products or enhancements to existing products on a timely and cost-effective basis, or if our new products or enhancements fail to achieve market acceptance, our ability to continue to sell our products and grow our business would be harmed. IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY MANAGEMENT, RESEARCH AND DEVELOPMENT, AND SALES AND MARKETING PERSONNEL, WE MAY BE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY. Our future success depends on the continued services of our current key management and research and development personnel, including Marc D. Olin, our President and Chief Executive Officer, and Joseph J. Whang, our Chief Financial Officer and Chief Operating Officer. Although we have entered into employment agreements with Messrs. Olin and Whang, either of them may terminate his agreement at any time. Our future success also depends on our ability to identify, attract, train, and retain a substantial number of highly skilled managerial, sales and marketing, research and development, and technical personnel. Competition for top management and technical personnel is intense, and we may not be able to recruit and retain the personnel we need. The loss of any of our key management personnel, or the inability to identify, attract, retain, and integrate additional qualified personnel, would make it difficult for us to manage our business successfully and pursue our strategic objectives. IF WE ARE UNABLE TO OBTAIN LICENSES OF THIRD-PARTY TECHNOLOGY ON ACCEPTABLE TERMS, OUR BUSINESS WOULD BE HARMED. We integrate third-party licensed technology with our products. From time to time we may be required to license additional technology from third parties to develop new products or product enhancements. Third-party licenses may not be available or continue to be available to us on acceptable terms. Our inability to maintain or acquire any third-party licenses required in our current products or required to develop new products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at additional cost, which could seriously harm our business, financial condition, and results of operations. - -------------------------------------------------------------------------------- 8 RISK FACTORS - -------------------------------------------------------------------------------- INCREASING GOVERNMENTAL REGULATION OF THE WEB AND LEGAL UNCERTAINTIES COULD DECREASE DEMAND FOR OUR WEB-BASED PRODUCTS OR INCREASE OUR COST OF DOING BUSINESS. In addition to regulations applicable to businesses generally, we are subject to laws and regulations directly applicable to the Web. Although there are currently few laws and regulations governing the Web, federal, state, local, and foreign governments are considering a number of legislative and regulatory proposals. As a result, a number of laws or regulations may be adopted regarding: - - the pricing and taxation of goods and services offered over the Web; - - intellectual property ownership; and - - the characteristics and quality of goods and services offered over the Web. Existing laws regarding property ownership, copyright, trademark, and trade secrets may be applied to the Web. The adoption of new laws or the adaptation of existing laws to the Web may decrease the growth in the use of the Web, which could in turn decrease the demand for our Web-based products, increase our cost of doing business, or otherwise adversely impact our ability to become profitable. The growth of Web-based commerce has been attributed by some to the lack of sales and value-added taxes on interstate sales of goods and services over the Web. Numerous state and local authorities have expressed a desire to impose such taxes on sales to consumers and businesses in their jurisdictions. The Internet Tax Non-Discrimination Act prevents imposition of such taxes through November 2003. If the federal moratorium on state and local taxes on Web sales is not renewed, or if it is terminated before its expiration, then sales of goods and services over the Web could be subject to multiple overlapping tax schemes, which could substantially hinder the growth of Web-based commerce, including sales of subscriptions to our Web-based products. WE HAVE LIMITED EXPERIENCE OPERATING INTERNATIONALLY, WHICH MAY MAKE IT DIFFICULT AND COSTLY TO EXPAND IN OTHER COUNTRIES. To date, we have derived almost all of our revenue from sales to customers in North America. As part of our business strategy, we plan to expand our international operations, focusing initially on the European market. We face many barriers to competing successfully internationally, including: - - varying technology standards and capabilities; - - insufficient or unreliable telecommunications infrastructure and Web access; - - difficulties staffing and managing foreign operations; - - fluctuations in currency exchange rates; - - reduced protection for intellectual property rights in some countries; and - - import and export restrictions and tariffs. As a result of these factors, we may not be able to successfully market, sell, or deliver our products in international markets. UNPLANNED SYSTEM INTERRUPTIONS, CAPACITY CONSTRAINTS, OR SECURITY BREACHES COULD DISRUPT OUR BUSINESS AND DAMAGE OUR REPUTATION. We must offer customers of our Web-based products reliable, secure, and continuous service to attract and retain customers and persuade them to increase their reliance on our software products. As the volume of data traffic on our hosted Web sites increases, we must continually upgrade and enhance our technical infrastructure to accommodate the increased demands placed on our systems. Our operations also depend in part on our ability to protect our systems against physical damage from fire, - -------------------------------------------------------------------------------- 9 RISK FACTORS - -------------------------------------------------------------------------------- earthquakes, power loss, telecommunications failures, computer viruses, unauthorized user access, physical break-ins, and similar events. Any interruption or increase in response time of our software products could damage our reputation, reduce customer satisfaction, and decrease usage of our services and the purchase of our products. The secure transmission of confidential information over public networks is a fundamental requirement for online communications and transactions. Third parties may attempt to breach our security or that of our customers. Any breach in our online security could make us liable to our customers, damage our reputation, and cause a decline in our revenues. We may need to spend significant resources to license technologies to protect against security breaches or to address problems caused by a security breach. IF OUR TECHNOLOGIES CONTAIN UNDETECTED ERRORS OR DEFECTS, WHICH INTERRUPT OUR OPERATIONS OR THOSE OF OUR CUSTOMERS, OUR BUSINESS COULD BE HARMED. Our technologies are highly technical and may contain undetected software code or other errors or suffer unexpected failures. Because of their nature, our client/server-based enterprise resource planning and other products can only be fully tested when deployed in our customers' networks. These errors or failures may disrupt our operations or those of our customers, damage our reputation, and result in loss of, or delay in, market acceptance of our software products. We may discover software errors in new releases of our software products after their introduction. We may experience delays in release, legal action by our customers, lost revenues, and customer frustration during the period required to correct these errors. Any of these problems would adversely affect our operating results. IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITIVE POSITION COULD BE HARMED. We regard our patents, copyrights, service marks, trademarks, trade secrets, and similar intellectual property as critical to our success. We rely on patent, trademark, and copyright law, trade secret protection, and confidentiality and/or license agreements with our employees, customers, and strategic partners to protect our proprietary rights. These precautions may not prevent misappropriation or infringement of our intellectual property. In addition, the status of United States patent protection in the software and Web industries is not well defined and will evolve as the United States Patent and Trademark Office grants additional patents. We do not know if any of our future patent applications will result in a patent being issued within the scope of the claims we seek, if at all, or whether any patents we may receive will be challenged or invalidated. In addition, the laws in foreign countries may not protect our proprietary rights to the same extent as laws in the United States. WE MAY FACE INTELLECTUAL PROPERTY CLAIMS THAT COULD BE COSTLY TO DEFEND AND COULD PREVENT US FROM SELLING OUR SOFTWARE PRODUCTS. Third parties may infringe or misappropriate our intellectual property or assert infringement claims against us. In addition, because the contents of patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed by others that relate to our software products. From time to time we receive communications from third parties asserting that our products infringe, or may infringe, the intellectual property rights of third parties. Intellectual property litigation is expensive and time consuming and could divert management's attention from our business operations. This litigation could also require us to develop non-infringing technology or enter into royalty or license agreements with third parties. These royalty or license agreements, if required, may not then be available on acceptable terms, if at all. If we cannot develop or license non-infringing technology, then our operating results would be adversely affected. - -------------------------------------------------------------------------------- 10 RISK FACTORS - -------------------------------------------------------------------------------- RISKS RELATED TO OUR FINANCIAL RESULTS WE EXPECT TO CONTINUE TO INCUR SIGNIFICANT FUTURE NET LOSSES, WHICH MAY CONSTRAIN OUR ABILITY TO GROW OUR BUSINESS. We incurred a net loss of $70.0 million for the year ended December 31, 2001, and we anticipate that we will continue to incur net losses for the forseeable future. If we continue to incur net losses, then we may not be able to hire additional personnel or make necessary investments in capital equipment, sales, marketing, customer support, or product development programs. We do not know when or if we will become profitable. To become profitable, we must generate significantly higher revenues and continue to control our costs, and we cannot assure you that we will be able to do either. AS A RESULT OF OUR ACQUISITIONS, WE HAVE RECORDED A SIGNIFICANT AMOUNT OF INTANGIBLE ASSETS THAT WILL ADVERSELY AFFECT OUR FUTURE OPERATING RESULTS AND EXPERIENCED AN INCREASE IN REVENUES AND OPERATING EXPENSES THAT MAY NOT BE INDICATIVE OF FUTURE PERFORMANCE. As of December 31, 2001, we had unamortized goodwill of $22.5 million from acquisitions completed from October 1999 through April 2000 and we had other unamortized intangible assets of $33.8 million. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested annually for impairment, or more frequently when events or circumstances occur indicating that goodwill might be impaired. We adopted SFAS No. 142 effective January 1, 2002. Any future write-off of goodwill or intangible assets could be significant and would likely harm our operating results. As a result of the acquisitions completed from October 1999 through April 2000, our revenues and operating expenses for the year ended December 31, 2000 increased significantly over those for the year ended December 31, 1999. You should not rely on these results as an indication of our future performance. We are unlikely to experience a similar increase in the future due to acquisitions. OUR OPERATING EXPENSES ARE LIKELY TO INCREASE AS WE EXPAND OUR BUSINESS. IF OUR REVENUES DO NOT CORRESPONDINGLY INCREASE, OUR OPERATING RESULTS WOULD SUFFER. We expect to increase our operating expenses to: - - expand our sales and marketing organization and activities; - - continue to develop our technology and products; and - - hire additional personnel. We expect that our operating expenses will continue to increase in absolute dollars and may increase as a percentage of revenues. If our revenues do not correspondingly increase, then our operating results would suffer. OUR ABILITY TO RAISE CAPITAL IN THE FUTURE MAY BE LIMITED. ANY ADDITIONAL FINANCING MAY RESULT IN RESTRICTIONS ON OUR OPERATIONS OR SUBSTANTIAL DILUTION TO OUR STOCKHOLDERS. We currently anticipate that the net proceeds from this offering, together with our current cash and cash equivalents, and cash from operations, will be sufficient for us to meet our anticipated cash needs - -------------------------------------------------------------------------------- 11 RISK FACTORS - -------------------------------------------------------------------------------- for working capital, capital expenditure, and debt service requirements for at least the next 12 months. We may, however, need additional financing sooner if we: - - fail to achieve our anticipated revenue levels; - - need to make unplanned expenditures or change our pricing structure in response to competition; - - decide to develop products ahead of schedule; or - - decide to acquire complementary products, businesses, or technologies. As of March 15, 2002, we had a total of $38.5 million in outstanding debt. We anticipate that $34.5 million of our total debt will be repaid with the proceeds of this offering. The remaining $4.0 million of debt matures in December 2004. We may need to raise additional funds to pay off all of our debt. If we raise additional funds through public or private equity or convertible debt financings, then your percentage ownership of the company will be reduced. In addition, these transactions may dilute the value of our common stock. We may issue securities with rights, preferences, and privileges that are senior to our common stock without further action by our stockholders. We may not be able to raise additional funds on terms satisfactory to us, or at all. If adequate funds are not available to us on acceptable terms, our business will be harmed. WE MAY FAIL TO MEET QUARTERLY FINANCIAL EXPECTATIONS, WHICH MAY CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE. Our operating results are difficult to predict and may vary significantly from quarter to quarter in the future. Our historical financial results are not indicative of our future results. Our quarterly operating results may fluctuate as a result of many factors, including, but not limited to: - - the size and timing of sales and deployment of our products; - - market acceptance of and demand for our products; - - variation in capital spending budgets of our customers; - - the mix of distribution channels through which our products are sold; - - the impairment of goodwill related to our past acquisitions; - - the costs of integrating acquired companies; - - technical difficulties or system outages; - - the amount and timing of operating costs and capital expenditures relating to expansion of our business; - - the announcement or introduction of new products or services by our competitors; - - changes in our pricing structure or that of our competitors; and - - the relatively fixed nature of our operating expenses. As a result of the above factors, our quarterly operating results may fall below market analysts' expectations in future quarters, which could lead to a decline in the market price of our common stock. - -------------------------------------------------------------------------------- 12 RISK FACTORS - -------------------------------------------------------------------------------- RISKS RELATED TO THIS OFFERING OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE. Prior to this offering, our common stock has not been publicly traded. An active trading market may not develop or be sustained after this offering. You may not be able to sell your shares at or above the initial offering price. The market price for shares of our common stock is likely to be volatile due to a number of factors, including: - - actual or anticipated fluctuations in our quarterly operating results; - - changes in our relationship with Creo; - - changes in, or our failure to meet, analysts' or investors' estimates or expectations; - - changes in market valuations of similar companies; - - announcements of significant contracts or new products and services by us or our competitors; - - acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors; - - general conditions in the printing industry; - - additions or departures of key personnel; - - release of lock-up or other transfer restrictions on shares of our common stock or sales of additional shares of common stock; and - - other events or factors that negatively affect the stock market. WE MAY BECOME INVOLVED IN SECURITIES CLASS ACTION LITIGATION, WHICH COULD DIVERT MANAGEMENT'S ATTENTION FROM OUR BUSINESS AND HARM OUR OPERATING RESULTS. The stock market has experienced significant price and volume fluctuations that have affected the market prices for the common stock of technology companies. These broad market fluctuations may cause the market price of our common stock to decline. Securities class action litigation has often been brought against a company following periods of volatility with respect to that company's stock price. We may become involved in this type of litigation in the future. This type of litigation would be expensive and would divert management's attention and resources from our business, which could adversely affect our operating results. OUR EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER ALL MATTERS REQUIRING STOCKHOLDER APPROVAL. Upon completion of this offering, our executive officers, directors, and 5% stockholders will beneficially own, in the aggregate, approximately 62% of our outstanding common stock. As a result, these stockholders, acting together, would be able to control all matters requiring the approval of a majority of our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of control could delay or prevent a change in control of our company, deprive our stockholders of a premium upon the sale of our company or assets, or adversely affect the market price of our common stock. - -------------------------------------------------------------------------------- 13 RISK FACTORS - -------------------------------------------------------------------------------- OUR GOVERNING DOCUMENTS AND DELAWARE LAW CONTAIN PROVISIONS THAT MAY DISCOURAGE A TAKEOVER, WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK. Provisions of our certificate of incorporation and our bylaws may have the effect of delaying or preventing an acquisition of us or changes in our management. Our certificate of incorporation provides for classification of our board of directors into three classes and provides that our directors may only be removed for cause. Accordingly, stockholders may elect only a minority of our board at any annual meeting, which may have the effect of delaying or preventing changes in management or control. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. These provisions may restrain large stockholders, in particular those owning 15% or more of our outstanding voting stock, from consummating a merger or business combination with us. These restrictions could limit the price that investors might be willing to pay in the future for our common stock. FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO FALL. Additional sales of our common stock in the public market after this offering, or the perception that additional sales could occur, could cause the market price of our common stock to decline. Upon completion of this offering, we will have 22,696,272 shares of common stock outstanding. All shares sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933. The remaining 15,196,272 shares of common stock outstanding after this offering will be available for sale, assuming the effectiveness of lock-up and other agreements under which some of our stockholders have agreed not to sell or otherwise dispose of an aggregate of 14,993,819 shares of common stock in the public market, as follows:
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE - ---------------------------------------------------------------------------------------------------------- 198,801 (date of prospectus) 3,319 (90 days after prospectus) 12,068,834 (180 days after prospectus) 2,925,318 (in September 2002 with respect to 333 shares and at various times, beginning in January 2003, with respect to the remaining shares, upon the expiration of applicable holding periods under Rule 144)
Any or all of the 14,937,118 shares subject to a lock-up agreement with UBS Warburg may be released prior to expiration of the 180-day lock-up period at the discretion of UBS Warburg. To the extent shares are released before the expiration of the lock-up period and these shares are sold in the public market, the market price of our common stock could decline. Immediately following the 180-day lockup period, 12,557,790 shares of our common stock outstanding after this offering, including 488,956 shares underlying vested options, will become available for sale, subject in some cases to volume and other limitations. The remaining shares of our common stock will become available for sale at various times thereafter upon the expiration of one-year holding periods, subject to volume limitations and other requirements of Rule 144 of the Securities Act of 1933. WE MAY ENGAGE IN FUTURE ACQUISITIONS OR INVESTMENTS THAT COULD DILUTE YOUR INVESTMENT AND CAUSE US TO INCUR SIGNIFICANT EXPENSES THAT HARM OUR OPERATING RESULTS. To expand our business and our customer base, we may pursue strategic acquisitions or investment opportunities that we believe would complement our business or enhance our technological - -------------------------------------------------------------------------------- 14 RISK FACTORS - -------------------------------------------------------------------------------- capabilities. Integrating any newly acquired businesses, products, services, or technologies may be expensive and time-consuming and may strain our personnel and resources. To finance any acquisitions or investments, we may need to raise additional funds through public or private equity or debt financings. Equity financings would dilute the ownership interests of our existing stockholders. In addition, we may not be able to operate any acquired business successfully or effectively integrate any acquired products, services, or technologies. Future acquisitions could also result in large and immediate write-offs or the incurrence of additional debt and contingent liabilities, either of which would harm our operating results. YOU WILL INCUR IMMEDIATE DILUTION BECAUSE THE INITIAL PUBLIC OFFERING PRICE OF A SHARE OF OUR COMMON STOCK WILL EXCEED ITS TANGIBLE BOOK VALUE. The initial public offering price of our common stock will be substantially higher than the tangible book value per share of the common stock outstanding immediately after the completion of this offering. If you purchase common stock in this offering, you will incur immediate dilution of approximately $6.91 in the book value per share of the common stock from the price you pay. The exercise of outstanding options and warrants may result in further dilution. OUR MANAGEMENT MAY USE THE PROCEEDS OF THIS OFFERING IN WAYS THAT MAY NOT INCREASE OUR PROFITABILITY OR OUR MARKET VALUE. Our management will have considerable discretion in how we use the net proceeds from this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our profitability or our market value. Pending application of the proceeds, they may be placed in investments that do not produce income or that lose value. - -------------------------------------------------------------------------------- 15 - -------------------------------------------------------------------------------- Information regarding forward-looking statements This prospectus contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are contained in the sections titled "Prospectus summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations," and "Business," as well as elsewhere in this prospectus. These statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about: - - marketing and commercialization of our products under development; - - our estimates for future revenue and profitability; - - our expectations regarding future expenses, including research and development, sales and marketing, and general and administrative expenses; - - our use of the net proceeds from this offering; - - our estimates regarding our capital requirements and our needs for additional financing, including our expectations regarding our ability to repay our existing debt; - - plans for future products and services and for enhancements of existing products and services; - - our ability to attract customers; and - - sources of revenue and anticipated revenue. In some cases, you can identify forward-looking statements by terms such as "may," "might," "will," "should," "could," "would," "plan," "expect," "intend," "believe," "goal," "estimate," "anticipate," "predict," "potential," or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading "Risk factors." Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements. - -------------------------------------------------------------------------------- 16 - -------------------------------------------------------------------------------- Use of proceeds We estimate that we will receive net proceeds of approximately $54.5 million from the sale of the shares of common stock offered by us in this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $62.8 million. We currently intend to use approximately $34.5 million of the net proceeds of this offering for repayment of outstanding debt as indicated below. We have not yet allocated any other specific amount of the net proceeds of this offering. We intend to use the remaining net proceeds for working capital and other general corporate purposes. We may also use a portion of the net proceeds from this offering to acquire or invest in businesses, technologies, or products that we believe to be complementary to our business. We currently have no commitments or agreements with respect to any acquisitions. Our management retains broad discretion to use the net proceeds as necessary to address our future business needs. Pending use of the net proceeds as described above, we intend to invest these funds in short-term, interest-bearing, investment grade securities. In connection with the acquisitions we completed from October 1999 through April 2000, we incurred $68.0 million in debt. In December 2001, as part of a debt and equity financing we repaid $27.6 million of this debt and modified the payment terms of $12.0 million of this debt. As of March 15, 2002, we had total outstanding debt of $38.5 million. The outstanding indebtedness that we intend to repay with a portion of the net proceeds of this offering, the interest rates as of December 31, 2001, and the maturity dates with respect to such debt are summarized in the following table:
INTEREST RATE AS OF HOLDER AMOUNT TO BE REPAID DECEMBER 31, 2001 MATURITY DATE - -------------------------------------------------------------------------------------------------- National City Bank................... $ 0.5 million 7.62% July 2004 National City Bank................... $ 2.0 million 4.75% Demand Former stockholders of Hagen $ 8.1 million 18.9% December 2007 Systems............................ Iris Graphics Inc.................... $ 23.9 million(1) 18.9% December 2007 ------------------- Total.............................. $ 34.5 million ===================
- --------------- (1)The loan agreement with Iris Graphics permits us to repay 50% of the outstanding principal balance upon completion of this offering. Iris Graphics has agreed to permit us to repay the entire outstanding balance upon payment of a prepayment fee of $3.5 million. Dividend policy We have never declared or paid any cash dividends on our common stock, and we do not currently intend to pay any cash dividends on our common stock. We expect to retain any future earnings to fund the development and operation of our business. Our board of directors will determine future dividends, if any. - -------------------------------------------------------------------------------- 17 - -------------------------------------------------------------------------------- Capitalization The following table describes our capitalization as of December 31, 2001: - - on an actual basis; - - on a pro forma basis to give effect to the automatic conversion of all outstanding shares of preferred stock into shares of common stock upon completion of this offering; and - - on a pro forma as adjusted basis to give effect to: (i) the conversion of all outstanding shares of our preferred stock into common stock; (ii) the receipt of the net proceeds from the sale by us of the shares of common stock in this offering at an assumed initial public offering price of $8.00 per share, after deducting the estimated underwriting discounts and commissions, the estimated offering expenses, the repayment of $34.1 million of debt outstanding as of December 31, 2001, and a debt prepayment fee of $3.5 million; and (iii) the classification of debt origination costs of $2.6 million as an extraordinary item upon consummation of this offering, as described in "Use of proceeds."
DECEMBER 31, 2001 -------------------------------------- PRO FORMA PRO FORMA AS ADJUSTED ACTUAL (UNAUDITED) (UNAUDITED) (in thousands, except share data) - ------------------------------------------------------------------------------------------------ Current portion of long-term debt....................... $ 184 $ 184 $ -- Current portion of capital lease obligations............ 65 65 65 ========= ========= ======== Long-term debt, less current portion.................... $ 33,365 $ 33,365 $ 4,000 Obligations under capital leases, less current portion............................................... 34 34 34 Series B redeemable convertible preferred stock, $0.0001 par value; 31,186,312 shares authorized, issued, and outstanding, actual; no shares authorized, issued, or outstanding, pro forma and pro forma as adjusted...... 29,170 -- -- Series C redeemable convertible preferred stock, $0.0001 par value; 1,915,080 shares authorized, issued, and outstanding, actual; no shares authorized, issued, or outstanding, pro forma and pro forma as adjusted...... 10,714 -- -- Series D redeemable convertible preferred stock, $0.0001 par value; 283,125 shares authorized, issued, and outstanding, actual; no shares authorized, issued, or outstanding, pro forma and pro forma as adjusted...... 2,467 -- -- Series E-1 redeemable convertible preferred stock, $0.0001 par value; 20,333,333 shares authorized, 17,375,000 shares issued and outstanding, actual; no shares authorized, issued, or outstanding, pro forma and pro forma as adjusted............................. 78,698 -- -- Series F redeemable convertible preferred stock, $0.0001 par value; 4,525,602 shares authorized, 4,292,970 shares issued and outstanding, actual; no shares authorized, issued, or outstanding, pro forma and pro forma as adjusted..................................... 16,440 -- --
- -------------------------------------------------------------------------------- 18 CAPITALIZATION - --------------------------------------------------------------------------------
DECEMBER 31, 2001 -------------------------------------- PRO FORMA PRO FORMA AS ADJUSTED ACTUAL (UNAUDITED) (UNAUDITED) (in thousands, except share data) - ------------------------------------------------------------------------------------------------ Stockholders' equity (deficit): Series A convertible preferred stock, $0.0001 par value; 2,455,798 shares authorized, issued, and outstanding, actual; no shares authorized, issued, or outstanding, pro forma and pro forma as adjusted........................................... $ -- $ -- $ -- Series A-1 convertible preferred stock, $0.0001 par value; 10,090,707 shares authorized, 9,815,249 shares issued, and 9,609,558 shares outstanding, actual; no shares authorized, issued, or outstanding, pro forma and pro forma as adjusted... 1 -- -- Common stock, $0.0001 par value; 100,000,000 shares authorized, actual, pro forma, and pro forma as adjusted; 361,863 shares issued, and 347,606 shares outstanding, actual; 15,088,764 shares issued and 15,074,507 shares outstanding, pro forma; 22,588,764 shares issued and 22,574,507 shares outstanding, pro forma as adjusted................. -- 1 2 Additional paid-in capital............................ 76,095 213,584 268,055 Warrants.............................................. 8,651 8,651 8,651 Deferred compensation................................. (100) (100) (100) Foreign translation adjustment........................ (50) (50) (50) Retained deficit...................................... (192,506) (192,506) (198,567) Treasury stock........................................ (1,807) (1,807) (1,807) Notes receivable from common stockholders............. (470) (470) (470) --------- --------- -------- Total stockholders' equity (deficit)............... (110,186) 27,303 75,714 --------- --------- -------- Total capitalization............................. $ 60,702 $ 60,702 $ 79,748 ========= ========= ========
The number of shares of common stock outstanding set forth in the table above excludes the following as of December 31, 2001: - - 21,872 shares of our common stock reserved for issuance under our 1999 stock incentive plan, all of which are subject to outstanding options, with a weighted average exercise price of $35.32 per share; - - 263,761 shares of our common stock reserved for issuance under our 2000 stock incentive plan, all of which are subject to outstanding options, with a weighted average exercise price of $94.35 per share; and - - 288,569 shares of our common stock issuable upon exercise of outstanding warrants, with a weighted average exercise price of $114.57 per share. - -------------------------------------------------------------------------------- 19 - -------------------------------------------------------------------------------- Dilution Our pro forma net tangible book value as of December 31, 2001 was approximately $(29.8) million, or $(1.98) per share of common stock. Pro forma net tangible book value per share represents the amount of our pro forma total tangible assets less total liabilities, divided by the pro forma number of shares of common stock outstanding assuming the conversion of all shares of preferred stock. Pro forma net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma net tangible book value per share of common stock immediately after completion of this offering on a pro forma as adjusted basis. After giving effect to the sale of the 7,500,000 shares of common stock offered by us at an assumed initial public offering price of $8.00 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses, our net tangible book value as of December 31, 2001 would have been approximately $24.9 million, or $1.09 per share of common stock. This represents an immediate increase in net tangible book value of $3.07 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $6.91 per share to new investors purchasing shares of common stock in this offering. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $ 8.00 Pro forma net tangible book value per share before this offering............................................... $(1.98) Increase in pro forma net tangible book value per share attributable to this offering.......................... 3.07 ------ Pro forma net tangible book value per share after this offering.................................................. 1.09 ------ Dilution per share to new investors......................... $ 6.91 ======
The following table summarizes, on a pro forma basis as of December 31, 2001, the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of common stock in this offering, before deducting the estimated underwriting discounts and commissions and estimated offering expenses.
SHARES PURCHASED TOTAL CONSIDERATION -------------------- ---------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE - ---------------------------------------------------------------------------------------------------- Existing stockholders.......... 15,074,507 67.0% $197,337,355 77.0% $13.09 New investors.................. 7,500,000 33.0% $ 60,000,000 23.0% $ 8.00 ---------- ----- ------------ ----- Total........................ 22,574,507 100.0% $257,337,355 100.0% ========== ===== ============ =====
The foregoing table above assumes no exercise of the underwriters' over-allotment option. If the underwriters' over-allotment option is exercised in full: the pro forma net tangible book value per share of common stock as of December 31, 2001, as adjusted, would have been $1.39 per share, which would result in dilution to new investors of $6.61 per share; the number of shares held by the new investors would increase to 8,625,000, or 36% of the total number of shares to be outstanding after this offering; and the shares held by the existing stockholders would represent 64% of the total number of shares to be outstanding after this offering. The table assumes no exercise of any outstanding stock options or warrants to purchase common stock. As of December 31, 2001, there were 285,633 shares of common stock issuable upon the exercise of outstanding stock options, with a weighted average exercise price of $89.83 per share and 288,569 shares of common stock issuable upon the exercise of outstanding warrants, with a weighted average exercise price of $114.57 per share. To the extent that any options or warrants with an exercise price less than the initial public offering price per share are exercised, there would be further dilution to new investors. - -------------------------------------------------------------------------------- 20 - -------------------------------------------------------------------------------- Selected consolidated financial data The following selected consolidated financial data are qualified by reference to, and should be read in conjunction with, "Management's discussion and analysis of financial condition and results of operations" and our financial statements and related notes and other information contained in this prospectus. The selected consolidated balance sheet data as of December 31, 2000 and 2001 and the selected consolidated statements of operations data for the three years ended December 31, 2001 have been derived from our audited financial statements included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 1997, 1998, and 1999 and the selected consolidated statements of operations data for the two years ended December 31, 1998 have been derived from our audited financial statements (other than the balance sheet data as of December 31, 1997, which are unaudited) not included in this prospectus. The unaudited financial statements have been prepared by us on a basis consistent with the audited financial statements appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results.
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1997 1998 1999 2000 2001 CONSOLIDATED STATEMENTS OF OPERATIONS DATA (in thousands, except per share data) - ------------------------------------------------------------------------------------------------------------ Revenue: License and subscription............................ $ 1,835 $ 2,228 $ 1,298 $ 8,880 $ 18,103 Maintenance......................................... 391 907 1,090 15,239 20,601 Professional services and other..................... 1,851 2,107 2,023 1,215 3,164 ------- ------- -------- --------- --------- Total revenue..................................... 4,077 5,242 4,411 25,334 41,868 Cost of revenue: License and subscription............................ 274 267 129 2,684 3,936 Maintenance......................................... 152 160 320 7,337 6,088 Professional services and other..................... 661 675 966 637 1,572 ------- ------- -------- --------- --------- Total cost of revenue............................. 1,087 1,102 1,415 10,658 11,596 ------- ------- -------- --------- --------- Gross profit.......................................... 2,990 4,140 2,996 14,676 30,272 Operating expenses: Sales and marketing................................. 470 397 848 20,542 19,113 Research and development............................ 1,243 1,601 1,900 11,307 12,181 General and administrative.......................... 1,544 1,651 2,704 24,525 7,645 Depreciation........................................ 146 199 232 2,060 3,821 Amortization........................................ -- -- 774 39,481 49,052 Stock-based compensation and warrants............... -- 254 7,274 5,144 1,103 Restructuring charge................................ -- -- -- 1,185 2,098 ------- ------- -------- --------- --------- Total operating expenses.......................... 3,403 4,102 13,732 104,244 95,013 ------- ------- -------- --------- --------- Income (loss) from operations......................... (413) 38 (10,736) (89,568) (64,741) Other expense......................................... (91) (22) (183) (6,150) (5,262) ------- ------- -------- --------- --------- Net income (loss)..................................... (504) 16 (10,919) (95,718) (70,003) Accretion of redeemable preferred stock............... -- -- -- (4,858) (10,449) ------- ------- -------- --------- --------- Net income (loss) attributable to common stock........ $ (504) $ 16 $(10,919) $(100,576) $ (80,452) ======= ======= ======== ========= ========= Net loss per share, basic and diluted................. $ (43.41) $ (309.76) $ (224.55) Weighted average shares, basic and diluted............ 252 325 358 ======== ========= =========
DECEMBER 31, -------------------------------------------------------- 1997 1998 1999 2000 2001 CONSOLIDATED BALANCE SHEET DATA (unaudited) (in thousands) - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents............................. $ 83 $ 56 $ -- $ 15,206 $ 8,648 Working capital....................................... (442) (566) (4,109) (4,209) (985) Total assets.......................................... 2,277 2,025 11,840 135,958 79,503 Long term obligations, less current portion........... 98 68 953 36,114 33,365 Obligations under capital leases, less current portion............................................. -- -- 93 102 34 Redeemable preferred stock............................ -- -- -- 104,230 137,489 Total stockholders' equity (deficit).................. (150) (661) 4,858 (32,792) (110,186)
- -------------------------------------------------------------------------------- 21 - -------------------------------------------------------------------------------- Management's discussion and analysis of financial condition and results of operations The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and related notes that are included elsewhere in this prospectus. Our actual results may differ materially from those anticipated in any forward-looking statements included in this discussion as a result of various factors, including those set forth under "Risk factors" and elsewhere in this prospectus. OVERVIEW GENERAL We have focused on developing software solutions designed specifically for the printing industry supply chain since our inception in 1987. In February 2000, Prograph Systems, our predecessor company, changed its name to printCafe, Inc., and we launched our Web-based products to complement our enterprise resource planning software. From February through April 2000, we acquired five complementary businesses for an aggregate purchase price of $137.3 million. We have also committed significant resources to develop, integrate, and market our products, expand our management team, and hire additional personnel. We incurred a net loss of $70.0 million in 2001 and had an accumulated deficit of $192.5 million as of December 31, 2001. The results of operations of nth degree software, a company we acquired in October 1999, have been included in our financial statements since the date of acquisition. The results of operations of the five businesses we acquired during early 2000 have been included in our financial statements since their respective dates of acquisition. These acquisitions generated goodwill of $57.7 million, of which $22.5 million remained unamortized as of December 31, 2001, and other intangible assets of $86.4 million, of which $33.8 million remained unamortized as of December 31, 2001. Effective January 1, 2002, the unamortized goodwill will be tested for impairment in accordance with Statement of Financial Accounting Standards (SFAS) No. 142. The other intangible assets are being amortized over a three-year period. Any future write-off of goodwill or other intangible assets as a non-cash charge could be significant and would likely harm our operating results. SOURCES OF REVENUE Our revenue is derived principally from licenses and subscriptions of our products, maintenance contracts, and professional and other services, including implementation, consulting, and training. Our products are typically purchased under either a perpetual license or a time-based or usage-based subscription. We offer our enterprise resource planning and other client/server software to printers and print buyers under license agreements. We offer our Web-based products to printers and print buyers under subscription agreements, which typically have a term of three years. Our print buyer customers pay a subscription fee for our Web-based products based on the number of users of the website. Our printer customers can purchase either an unlimited subscription or a limited subscription for our Web-based products. The fee for the limited subscription is based on the value of print orders processed through the customer's website. Maintenance contracts are sold to customers, usually at the time of sale of a software license, under annual agreements that provide for automatic renewal, unless the customer cancels. We also provide professional services, which are offered at an hourly rate. We have derived most of our revenue from licenses of our software and the sale of related maintenance to printers. In the first quarter of 2001, we began to recognize revenue from the sale of our Web-based products to printers and began to market our Web-based solutions for print buyers. To date, we have not derived significant revenue from sales of subscriptions of our Web-based products to print buyers. - -------------------------------------------------------------------------------- 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- For the years ended December 31, 1999, 2000, and 2001, revenues from foreign customers approximated 5%, 5%, and 11%, respectively, of our total revenues. CRITICAL ACCOUNTING POLICIES Our discussion and analysis of the financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. Our actual results may differ from those estimates. The following critical accounting policies affect the significant judgments and estimates we use in preparing our consolidated financial statements. REVENUE RECOGNITION We recognize revenue on our software products in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, which provides for recognition of revenue when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant obligations remain on our part with regard to implementation, the fee is fixed and determinable, and collectibility is probable. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair value of each element. Revenue recognized from multiple-element arrangements is allocated to undelivered elements of the arrangement, such as maintenance and professional services, based on the relative fair value of each element. Our determination of fair value of each element in multi-element arrangements is based on vendor-specific objective evidence (VSOE). We limit our assessment of VSOE for each element to either the price charged when the same element is sold separately or the price established by management for an element not yet sold separately. We have VSOE for maintenance services and professional services. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the total fee is recognized as revenue. We generally recognize license revenue under the residual method upon delivery of our software to the customer, provided collection is probable. Revenue allocated to maintenance is recognized ratably over the maintenance term and revenue allocated to training and other service elements is recognized as the services are performed. Revenue from Web-based products is recognized ratably over the term of the subscription for unlimited subscriptions and is recognized based on usage, subject to a fixed term, for limited subscriptions. Many of our agreements include warranty provisions. Historically, these provisions have not had a significant impact on our revenue recognition. In those instances where customer acceptance may be in question, all revenue relating to that arrangement is deferred until the warranty period has expired. CONTINGENCIES We are involved in disputes and litigation in the normal course of business. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies are made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in insurance coverage or approach such as change in settlement strategy. STOCK-BASED COMPENSATION We have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations for our employee stock options because, as discussed below, the alternative fair value accounting provided under Financial Accounting Standards Board Statement - -------------------------------------------------------------------------------- 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- No. 123, Accounting for Stock Based Compensation (SFAS 123), requires use of valuation models that were not developed for use in valuing employee stock options. In connection with stock option grants, we had deferred compensation of $0.1 million as of December 31, 2001. This amount represents the difference between the exercise price and the deemed fair market value of our common stock on the date we granted these stock options. This amount is included as a component of stockholders' equity and is being amortized over the vesting period of the options, generally four years. We amortized stock-based compensation of $0.9 million in 2000 and $49,056 in 2001. In the first quarter of 2002, we granted options to purchase 1,701,698 shares of common stock, with an exercise price of $1.90 per share, to certain employees and directors. As a result, we estimate that stock-based compensation expense of approximately $2.6 million will be recorded annually over the vesting period of these options, which is generally four years. WARRANTS We account for equity instruments issued to nonemployees and pursuant to strategic alliance agreements in accordance with the provisions of SFAS 123 and Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling Goods or Services. Warrant expense represents charges associated with the issuance of warrants to purchase our common stock. To the extent that we derive revenue from agreements entered into in connection with the issuance of warrants, we offset this revenue by the expense associated with these warrants. Any amount of expense that exceeds revenue is recorded into sales and marketing, general and administrative, and interest expense, based upon the nature of the agreement. The amount of expense is equal to the fair value of vested warrants determined using Black-Scholes pricing models. The following table sets forth the amount of expense and reduction to revenue associated with the issuance of these warrants:
2000 2001 - -------------------------------------------------------------------------------------------- Reduction in revenue........................................ $ -- $ 47,222 Increase in sales and marketing............................. 3,840,918 1,054,278 Increase in general and administrative...................... 437,000 -- Increase in interest expense................................ 1,942,500 1,161,250
As of December 31, 2001, we had unvested warrants to purchase 113,297 shares of common stock, including warrants to purchase 833 shares of common stock that have an exercise price that will be equal to the initial public offering per share price in this offering. Warrants to purchase a total of 112,464 shares of common stock have exercise prices ranging from $120.00 to $450.00 and vest upon attainment of performance criteria. Upon the vesting of warrants to purchase 44,131 of these shares of common stock, we will record warrant expense based upon fair value for each warrant, and upon the vesting of warrants to purchase 68,333 of these shares of common stock, we will reduce revenue generated from the warrant holder during the period when vesting occurs. We cannot predict the timing or amount of this reduction in revenue and increase in expense because the amount is calculated using the fair market value at the time of vesting. We will also record annual interest expense of approximately $0.7 million related to a warrant to purchase 368,305 shares of common stock that was issued in connection with outstanding indebtedness. INCOME TAXES Deferred income taxes are recognized for all temporary differences between tax and financial bases of our assets and liabilities, using the tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. As of December 31, 2001, we had a net operating - -------------------------------------------------------------------------------- 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- loss carryforwards available to offset future taxable income in the amount of $73.4 million. The net operating loss carryforwards will expire beginning 2015 through 2021. Federal and state tax rules impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. Utilization of our carryforwards is limited because of past ownership changes. In the event that we have a future change in ownership, utilization of these carryforwards could be further limited. We have established a 100% valuation allowance against deferred tax assets due to the uncertainty that future tax benefits can be realized from our net operating loss carryforwards and other deferred tax assets. RECENT ACCOUNTING PRONOUNCEMENTS In November 2001, the Emerging Issues Task Force (EITF) reached consensus on EITF No. 01-9, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products. EITF No. 01-9 addresses the accounting for consideration given by a vendor to a customer. We have evaluated the impact of EITF No. 01-9 and do not believe that upon adoption it will have a significant impact on our financial statements. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121 and provides a single accounting model for the disposition of long-lived assets. The new rules significantly change what would have to be met to classify an asset as held for sale. In addition, more dispositions will qualify for discontinued operations treatment in the income statement as the criteria for discontinued operations presentation is changed to a component of the business rather than a segment of the business. We are required to apply SFAS No. 144 as of January 1, 2002. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their useful lives. We will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of SFAS No. 142 is expected to result in a decrease in net loss of approximately $19.6 million during 2002 and $2.9 million during the first quarter of 2003. During 2002, we will perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets as of January 1, 2002. We have not yet determined what the effect of these tests will be on our earnings and financial position. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, which is effective, as amended, for all quarters in fiscal years beginning after June 15, 2000, establishes accounting and reporting standards for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. As we do not currently engage in derivative or hedging activities, the adoption of this standard did not have a significant impact on our financial statements. RESTRUCTURING In September 2000, we initiated a restructuring plan that was designed to reduce our cost structure and eliminate redundant job tasks that existed as a result of the acquisitions made in early 2000. As part of this plan, we reduced our workforce by 78 employees through the elimination of some - -------------------------------------------------------------------------------- 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- positions and the consolidation of other redundant job tasks. The restructuring resulted in a charge for the year ended December 31, 2000 of $1.2 million, which consisted primarily of severance and other benefits related to the discharged employees. Our cash flow from operations was adversely impacted by those costs during the fourth quarter of 2000 and the first six months of 2001. In May 2001, we announced a second restructuring as part of an effort to reduce our costs and improve efficiency by consolidating our client support operations. As part of this restructuring, we reduced our workforce by 45 employees and we reduced our leased office space. The restructuring resulted in a charge for the year ended December 31, 2001 of $2.1 million, which includes severance and benefits charges and lease abandonment costs. Our cash flow from operations was adversely impacted during the second half of 2001 as a result of these costs. Our remaining restructuring reserve of $0.5 million consists primarily of lease abandonment costs and is expected to be paid and eliminated by 2003. Both of these restructuring plans focused on reducing our cost structure and improving the efficiency of our operations to respond to changing market conditions and to realize the anticipated benefits of the acquisitions made in early 2000. We believe that these actions will not adversely impact our operations in the future because we have undertaken initiatives to manage and monitor our client and employee relations during the execution of these plans and subsequent to their completion. - -------------------------------------------------------------------------------- 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The following table presents selected financial data for the periods indicated as a percentage of our total revenue:
YEARS ENDED DECEMBER 31, ------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS DATA 1999 2000 2001 - ---------------------------------------------------------------------------------------- Revenue: License and subscription.................................. 29% 35% 43% Maintenance............................................... 25 60 49 Professional services and other........................... 46 5 8 ---- ---- ---- Total revenue.......................................... 100 100 100 ---- ---- ---- Cost of revenue: License and subscription.................................. 3 11 9 Maintenance............................................... 7 29 15 Professional services and other........................... 22 2 4 ---- ---- ---- Total cost of revenue.................................. 32 42 28 ---- ---- ---- Gross profit................................................ 68 58 72 ---- ---- ---- Operating expenses: Sales and marketing....................................... 19 81 46 Research and development.................................. 43 45 29 General and administrative................................ 61 97 18 Depreciation.............................................. 5 8 9 Amortization.............................................. 18 156 117 Stock-based compensation and warrants..................... 165 20 3 Restructuring charge...................................... -- 5 5 ---- ---- ---- Total operating expenses............................... 311 412 227 ---- ---- ---- Loss from operations........................................ (243) (354) (155) Other expense............................................... (4) (24) (12) ---- ---- ---- Net loss.................................................... (247) (378) (167) Accretion of redeemable preferred stock..................... -- (19) (25) ---- ---- ---- Net loss attributable to common stock....................... (247)% (397)% (192)% ==== ==== ====
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 2001 The inclusion for the year 2001 of the results of the companies we acquired in early 2000 had an incremental effect on our results of operations. The more significant reasons for the changes year over year are described below. TOTAL REVENUE Total revenue increased from $25.3 million in 2000 to $41.9 million in 2001, an increase of 65%. The increase in license and subscription revenue was primarily due to increased sales of licenses of our enterprise resource planning products, which represented 34% of our total revenue in 2001, resulting from an increase in sales and marketing initiatives focusing on these products. These sales and marketing initiatives also led to additional maintenance contracts associated with these new license sales and additional training and consulting services. To a lesser extent, revenue also increased because - -------------------------------------------------------------------------------- 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- we began to recognize revenue from subscriptions for our Web-based products for printers in the first quarter of 2001. TOTAL COST OF REVENUE Cost of revenue includes direct labor and other direct costs relating to the delivery of our products and services. The cost of license and subscription revenue primarily relates to third party licenses that we resell with licenses and subscriptions of our products as well as any hosting and communication costs. Cost of maintenance revenue and cost of professional services revenue primarily consist of the direct labor costs of providing services to customers. Cost of revenue increased from $10.7 million in 2000 to $11.6 million in 2001, an increase of 9%. Cost of revenue as a percentage of revenue decreased from 42% in 2000 to 28% in 2001. The decrease as a percentage of revenue primarily resulted from an increase in revenue and a decrease in the number of customer and professional service employees as a result of the restructurings of operations in the third quarter of 2000 and the second quarter of 2001. OPERATING EXPENSES We classify our operating expenses into six general categories, based on the nature of the expenditure: sales and marketing, research and development, general and administrative, depreciation, amortization, and stock-based compensation and warrants. We allocate the total costs for overhead and facilities to each of the functional areas of our business that use these services based upon estimated usage. These allocated charges include general overhead items such as administrative salaries, professional fees, building rent, equipment leasing costs, and telecommunication charges. Sales and marketing. Sales and marketing expenses consist primarily of costs related to sales and marketing employee compensation, travel, public relations, trade shows, and advertising. Sales and marketing expenses decreased from $20.5 million in 2000 to $19.1 million in 2001, a decrease of 7%. Sales and marketing expenses as a percentage of revenue decreased from 81% in 2000 to 46% in 2001. The decrease in absolute dollars was primarily due to a reduction in the number of sales and marketing employees resulting from restructurings of operations in the third quarter of 2000 and the second quarter of 2001 and reductions in travel, advertising, promotion, public relations, and general marketing expenses related to initiatives that were focused on reducing expenses. Research and development. Research and development expenses consist primarily of expenses related to the development and upgrade of our existing proprietary software and expenses related to research and development for new product offerings. These expenses include employee compensation for research and development personnel and third-party contract development costs. Research and development expenses increased from $11.3 million in 2000 to $12.2 million in 2001, an increase of 8%. The increase was primarily due to continued investment in the development of our software and Web-based products. Research and development expenses as a percentage of revenue decreased from 45% in 2000 to 29% in 2001. General and administrative. General and administrative expenses consist primarily of compensation for executive and administrative personnel, travel expenses, professional advisory fees, and general overhead expenses that are not allocated to cost of revenue, research and development, or sales and marketing. General and administrative expenses decreased from $24.5 million in 2000 to $7.6 million in 2001, a decrease of 69%. General and administrative expenses as a percentage of revenue decreased from 97% in 2000 to 18% in 2001. The decrease was primarily due to a decrease in general and administrative employees and the consolidation of certain facilities as a result of restructurings of operations in the third quarter of 2000 and the second quarter of 2001. Also contributing to the decrease were expense reductions in travel and professional fees as a result of initiatives that were focused on reducing expenses. - -------------------------------------------------------------------------------- 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Depreciation. Depreciation expense consists primarily of the depreciation of equipment, furniture, fixtures, and leasehold improvements that are not directly involved in the generation of revenue. Depreciation expense increased from $2.1 million in 2000 to $3.8 million in 2001. The increase is primarily due to the purchase of additional computer equipment and software related to the development of our Web-based products. Amortization. Amortization expense consists of the amortization of intangible assets such as goodwill, purchased technology, customer lists, and patents. Amortization expense increased from $39.5 million in 2000 to $49.1 million in 2001, an increase of 24%, reflecting a full year of amortization in 2001. Stock-based compensation and warrants. Stock-based compensation and warrants expense was $5.1 million in 2000 and $1.1 million in 2001. This decrease is the result of a decrease in warrant expense and, to a lesser extent, a reduction in the number of stock options being granted in 2001 at exercise prices below their deemed fair value. OTHER INCOME (EXPENSE) Other income (expense) consists primarily of interest expense related to our borrowings, offset by interest income received from the investment of proceeds from our financing activities. Other expense decreased from $6.2 million in 2000 to $5.3 million in 2001, a decrease of 14%. The decrease is the result of a reduction in outstanding indebtedness as well as a decrease in interest rates. INCOME TAXES During 2001, we incurred net losses for federal and state tax purposes and have not recognized any tax provisions or benefits. At December 31, 2001, we had accumulated net operating loss carryforwards for federal and state tax purposes of approximately $73.4 million. The federal tax carryforwards expire in various years beginning in 2015 through 2021. Utilization of certain net operating loss carryforwards is subject to limitations described above. Events which cause limitations on the amount of net operating losses that we may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 2000 The inclusion of the results of the companies we acquired in early 2000 for the year ended December 31, 2000 is the primary reason for the increase in our revenues and operating expenses for the year ended December 31, 2000. Other reasons for the changes year over year are described below. TOTAL REVENUE Total revenue increased from $4.4 million in 1999 to $25.3 million in 2000, an increase of 474%. As a percentage of revenue, license and subscription revenue increased from 29% in 1999 to 35% in 2000, maintenance revenue increased from 25% in 1999 to 60% in 2000, and professional services and other revenue decreased from 46% in 1999 to 5% in 2000. TOTAL COST OF REVENUE Cost of revenue increased from $1.4 million in 1999 to $10.7 million in 2000, an increase of 653%. Cost of revenue as a percentage of revenue increased from 32% in 1999 to 42% in 2000. OPERATING EXPENSES Sales and marketing. Sales and marketing expenses increased from $0.8 million in 1999 to $20.5 million in 2000. Sales and marketing expenses as a percentage of revenue increased from 19% in 1999 to 81% in 2000. The increase was primarily due to expenses incurred related to advertising, - -------------------------------------------------------------------------------- 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- promotion, and public relations related to brand development and the launch of our Web-based products. Research and development. Research and development expenses increased from $1.9 million in 1999 to $11.3 million in 2000, an increase of 495%. Research and development expenses as a percentage of revenue increased from 43% in 1999 to 45% in 2000. The increase in absolute dollars was due to continued investment in the development of our software and Web-based products. General and administrative. General and administrative expenses increased from $2.7 million in 1999 to $24.5 million in 2000, an increase of 807%. General and administrative expenses as a percentage of revenue increased from 61% in 1999 to 97% in 2000. The increase was due in part to professional advisory fees related to the integration of the acquired companies, and the addition of finance, human resources, executive, and other administrative personnel to support our growth. Depreciation. Depreciation expense increased from $0.2 million in 1999 to $2.1 million in 2000. The increase is due in part to the purchase of computer equipment and software. Amortization. Amortization expense increased from $0.8 million in 1999 to $39.5 million in 2000. Stock-based compensation and warrants. Stock-based compensation and warrants expense was $7.3 million in 1999 and $5.1 million in 2000. The decrease is primarily due to a significant decrease in stock-based compensation, offset by an increase in warrant expense. OTHER INCOME (EXPENSE) Other expense increased from $0.2 million in 1999 to $6.2 million in 2000. The increase is the result of interest expense associated with the promissory notes issued in connection with the companies acquired in early 2000, partially offset by interest income on the funds generated by the equity financings in 2000. INCOME TAXES During 1999 and 2000, we incurred net losses for federal and state tax purposes and have not recognized any tax provisions or benefits. - -------------------------------------------------------------------------------- 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- QUARTERLY RESULTS OF OPERATIONS The following unaudited quarterly results of operations for the eight quarters ended December 31, 2001 should be read together with our consolidated financial statements and related notes that are included elsewhere in this prospectus. We have prepared this unaudited information on the same basis as our audited financial statements. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. You should not draw any conclusions about our future results from the results of operations for any quarter.
THREE MONTHS ENDED ----------------------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 2000 2000 2000 2000 2001 2001 2001 2001 (unaudited, in thousands) - --------------------------------------------------------------------------------------------------------------------- Revenue: License and subscription.......... $ 116 $ 2,314 $ 2,835 $ 3,615 $ 4,051 $ 4,446 $ 4,654 $ 4,952 Maintenance............. 1,564 4,088 4,700 4,887 4,905 5,041 5,279 5,376 Professional services and other............. 433 525 24 233 605 829 800 930 -------- -------- -------- -------- -------- -------- -------- -------- Total revenue......... 2,113 6,927 7,559 8,735 9,561 10,316 10,733 11,258 Cost of revenue: License and subscription.......... 15 452 812 1,405 1,119 977 922 918 Maintenance............. 882 2,391 2,214 1,850 1,645 1,622 1,507 1,314 Professional services and other............. 144 177 82 234 402 414 382 374 -------- -------- -------- -------- -------- -------- -------- -------- Total cost of revenue............. 1,041 3,020 3,108 3,489 3,166 3,013 2,811 2,606 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit.............. 1,072 3,907 4,451 5,246 6,395 7,303 7,922 8,652 Operating expenses: Sales and marketing..... 1,602 7,784 5,536 5,620 5,935 5,307 4,023 3,848 Research and development........... 1,250 3,852 3,158 3,047 3,436 3,004 2,793 2,948 General and administrative........ 5,452 7,193 5,970 5,910 2,455 1,854 1,647 1,689 Depreciation............ 286 515 582 676 919 1,014 987 901 Amortization............ 3,059 11,909 12,257 12,257 12,263 12,263 12,263 12,263 Stock-based compensation and warrants.......... 4,901 35 196 12 12 984 95 12 Restructuring charge.... -- -- 1,185 -- -- 2,098 -- -- -------- -------- -------- -------- -------- -------- -------- -------- Total operating expenses............ 16,550 31,288 28,884 27,522 25,020 26,524 21,808 21,661 -------- -------- -------- -------- -------- -------- -------- -------- Loss from operations...... (15,478) (27,381) (24,433) (22,276) (18,625) (19,221) (13,886) (13,009) Other income (expense).... 37 (1,599) (3,239) (1,349) (917) (1,124) (1,799) (1,422) -------- -------- -------- -------- -------- -------- -------- -------- Net loss.................. (15,441) (28,980) (27,672) (23,625) (19,542) (20,345) (15,685) (14,431) Accretion of redeemable preferred stock......... (148) (583) 544 (4,671) (3,605) (4,080) (4,244) 1,480 -------- -------- -------- -------- -------- -------- -------- -------- Net loss attributable to common stock............ $(15,589) $(29,563) $(27,128) $(28,296) $(23,147) $(24,425) $(19,929) $(12,951) ======== ======== ======== ======== ======== ======== ======== ========
- -------------------------------------------------------------------------------- 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The following table sets forth other financial data for the eight quarters ended December 31, 2001. EBITDA, net of other charges, represents the net loss we would have shown if we did not take into consideration our total other expense (which includes interest expense), depreciation, amortization, stock-based compensation and warrants, and restructuring charges.
THREE MONTHS ENDED ----------------------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 2000 2000 2000 2000 2001 2001 2001 2001 (unaudited, in thousands) - ---------------------------------------------------------------------------------------------------------------------- EBITDA, net of other charges.................. $ (7,232) $(14,922) $(10,213) $ (9,331) $ (5,431) $ (2,862) $ (541) $ 167 Net cash used in operating activities............... (6,233) (12,469) (9,384) (11,634) (7,076) (5,436) (3,875) (1,476) Net cash used in investing activities............... (25,535) (1,846) (1,967) (657) (902) (493) (323) (770) Net cash provided (used) by financing activities..... 46,220 2,489 11,578 24,644 3,749 (412) 667 9,789
The following table presents selected financial data for the periods indicated as a percentage of our total revenue:
THREE MONTHS ENDED ----------------------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 2000 2000 2000 2000 2001 2001 2001 2001 (unaudited, in thousands) - ------------------------------------------------------------------------------------------------------------------------- Revenue: License and subscription.... 6% 33% 38% 41% 43% 43% 43% 44% Maintenance................. 74 59 62 56 51 49 49 48 Professional services and other..................... 20 8 -- 3 6 8 8 8 ---- ---- ---- ---- ---- ---- ---- ---- Total revenue............. 100 100 100 100 100 100 100 100 Cost of revenue: License and subscription.... 1 7 11 16 12 9 9 8 Maintenance................. 41 34 29 21 17 16 14 12 Professional services and other..................... 7 3 1 3 4 4 3 3 ---- ---- ---- ---- ---- ---- ---- ---- Total cost of revenue..... 49 44 41 40 33 29 26 23 ---- ---- ---- ---- ---- ---- ---- ---- Gross profit.................. 51 56 59 60 67 71 74 77 Operating expenses: Sales and marketing......... 76 112 73 64 62 51 38 34 Research and development.... 59 56 42 35 36 29 26 26 General and administrative............ 258 104 79 68 26 18 15 15 Depreciation................ 14 7 8 8 10 10 9 8 Amortization................ 145 172 162 140 128 119 114 109 Stock-based compensation and warrants.................. 232 1 3 -- -- 10 1 -- Restructuring charge........ -- -- 15 -- -- 20 -- -- ---- ---- ---- ---- ---- ---- ---- ---- Total operating expenses................ 784 452 382 315 262 257 203 192 ---- ---- ---- ---- ---- ---- ---- ---- Loss from operations.......... (733) (396) (323) (255) (195) (186) (129) (115) Other income (expense)........ 2 (23) (43) (15) (10) (11) (17) (13) ---- ---- ---- ---- ---- ---- ---- ---- Net loss...................... (731) (419) (366) (270) (205) (197) (146) (128) Accretion of redeemable preferred stock............. (7) (8) 7 (54) (37) (40) (40) 13 ---- ---- ---- ---- ---- ---- ---- ---- Net loss attributable to common stock................ (738)% (427)% (359)% (324)% (242)% (237)% (186)% (115)% ==== ==== ==== ==== ==== ==== ==== ====
- -------------------------------------------------------------------------------- 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Our quarterly revenue increased throughout the periods presented primarily as a result of the increase in new licenses of our enterprise resource planning products and in new subscription sales of our Web-based products. The increase in revenue for the quarter ended June 30, 2000 was primarily due to the inclusion of the results of the companies we acquired in early 2000. In the first quarter of 2001, we began to generate subscription revenues from our Web-based products. A significant portion of our revenue has been, and we believe will continue to be, derived from licenses and subscriptions. This revenue is generated by a small number of significant contracts with large businesses, as well as a large number of smaller contracts with small and mid-market businesses. Maintenance revenue is a significant portion of our total revenue because many of our existing customers continue to renew their maintenance contracts. As the subscription portion of our software license and subscription revenue increases, we anticipate that maintenance will contribute a declining portion of total revenue in the future. The increase in maintenance revenue for the quarter ending September 30, 2001 was primarily due to new maintenance contracts entered into during the quarter as well as during the previous quarter. Professional services revenue may fluctuate from quarter to quarter, based upon the utilization of professional services personnel or the timing of training conferences. For example, the increase in professional services revenue in the second quarter of 2001 relates to revenue generated by our annual user conference, which took place in the second quarter, and which also accounted for the decrease from the second to the third quarter. There is not necessarily a proportional relationship between cost and total revenue. Although cost of licenses typically increases with sales volume, the portion of these costs attributable to the cost of third-party licenses varies based on the nature and size of orders in a particular quarter. The increase in operating expenses for the quarter ended June 30, 2000 was primarily due to the inclusion of the results of the companies we acquired in early 2000. The decrease in operating expenses during the third and fourth quarter of 2000 was a result of restructurings of operations and cost control initiatives. Research and development expenses decreased during the third and fourth quarters of 2000 due to reductions in third-party consulting costs. Other expense increased during the second quarter of 2000 due to indebtedness that was issued in connection with the acquisitions we completed in early 2000. The increase in the third quarter of 2000 was a result of the issuance of warrants in connection with a bridge financing. The decrease in other expense from the third quarter to the fourth quarter of 2000 was the result of the issuance of the warrants in the third quarter and the reduction of outstanding indebtedness in the fourth quarter, following the Series E-1 preferred stock financing. In the first and second quarters of 2001, operating expenses were impacted by cost-control initiatives, including a decrease in the total number of our employees and the consolidation of some redundant functions and facilities. Total operating expenses for 2001 peaked in the second quarter, due in part to a stock-based compensation and warrant charge of $1.0 million and a restructuring charge of $2.1 million. The reduction in total operating expenses in the third and fourth quarters of 2001 is the result of our efforts to eliminate redundant functions and facilities resulting from the acquisitions of companies in early 2000 and other expense reduction initiatives. Sales and marketing decreased quarter over quarter in 2001 as a result of a reduction in advertising, trade show, and general promotional expenses. In addition, we significantly reduced travel expenses as a result of expense reduction initiatives and the investment in video conferencing and Web-based communication technologies. General and administrative expenses decreased during each of the first three quarters in 2001 as a result of expense reduction initiatives in travel expenses, the elimination of significant third party consulting expenses, and the consolidation of certain facilities. - -------------------------------------------------------------------------------- 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Research and development expenses in the second and third quarters of 2001 decreased as a result of the elimination of third party professional services. These expenses increased slightly from the third quarter to the fourth quarter as a result of certain expenses incurred to assist with the development and release of new products and new features of existing products. Other expense, consisting primarily of interest expense, increased in the third quarter of 2001 as a result of the issuance of immediately exercisable warrants in connection with bridge financing provided by two of the company's stockholders. Other expense in the fourth quarter of 2001 decreased from the third quarter as a result of the issuance of the warrants in the third quarter, partially offset by the interest on this additional outstanding temporary indebtedness. This bridge financing was repaid in connection with the debt and Series F preferred stock financing completed on December 31, 2001. LIQUIDITY AND CAPITAL RESOURCES We have funded our operations primarily through funds from operations, equity-based financings, promissory notes issued to former and existing stockholders, and term loans. As of December 31, 2001, we had $8.6 million in cash and cash equivalents. In March 2001, we received $7.0 million upon the sale of 1,750,000 shares of our Series E-1 preferred stock. In December 2001, we received aggregate net proceeds of $38.9 million from the sale of 3,722,096 shares of our Series F preferred stock, the incurrence of $23.6 million in debt, and the repayment of a promissory note issued by a stockholder. Net cash used by operating activities totaled $17.9 million in 2001, $39.7 million in 2000, and $0.5 million in 1999. This is primarily the result of our net loss in each of 2001, 2000, and 1999. These amounts were partially offset by non-cash charges for depreciation, amortization of intangible assets, including goodwill, issuance of stock warrants, and stock-based compensation. Net cash used by investing activities totaled $2.5 million in 2001, $30.0 million in 2000, and $0.1 million in 1999. Cash used by investing activities in 2001 included payment for the license of a patent in 2000, purchase of computer equipment and software, and the acquisition of certain technology-related assets of another business. Cash used by investing activities in 2000 was attributable to the acquisitions we completed between February and April 2000, and investments in computer equipment and software to support additional infrastructure, product development, and our Web-based products. Cash used in investing activities for 1999 was primarily the result of the purchase of computer equipment offset by the sale of unrelated investments. Net cash provided by financing activities was $13.8 million in 2001, $84.9 million in 2000, and $0.6 million in 1999. Cash from financing activities in 2001 and 2000 was primarily attributable to the issuance of shares of our common and preferred stock, offset by the repayment of certain indebtedness. Cash from financing activities in 1999 was primarily attributable to the incurrence of debt in the form of term loans and the issuance of common stock, offset by principal payments on debt and repayments on our line of credit. We have a $2.0 million demand line of credit with National City Bank, all of which was drawn as of December 31, 2001. Borrowings under the facility bear interest, which is payable monthly at the prime rate. We also have entered into a $900,000 commercial installment note with National City Bank, which is payable monthly and matures on July 1, 2004. Borrowings under the installment note bear interest, which is payable monthly at the annual rate of 7.62%. As of December 31, 2001, the outstanding principal balance of this note was $0.5 million. The installment note contains restrictive covenants, including a limitation on our ability to incur additional indebtedness, as well as requirements that we satisfy various financial conditions, including debt service coverage. As of December 31, 2001, we were not in compliance with the debt service coverage covenant of the installment note. We have received a waiver with respect to this default from National City Bank, - -------------------------------------------------------------------------------- 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- which expires January 1, 2003. Obligations under the installment note are secured by all of our tangible and intangible personal property. We intend to repay the installment note in full with a portion of the net proceeds of this offering. In connection with the acquisitions we completed from October 1999 through April 2000, we issued $68.0 million in debt. In December 2001, we repaid $27.6 million of this debt and modified the payment terms of $12.0 million of this debt, as described below. We anticipate that $34.5 million of our total debt will be repaid with the proceeds of this offering. The remaining $4.0 million of debt matures in December 2004. We may need to raise additional funds to pay off all of our debt. In December 2001, we entered into a $23.6 million loan agreement with Iris Graphics Inc., a wholly-owned subsidiary of Creo. The proceeds of this borrowing were used to repay other outstanding debt. The outstanding principal balance bears interest at either the prime rate plus an applicable margin or the LIBOR rate plus an applicable margin, at our option. A portion of the interest is payable quarterly in cash, and a portion is added to the outstanding principal balance. Obligations under the facility are secured by substantially all of our assets, including all of the common stock of our U.S. subsidiaries and two-thirds of the stock of our United Kingdom and Australian subsidiaries. The agreement prohibits the payment of cash dividends or other distributions with respect to our common stock, and restricts product development expenditures, capital expenditures, investments, transactions with affiliates, and the incurrence of additional indebtedness. The agreement also contains financial covenants requiring us to meet certain debt-to-adjusted earnings (i.e., leverage) and fixed charge coverage ratios and to achieve certain revenue and cash flow thresholds on a quarterly basis. As of December 31, 2001, we were not in compliance with the quarterly cash flow covenant, which would have resulted in an additional 3% of interest until the default was cured. Iris Graphics waived compliance with this covenant through March 31, 2002. As of December 31, 2001, the annual interest rate was 18.9% (excluding the default interest), 11.9% of which is payable currently and 7% of which is deferred until maturity. We intend to repay the term loan in full with a portion of the net proceeds of this offering. In connection with this repayment, we will pay a prepayment fee of $3.5 million. In connection with our acquisition of Hagen Systems, Inc. in March 2000, we incurred $12.0 million in debt. Our agreement with the former shareholders of Hagen Systems obligates us to repay the remaining $8.0 million of outstanding debt upon the completion of this offering. As of December 31, 2001, the annual interest rate was 18.9%, 11.9% of which is payable currently and 7% of which is deferred until maturity. We intend to repay this debt in full with a portion of the net proceeds of this offering. In December 2001, our subsidiary, printCafe Systems, Inc., amended its promissory note with the former shareholders of M Data, Inc. d/b/a PrintSmith, a company that we acquired in March 2000, in order to extend the payment terms of $4.0 million of outstanding debt until December 1, 2004, subject to our obligation to repay the debt in full upon the occurrence of a public offering (not including this offering) of our securities with aggregate cash proceeds to us of not less than $150.0 million. The outstanding principal balance bears interest at the annual rate of 12%. Obligations under the note are secured by all of the intellectual property of our subsidiary, M Data, Inc., and further secured by a license agreement for related intellectual property owned by printCafe Systems, Inc. We expect to fund future operations and capital expenditures from revenue generated through the sale of our products, public or private financings, and the net proceeds of this offering. We currently anticipate that the net proceeds from this offering, together with our current cash and cash equivalents, and cash from operations, will be sufficient for us to meet our anticipated cash needs for working capital, capital expenditures, and debt service for at least the next 12 months. However, we may need to raise additional funds to pay off all of our debt, and we may need to raise additional capital to - -------------------------------------------------------------------------------- 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- fund our future operations. To raise additional capital, we may seek to sell additional equity or debt securities or secure additional loans under our existing bank line of credit or from new loans. We may also sell equity if we believe it an advantageous time to do so. The sale of additional equity or convertible debt securities would reduce your percentage ownership of the company. In addition, the value of our common stock could be reduced. Further, we may issue securities with rights, preferences, and privileges that are senior to our common stock. We cannot assure you that any financing arrangements will be available in amounts or on terms acceptable to us or at all. If adequate funds are not available to us on acceptable terms, our business will be harmed. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK For the year ended December 31, 2001, revenue from foreign customers approximated 11% of our total revenue. We have not had any material exposure to factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. However, in future periods, we expect to increase sales in foreign markets, including Canada and Europe. As our sales are made in U.S. dollars, a strengthening of the U.S. dollar could cause our products to be less attractive in foreign markets. At December 31, 2001, a total of $33.6 million of outstanding debt contains variable interest rates. The interest rate on $31.6 million of this amount can increase or decrease by a maximum of 2.5%. We expect to repay all of this indebtedness with the proceeds of this offering. We also have $4.5 million in fixed-rate debt obligations. Most of our cash equivalents, short-term investments, and capital lease obligations are at fixed interest rates. Therefore, the fair value of these investments is affected by changes in the market interest rates. However, because our investment portfolio is primarily composed of investments in money market funds and high-grade commercial paper with short maturities, we do not believe an immediate 10% change in market interest rates would have a material effect on the fair market value of our portfolio. Therefore, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio. - -------------------------------------------------------------------------------- 36 - -------------------------------------------------------------------------------- Business OVERVIEW We are a leading provider of software solutions designed specifically for the printing industry supply chain. Our enterprise resource planning and collaborative supply chain software solutions enable printers and print buyers to lower costs and improve productivity and enable printers to increase revenues. Our procurement applications, which are designed for print buyers, integrate with our software solutions designed for printers, and facilitate collaboration between printers and print buyers over the Web. Our software solutions for the printing industry supply chain have been installed by more than 4,000 customers in over 8,000 facilities worldwide, including 24 of the 25 largest printing companies in North America and over 50 businesses in the Fortune 1000. Founded in 1987 as Prograph Management Systems, Inc., our predecessor company Prograph Systems, Inc. has developed and provided software solutions for printers since its inception. In October 1999, Prograph merged with nth degree software, inc., a provider of software solutions for print buyers. In February 2000, Prograph changed its name to printCafe, Inc. From February through April 2000, we acquired five complementary businesses for an aggregate purchase price of $25.8 million in cash, notes in the aggregate principal amount of $67.1 million, and 175,131 shares of common stock. These acquisitions provided us the opportunity to expand our product offerings and reach new market segments. INDUSTRY BACKGROUND Based on U.S. Department of Commerce data and other industry sources, we estimate that the printing industry supply chain is at least a $240 billion market in the United States. We use the term printing industry supply chain to describe the supply chain consisting of printers, print buyers, who buy products and services offered by printers, and print industry raw material suppliers, who supply the raw materials used by printers in the printing process. Based on industry sources, we believe that there are over 50,000 printing facilities in the United States. Printers can be divided into three principal market segments - commercial printers, publication printers, and retail printers - - based on the type of their equipment, the size and complexity of their print jobs, and the nature of their customers. Commercial printing includes the printing of brochures, direct mail materials, posters, promotional materials, business forms, customized packaging and labels. Publication printing involves the printing of larger quantities of more complex materials, such as newspapers, catalogs, magazines, books, and retail inserts. Retail printers offer customers many of the same products as a small commercial printer offers its customers but typically also offer "walk up" service where a customer may have a job produced on demand. Print buyers in nearly all markets require a wide variety of printed materials and typically place customized orders with short lead times and frequently request last minute changes. As a result, printers face unpredictable demand, making it difficult to sustain high equipment utilization. The unforeseen customer requirements placed on printers by customers also make it difficult for print industry raw material suppliers to respond to printers' needs. These characteristics of the printing industry lead to production inefficiencies throughout the printing industry supply chain. The competitive environment in the printing industry requires printers and print industry raw material suppliers to differentiate themselves by offering superior quality, price, and customer service. Printers and print industry raw material suppliers need solutions that increase revenues, reduce operating costs, improve productivity, and increase customer satisfaction and loyalty. Print buyers also seek to interact efficiently with printers in order to reduce printing costs, improve productivity, and shorten production times. - -------------------------------------------------------------------------------- 37 BUSINESS - -------------------------------------------------------------------------------- THE TRADITIONAL PRINT PRODUCTION PROCESS The production of printed material is complex and requires collaboration among multiple parties throughout the process to ensure that the final product accurately reflects the print buyer's design and meets its quality, cost, and delivery expectations. Printing jobs are often highly customized, requiring numerous interactions among print buyers, printers, and print industry raw material suppliers. The production process itself can be divided into three separate stages: design and specification; purchasing; and manufacturing and distribution. Design and specification. A print buyer designs printed material through a collaborative process involving a print buyer's in-house and external design, purchasing, sales, marketing, and creative personnel. The print buyer must then communicate the print job specifications to the printer, using industry-specific terminology, so that the printer can evaluate the specifications. Typically, the print buyer specifies the print job manually and communicates it by telephone, facsimile, or e-mail. The traditional design and specification process is inherently inefficient. These inefficiencies result from the manual process of data communication, input, and retrieval, the lack of appropriate error-checking mechanisms, and the need for print buyers to understand the intricacies of the print process and its industry-specific terminology in order to submit an accurate request for a quote. Purchasing. Purchasing a print job begins with the transmission of the specifications to one or more printers to obtain and evaluate quotes that estimate the cost, timing, and other elements of the project. A printer cannot estimate the cost of a print job until the print buyer has completed the specification phase, by defining paper, contents, configuration, binding, and distribution requirements. After evaluating the specification details, the printer will determine its selling price, either manually or by a computer-based process, and prepare a quote for the job. Once the printer provides a quote, the print buyer then uses this information to modify job designs and specifications and to select a printer. Without a consistent means of specifying a print job, printers may misinterpret and inaccurately reply to quote requests, and print buyers may not adhere to internal corporate policies and spending limits. In addition, depending on a number of factors, such as the equipment available to produce the print job, the cost of producing the same print job can vary significantly from printer to printer. These miscommunications and inefficiencies often lead to higher costs, delays, and customer dissatisfaction. Manufacturing and distribution. This stage encompasses management of the entire supply chain and production process, from purchasing and inventory of raw materials through order management, preparation, printing, binding, finishing, distribution, invoicing, and payment processing. The manufacturing and distribution process has traditionally required manual preparation of job instructions, which can result in inconsistent and inaccurate print specifications, errors in the production process, delays in project completion, and an inability to track the current status of inventories and jobs, leading to high costs, production errors, delays, and customer dissatisfaction. In addition, the difficulty associated with implementing customer change orders, and a lack of integration between the systems that are used to plan and design print projects, lead to further complications, inefficiencies, and errors in the manufacturing and distribution processes. THE IMPACT OF NEW TECHNOLOGIES ON THE PRINTING INDUSTRY SUPPLY CHAIN The Web and other new technologies provide opportunities for businesses across all industries to improve efficiency by extending their enterprise software applications to include customers, partners, and suppliers. Businesses seek software solutions that incorporate industry best practices, standard processes, industry-specific terminology, and other functionality that has been designed for their particular industry. Most enterprise software applications, however, are not designed for the needs of a particular industry. We believe that industry-specific software solutions can be easier to implement and facilitate deeper collaboration among supply chain participants. These software solutions are - -------------------------------------------------------------------------------- 38 BUSINESS - -------------------------------------------------------------------------------- particularly in demand in industries, such as printing, with a complex production process and rapidly changing job specifications. The printing process involves a high degree of customization to meet the needs of participants in the printing industry supply chain, causing them to utilize industry-specific enterprise resource planning systems to maximize process efficiency. Some businesses have turned to in-house solutions to address these needs. More recently, vendors have developed a variety of software applications designed for use in many industries, including procurement and enterprise resource planning systems. We believe that these applications, which are often designed for a standard assembly process, utilizing catalog-derived parts, do not meet the complex needs of the printing industry with its job-specific custom requirements. The complexities and inefficiencies inherent in the traditional print process create an opportunity for an integrated software solution specific to the printing industry supply chain that eliminates redundant and manual processes and enhances communication and collaboration. THE PRINTCAFE SOLUTION We believe that we offer the only integrated software solutions that enable printers and print buyers to increase efficiency in each stage of the printing process -- from specification and purchasing to manufacturing and distribution -- by providing enterprise resource planning systems, purchasing systems, and collaborative supply chain planning and execution systems. Since our inception in 1987, we have continually developed our software, targeted to the specific needs of the printing industry supply chain, by drawing on our years of experience in the printing industry and leveraging our relationships with our strategic partners and customers. Benefits to printers Our software solutions enable printers to maximize productivity, increase revenues, improve production management, and increase customer satisfaction and loyalty. Printers use our software solutions to: - - increase responsiveness by automating the quotation process, quoting accurate prices, and receiving and fulfilling orders electronically for almost any type of print project; - - automate the manufacturing process and control print production equipment, including scheduling the execution of print jobs and collecting data on print jobs in process; - - manage inventory, resource planning, purchasing, accounting, and invoicing; - - communicate and collaborate with multiple parties throughout the printing process; and - - leverage their technology leadership to increase revenues by increasing business with existing customers and generating new customer opportunities. Benefits to print buyers Our software solutions enable print buyers to increase productivity and reduce costs in the printing industry supply chain. By automating the print specification and purchasing processes, our products allow print buyers to replace inefficient manual processes with online collaboration capabilities. Print buyers use our software solutions to: - - centrally manage and enforce company-wide print purchasing policies; - - specify, estimate the cost of, order, and track changes to, virtually any type of print project by collaborating with printers of their choice; - - purchase print more effectively by allowing the print buyer to select the most suitable printer for each print job; - -------------------------------------------------------------------------------- 39 BUSINESS - -------------------------------------------------------------------------------- - - reduce print job production time by communicating and collaborating with multiple parties throughout the printing process; and - - track the current status of a project from specification through delivery and reconcile invoices to orders and change orders. STRATEGY Our objective is to be the leading developer and provider of software solutions for the global printing industry supply chain. To achieve this objective, we intend to: Expand our penetration among leading global businesses. Our software has been installed at more than 50 businesses in the Fortune 1000. We intend to target this market through our direct sales force and through our strategic partner channels. We believe that increasing adoption among leading global businesses, such as the Fortune 1000, will create additional demand for our solutions from printers looking to develop their customer penetration among leading global businesses and print buyers, who look to them for technology leadership. Increase penetration of existing printer customers and attract new printer customers. Our software solutions have been installed by more than 4,000 customers in over 8,000 printing facilities and 24 of the 25 largest printing companies in North America. Many of our printer customers have facilities that have not yet installed our software solutions. We intend to further penetrate these existing customers by selling our software solutions to these facilities and by cross-selling our other software solutions, which are complementary and independently deployable. We also intend to introduce existing and new printer customers to our Web-based solutions. Further develop our integrated printing industry supply chain solution. We believe that our experience in providing software designed specifically for the printing industry supply chain provides us with a competitive advantage. We intend to increase our technological and product leadership by seeking to enhance our software's core functionality and print management features. We intend to continue to focus on the development of new product offerings to address the needs of print buyers, printers, and print industry raw material suppliers. Pursue new markets. We intend to broaden our geographic and product offerings. To date, we have focused primarily on printers and print buyers in North America. We intend to use our existing relationships with our customers, including leading global print buyers, printers, and print industry raw material suppliers, to accelerate the adoption of our software in international markets. In addition, we are developing a software solution for print industry raw material suppliers, which we intend to begin offering in the fourth quarter of 2002. Leverage our strategic marketing alliances. We currently have strategic alliances and co-marketing agreements with software vendors, large systems integrators, consulting companies, and other companies that provide solutions to participants in the printing industry supply chain. Creo, a leading supplier of pre-press equipment and workflow software to the graphic arts industry, markets our Web-based products to the nearly 12,000 printing facilities it serves in North America. Accenture and SMARTworks also market our products to their customers. We intend to utilize our existing strategic alliances and aggressively pursue new alliances to reach new customers and accelerate the adoption of our software solutions. PRODUCTS EXISTING PRODUCTS Our software solutions automate the print production process; facilitate collaboration, order fulfillment, data collection and analysis, and inventory management; and provide financial accounting - -------------------------------------------------------------------------------- 40 BUSINESS - -------------------------------------------------------------------------------- functions for printers. Our products, developed specifically for the printing industry supply chain, are designed to reduce costs, increase customer satisfaction, and overcome inefficiencies in the traditional print production process. Our products can be deployed together as an integrated solution or purchased separately and used on a stand-alone basis. We offer four categories of products: - - enterprise resource planning and supply chain planning products, which facilitate efficient and accurate fulfillment of each print production job by automating purchasing, operations, and financial functions; - - collaboration and procurement products, which enable print buyers to communicate with printers at every stage of the print production process, thereby reducing errors, production time, and costs; - - self-service applications, which enable printers to establish a Web storefront and provide other online services to their customers, facilitating interaction with their customers and potential customers by improving collaboration and project management; and - - manufacturing and supply chain execution products, which enable commercial and publication printers to plan and adjust their production capacity by analyzing data collected from the production floor.
PRODUCT TYPE PRODUCT NAME TARGET SEGMENT DESCRIPTION Enterprise Resource - Prograph - Publication printers - Software that automates the print Planning and Supply - Hagen - Large commercial production process from planning and Chain Planning printers quoting to inventory management and - Logic - Mid-market financial reporting. commercial printers - Small commercial - PSI printers - Retail printers - PrintSmith - --------------------------------------------------------------------------------------------------------- Collaboration and - EnterpriseSite - Fortune 1000 print - Web-based purchasing software that Procurement buyers expedites purchasing for print buyers - Impresse Site - Fortune 1000 print through collaboration with printers, buyers and efficient project management - FastTrack - Mid-market print tools. buyers ----------------------------------------------------------------------------------- - Proteus - Publishers - Software tool that automates internal publishing processes, including layout, cost estimating, optimization, and ordering. - --------------------------------------------------------------------------------------------------------- Self-Service - PrinterSite - Commercial printers - Web-based software that facilitates Applications - Retail printers the print production process by - PrintSmith Site providing an integrated storefront for online collaboration, file sharing, project management, and other print functions. - --------------------------------------------------------------------------------------------------------- Manufacturing and - Auto-Count - Commercial and - Production floor data collection Supply Chain publication printers software with a direct machine interface Execution for tracking count, waste, and performance statistics from press and bindery equipment. ----------------------------------------------------------------------------------- - PrintFlow - Commercial and - Software tool that automates and publication printers optimizes job scheduling of an individual printing facility or group of facilities.
PRODUCTS UNDER DEVELOPMENT We expect to release the international version of our Hagen product in Europe and Canada in the second quarter of 2002. This version of Hagen will address currency, taxation, and language issues - -------------------------------------------------------------------------------- 41 BUSINESS - -------------------------------------------------------------------------------- throughout Europe and in other international markets, while retaining the core functionality of our current U.S. Hagen product. The product design for this version of Hagen is substantially complete. In the second quarter of 2002, we also plan to release Prepress Connector, which will integrate our enterprise resource planning products with Prinergy, a product offered by Creo that enables distribution of workflow, late-stage editing, and support for multiple output devices. Creo markets Prinergy to pre-press providers worldwide. Our enterprise resource planning products will communicate with Prinergy to offer a simplified and collaborative process for tracking and capturing the costs associated with pre-press workflow, including proofing, change orders, and approval processes. We believe that Prepress Connector will also enable us to cross-sell our products to Creo's customers more effectively. We anticipate that Prepress Connector will be available for purchase to integrate with our Hagen product in the second quarter of 2002 and with our PSI and Logic products in the third quarter of 2002. Prototypes have been completed for Prepress Connector for each of the Hagen, PSI, and Logic products. During the fourth quarter of 2002, we expect to release SupplierSite, a Web-based, self-service application for print industry raw material suppliers. We intend to integrate SupplierSite with EnterpriseSite and our software solutions for printers. SupplierSite will enable print buyers and printers to purchase supplies used in the printing process electronically from their raw material suppliers. We believe that the benefits of SupplierSite to print industry raw material suppliers will include enhanced customer relationships and reduced costs. SupplierSite is currently in the design stage and a prototype does not exist for this product. We anticipate that we will spend approximately $3.0 million designing SupplierSite and integrating it with our enterprise resource planning products. CUSTOMERS Our software solutions for the printing industry have been installed by more than 4,000 printer customers in over 8,000 facilities worldwide, including 24 of the 25 largest publication and commercial printers in North America. The following printers use our solutions:
LARGE MID-MARKET SMALL PUBLICATION COMMERCIAL COMMERCIAL COMMERCIAL RETAIL PRINTERS PRINTERS PRINTERS PRINTERS PRINTERS - ----------------------------------------------------------------------------------------------------- Banta Publications Offset Alpine Holt Sublimation Printing Casaic MultiCopy Brown Printing St. Ives J.S. McCarthy Printers Digital Printing Insty-Prints Perry-Judd's Mail-Well V.G. Reed & Sons & Imaging Kwik Kopy Australia PMP Quebecor Fleming Promotional Scrip-J Printers AlphaGraphics The Sheridan Premier Print Graphics Hemlock Printing Prontaprint Group Holdings The Stratus Group Western Graphics and Data
In addition to printers, our software solutions, including our enterprise resource planning and collaboration and procurement products, have been installed by more than 50 businesses in the Fortune 1000. The following companies use our solutions: AOL Time Warner, Hewlett-Packard, General Motors, and Bristol-Myers Squibb. During each of 2000 and 2001, no single customer accounted for ten percent or more of our revenue. - -------------------------------------------------------------------------------- 42 BUSINESS - -------------------------------------------------------------------------------- CASE STUDIES PMP PMP is a leading magazine, catalog, and directory printer, with printing facilities in Australia and New Zealand. Its customers include many of the largest companies and government entities in the region. Challenge: PMP installed our Logic enterprise resource planning product in 1996 across its print facilities. To leverage the benefits of our enterprise resource planning product and add functionality, PMP sought to Web-enable its existing Printcafe solution and establish a corporate website to facilitate interaction among its salespeople and customers. Solution: In August 2000, PMP purchased our PrinterSite self-service application. PrinterSite enables PMP to present a consistent brand identity to its customers, who can access PMP's print capabilities online from a single Web-based interface. As a result of the integration of our Logic and PrinterSite products, PMP has automated the specification and purchasing stages of the print production process, enabling print buyer customers to collaborate with PMP, and to specify, order, estimate, and check the status of their print jobs online. The integration of our enterprise resource planning and self-service applications has enabled PMP to provide employees across its organization with reporting, job quoting, invoicing, and collaboration functionality. Current initiatives: PMP continues to integrate our new solutions with its installed enterprise resource planning and self-service applications. PMP recently purchased AutoCount, our manufacturing execution product, to improve shop floor data collection and print production process efficiency.
MAIL-WELL Mail-Well has grown through acquisitions to become a leading producer of commercial print, with over 140 printing facilities in the United States and United Kingdom. Mail-Well serves a wide range of customers, including many Fortune 1000 print buyers. Challenge: Mail-Well sought to replace legacy management systems at its acquired printing facilities with a single print production software solution, while simultaneously providing its diverse customer base with a new Web-based solution to differentiate it from other printers in the competitive printing market. Solution: In May 2000, Mail-Well purchased our Hagen enterprise resource planning and PrinterSite self-service applications for its printing industry supply chain needs. Our integrated solution automates Mail-Well's print production process by enabling Mail-Well to receive customized orders over the Web and assign print orders to appropriate production locations, which facilitates efficient utilization of its equipment. PrinterSite provides Mail-Well with a privately-branded website that yields increased customer loyalty and a higher level of customer service by integrating with our collaboration and procurement solutions for print buyers. Our Hagen enterprise resource planning software also allows Mail-Well to track the performance and productivity of its commercial printing group on a consistent basis across its facilities. Current initiatives: Mail-Well has been actively introducing its Fortune 1000 print buyer customers to our solutions in order to encourage them to adopt EnterpriseSite, our Web-based collaboration and procurement solutions for print buyers.
- -------------------------------------------------------------------------------- 43 BUSINESS - -------------------------------------------------------------------------------- SALES AND MARKETING We sell our products and services through: - - our 44-person direct sales force, which currently generates most of our sales; - - sales representatives of Creo, one of our strategic partners; - - co-marketing agreements with Accenture and SMARTworks; and - - the sales forces of some of our printer customers, who recommend our products to their print buyer customers. Our marketing programs are designed to promote our brand, educate our existing and potential customers about the features and benefits of our software, and generate sales leads. As of December 31, 2001, our sales and marketing team consisted of 63 professionals. Our marketing activities include participation in industry trade shows and seminars, hosting an annual user conference attended by over 700 participants, hosting regional user meetings, direct mailings, trade journal advertising, and public relations activities. PROFESSIONAL SERVICES AND CUSTOMER SUPPORT Our customer service professionals configure and implement our software solutions and provide technical support, consulting, and training to our customers. As of December 31, 2001, we employed 138 professionals in our customer service organization. Our customer service professionals are available by telephone, over the Web, or by e-mail to assist with customer support requests 24 hours a day, seven days a week. In addition to professional services, we offer product maintenance to our customers. Maintenance contracts are typically subject to an annual, renewable fee and are typically priced as a percentage of product license fees. Customers under maintenance service contracts receive technical product support and product upgrades as they are released throughout the life of the maintenance contracts. STRATEGIC ALLIANCES CREO We have had a strategic alliance with Creo since February 2000. We have a sales channel agreement with Creo under which Creo provides a third-party sales channel for the sale of our software solutions to printers in North America. Under the terms of the agreement, Creo has agreed to provide sales representatives to focus on sales of our Web-based self-service applications to printers in North America. A.T. KEARNEY PROCUREMENT SOLUTIONS In January 2001, we entered into a marketing alliance agreement with A.T. Kearney Procurement Solutions, Inc. (ATKPS), a subsidiary of A.T. Kearney. ATKPS is a provider of supply market solutions. Under the terms of the marketing alliance agreement, ATKPS offers our Web-based print procurement solution to Fortune 500 companies and business-to-business consortiums in North America in connection with its print supply market solution. ACCENTURE In March 2000, we entered into a marketing alliance agreement with Accenture. Under the terms of this agreement, Accenture markets our software solutions to Fortune 1000 companies in North America. In connection with the agreement, we issued warrants to purchase shares of our common stock to Accenture. Some of these warrants vest when we enter into agreements with new customers based on the assistance of Accenture. We issued the warrants to provide a performance incentive to - -------------------------------------------------------------------------------- 44 BUSINESS - -------------------------------------------------------------------------------- Accenture in their sales efforts and to assist in the overall sales and marketing of our products. We have not entered into any agreements with any print buyers based directly on the assistance of Accenture. SMARTWORKS In October 2001, we entered into a strategic alliance agreement with SMARTworks. Under the terms of the agreement, SMARTworks' sales force markets our EnterpriseSite solution to Fortune 1000 companies and mid-market print buyers in North America. We also agreed to integrate our EnterpriseSite solution with a procurement product offered by SMARTworks in order to facilitate sales of each of our products. SMARTworks is compensated under the terms of the agreement based on sales of EnterpriseSite we complete based on their assistance. We have not generated any sales based directly on the assistance of SMARTworks. TECHNOLOGY AND PRODUCT ARCHITECTURE We design software solutions for participants in the global printing industry supply chain. Our products are designed to be easily adaptable, secure, and scalable for global businesses, as well as capable of handling multiple data sources and a large number of transactions. Our products are implemented through two technology platforms: client/server software applications and hosted Web- based products. With our modular, object-oriented development approach, we have developed client/server-based enterprise resource planning systems and supply chain planning and execution software that work with a variety of databases and operating systems. Our Web-based products are developed using readily-available Web development tools and are deployed on an Oracle database. We continually refine our client/server software applications and our Web-based products in order to improve their interoperability and to extend the reach of our products throughout the printing industry supply chain. Our product architecture is designed to support today's rapidly changing technology standards by providing the following features: Layered architecture. Our client/server software applications are written using an object-oriented architecture, which enables our developers to construct and modify discrete applications efficiently and cost-effectively. Our hosted Web-based software applications are developed using multi-tier architecture, which provides for ease of deployment, application management, support, and scalability. Flexible, open systems architecture. Our open architecture benefits both our internal software development process and the customers who use our solutions. Our developers are able to pre-configure software to address in separate solutions the specialized needs of the different types of participants in the printing industry supply chain, which simplifies and accelerates the software development process. We are able to offer products which are appropriate for customers ranging from small, single-facility print shops to large, enterprise-wide implementations. In addition, our architecture supports a number of different operating systems, such as Windows, Macintosh, AS/400, and UNIX. Scalability. We use a distributed application framework, which leverages separate applications working together, rather than a single, complex system, to minimize product complexity and facilitate product updates and maintenance. We ensure optimal scalability in our Web-based products by managing application replication software on multiple servers, coupled with load management software and hardware, which provides redundancy and additional peak use capacity. Our multi-tier architecture allows for rapid response to demands for increased capacity resulting in an environment that is highly scalable. Security. Our Web-based products are protected from intrusion and compromise through multiple industry-standard security measures. Our multi-tier architecture isolates the major components of the - -------------------------------------------------------------------------------- 45 BUSINESS - -------------------------------------------------------------------------------- system from one another - the publicly-accessible tiers include user interface components and business logic modules, while the data layer resides in a separate, secure, private tier. By segregating data from the interface and business logic, we protect the data repository from infiltration over the public Web. We also rely upon industry-standard security protocols, such as secure socket layer connections, digital signatures, and encryption, to protect essential customer data from exposure and corruption. INTELLECTUAL PROPERTY We rely primarily on a combination of copyright, trademark, trade secret and patent laws and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only limited protection for our technology. We seek to protect the source code for our software, documentation, and other written materials under trade secret and copyright laws. We license our software pursuant to license agreements, which impose certain restrictions on the licensee's ability to utilize the software. We also require employees and consultants with access to our proprietary information to execute confidentiality agreements. We have obtained eight patents in the United States on aspects of our technology and business processes and have filed applications for additional patents. Two of these patents are scheduled to expire within the next three years. We do not view the expiration of these patents to be material. We license a process patent for our Web-based solutions from the patent owner. The license remains in effect until the expiration of the patent. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights and to determine the validity and scope of the proprietary rights of others. Our failure to adequately protect our intellectual property could have a material adverse effect on our business and operating results. COMPETITION Traditionally, both printers and print buyers would internally create their own methodologies to manage their printing industry supply chain needs, often using manual processes. In the absence of commercially-available printing industry supply chain software, some companies developed software for their own internal use. The market for software focused specifically on the printing industry supply chain is relatively new and is evolving rapidly. In this market, we encounter competition from software application vendors that specifically target the printing industry, which are typically small, privately-owned companies, and from larger vendors who currently offer or are seeking to develop printer-focused enterprise resource planning products, such as Heidelberg and SAP. We are unaware of any competing integrated suite of software products focused specifically on the print industry supply chain similar to our comprehensive software solutions. In the future, we could potentially face competition from other software vendors with related functionality in enterprise resource planning, supply chain management, and procurement who decide to target the printing industry, including Ariba, i2, Manugistics, Microsoft, Oracle, and PeopleSoft, and other software vendors focused on specific aspects of supply chain planning and execution, such as Manhattan Associates, Retek, and Vastera. We believe that the principal competitive factors affecting our market include adoption by a significant number of print buyers and printers, product quality and performance, customer service, core technology, product features, price, and the value of services. EMPLOYEES As of December 31, 2001, we had 372 full-time employees. Of these employees, 63 were in sales and marketing, 122 were in research and development, 138 were in customer support, and 49 were in - -------------------------------------------------------------------------------- 46 BUSINESS - -------------------------------------------------------------------------------- general and administrative services and operations. Our employees are not represented by a labor union, and we consider our employee relations to be good. FACILITIES Our headquarters are located in Pittsburgh, Pennsylvania, where we lease approximately 25,000 square feet of office space. The lease expires in November 2003, unless we elect to extend the term for up to an additional two years. These facilities are used for executive office space, including sales and marketing, finance and administration, research and design, Web hosting, and customer support. In addition, we have offices in Arizona, California, Connecticut, Illinois, Minnesota, and New Hampshire in the United States, and New Windsor in the United Kingdom. LEGAL PROCEEDINGS From time to time, we may be involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Currently, we are not a party to any material litigation or arbitration proceedings. From time to time, we receive claims from third parties alleging that our products infringe their proprietary rights. These claims, with or without merit, could be time-consuming and costly, divert management's attention, cause product shipment delays, require us to develop non-infringing technology, or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all. Based on our investigation to date, we do not believe that the ultimate outcome of any of these claims would have a material adverse effect on our business. However, if any of these disputes are resolved unfavorably to us, our business and financial condition could be adversely affected. - -------------------------------------------------------------------------------- 47 - -------------------------------------------------------------------------------- Management EXECUTIVE OFFICERS AND DIRECTORS The following table shows information about our executive officers and directors as of March 15, 2002:
NAME AGE POSITION(S) - ----------------------------------------------------------------------------------------------------------------- Marc D. Olin.............................. 37 President, Chief Executive Officer, and Director Joseph J. Whang........................... 37 Chief Financial Officer and Chief Operating Officer Ronald F. Hyland, Sr. .................... 38 Senior Vice President and Chief Technology Officer Amos Michelson............................ 49 Chairman of the Board Charles J. Billerbeck..................... 44 Director Victor A. Cohn(1)(2)...................... 53 Director Thomas J. Gill(1)(2)...................... 43 Director Judi Hess................................. 44 Director Geraldine B. Sinclair(1)(2)............... 54 Director
- ------------ (1) Member of the Compensation Committee. (2) Member of the Audit Committee. Marc D. Olin has served as our Chief Executive Officer since October 2001, as our Co-Chief Executive Officer from July 2000 to September 2001, and as our President and a director since February 2000. Mr. Olin also served as our Co-Chairman from February 2000 to March 2000, and as our Chief Operating Officer from March 2000 to August 2001. From April 1999 to February 2000, Mr. Olin served as the Chairman, President, and Chief Executive Officer of Prograph Systems, Inc., one of our predecessor companies. From 1992 to April 1999, Mr. Olin served as President of Prograph Management Systems, one of our predecessor companies, which he co-founded in 1987. He received a B.S. from Carnegie Mellon University. Mr. Olin is currently a director of the Graphic Arts Technical Foundation. Joseph J. Whang has served as our Chief Financial Officer since February 2000 and as our Chief Operating Officer since August 2001. From October 1998 to February 2000, Mr. Whang was a Managing Director of McDonald Investments, an investment banking firm. Mr. Whang was a founding partner of Carleton, McCreary, Holmes & Co., an investment banking firm, and served as a Managing Director from May 1996 to October 1998. Previously, Mr. Whang was President of Practisys, Inc., a software company, and a Certified Public Accountant with Price Waterhouse. He received a B.S. from the Wharton School of the University of Pennsylvania. Ronald F. Hyland, Sr. has served as our Senior Vice President and Chief Technology Officer since February 2000. Mr. Hyland was Chief Technology Officer of Prograph Systems, Inc. from April 1999 to February 2000. Mr. Hyland was President of Prograph Bindery Systems, one of our predecessor companies, from 1996 to April 1999 and the Vice President and Chief Operating Officer of Prograph Bindery Systems from 1994 to 1996. From 1988 to 1994, Mr. Hyland was Manager of Advanced Technology for Time Warner. Amos Michelson has served as a director since February 2000 and Chairman of the Board since July 2000. Mr. Michelson has served as Chief Executive Officer of Creo Products, Inc. since June 1995, and has served as a director of Creo Products, Inc. since March 1992. From August 1991 to June 1995, Mr. Michelson served as Vice President of Business Strategy for Creo Products, Inc. - -------------------------------------------------------------------------------- 48 MANAGEMENT - -------------------------------------------------------------------------------- Charles J. Billerbeck has served as a director since February 2000. Mr. Billerbeck has also served as a Senior Managing Director of Mellon Ventures, Inc., a venture capital division of Mellon Financial Corporation, since June 2001, and as a Managing Director from 1996 through June 2001. From 1987 to 1996, Mr. Billerbeck was Vice President and Manager of Mellon's Leveraged Finance Unit. Victor A. Cohn has served as a director since October 2001. Since March 2001, Mr. Cohn has been a principal of Focal Point Partners, a business and financial management firm. From April 2000 until March 2001, Mr. Cohn served as the Chairman and Director of Alley Capital Partners, an investment banking firm. From September 1996 until March 2000, Mr. Cohn served as a Senior Managing Director at Bear, Stearns & Co. Inc., where he was the Head of Equity Capital Markets. Thomas J. Gill has served as a director since September 2000. Mr. Gill has been the Managing Partner of G4 Partners, LLC, a management consulting firm since May 2000 and is also Chairman, Chief Executive Officer, and Director of Helium Networks, Inc., a wireless data solutions provider. From January 1998 until November 1999, Mr. Gill served as a director and President and Chief Executive Officer of FORE Systems, Inc., a developer and manufacturer of high-speed networking equipment, which was acquired by GEC, p.l.c., now called Marconi Communications. He served as FORE Systems' Chief Operating Officer from January 1997 to January 1998 and as its Vice President of Finance, Chief Financial Officer and Treasurer from December 1993 to January 1998. Judi Hess has served as a director since December 2001. Ms. Hess has served as President of Graphic Arts for Creo Inc. since February 2002. From April 2000 until February 2002, Ms. Hess served as Corporate Vice President of Printing Workflow Solutions for Creo Inc. From December 1995 to April 2000, Ms. Hess was Director for Workflow Products for Creo. Prior to joining Creo, Ms. Hess served as Program Manager for MacDonald Dettwiler and Associates, a Canadian high-technology commercial and defense contractor. Geraldine B. Sinclair has served as a director since March 2002. Since September 2001, Dr. Sinclair has served as President of the Premier Technology Council, which provides technology-related advice to the government in British Columbia, Canada. From February 1996 to May 2001, Dr. Sinclair was the President and Chief Executive Officer of NCompass Labs, a Web content management software company acquired by Microsoft Corporation in May 2001. Dr. Sinclair is a director of Telus Corporation, a telecommunication company. BOARD OF DIRECTORS Our board currently consists of seven directors, who were elected pursuant to the terms of a voting agreement between the Company and some of its stockholders. The voting agreement terminates upon completion of this offering. Effective upon the completion of this offering, our board will be divided into three classes, with each class serving a staggered three-year term and until their successors have been elected and qualified. Marc Olin, Judi Hess, and Geraldine Sinclair will serve as directors in the class having a term first ending in 2005, Victor Cohn and Thomas Gill will serve as directors in the class having a term first ending in 2004, and Charles Billerbeck and Amos Michelson will serve as directors in the class having a term first ending in 2003. The executive officers serve at the discretion of the board of directors. There are no family relationships among any of our directors or executive officers. BOARD COMMITTEES We have established a compensation committee and an audit committee. The members of the audit committee and compensation committee are Messrs. Cohn and Gill and Dr. Sinclair. The audit committee will review our annual audit and meet with our independent auditors to review our internal - -------------------------------------------------------------------------------- 49 MANAGEMENT - -------------------------------------------------------------------------------- accounting controls and financial management practices. The compensation committee recommends compensation for executive officers to the board of directors. DIRECTOR COMPENSATION Directors are reimbursed for reasonable travel expenses relating to attendance at board of directors' meetings and committee meetings and are eligible to participate in our 2000 stock incentive plan and 2002 key executive stock incentive plan. In addition, effective October 2001, each independent director receives $1,000 per month for service as a director. On February 5, 2002, Messrs. Cohn and Gill were each granted an option to purchase 7,627 shares of common stock under our 2002 key executive stock incentive plan, with an exercise price of $1.90 per share. On March 5, 2002, Dr. Sinclair was granted an option to purchase 7,627 shares of common stock under our 2002 key executive stock incentive plan, with an exercise price of $1.90 per share. INDEMNIFICATION AGREEMENTS We have entered into indemnification agreements with our officers and directors containing provisions that are in some respects broader than the indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements require us to indemnify our officers and directors against liabilities that may arise by reason of their status or service as officers or directors (but not for liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. We have obtained directors' and officers' liability insurance. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of our compensation committee has ever been an officer or employee of ours. None of our executive officers serves as a director or compensation committee members of any entity that has one or more executive officers serving as one of our directors or on our compensation committee. - -------------------------------------------------------------------------------- 50 MANAGEMENT - -------------------------------------------------------------------------------- EXECUTIVE COMPENSATION The following table provides summary information concerning the compensation awarded to, earned by or paid to our Chief Executive Officer and our former Co-Chief Executive Officer, and each of our other executive officers whose total annual salary and bonus exceeded $100,000 during the year ended December 31, 2001. In this prospectus, these individuals are referred to as the named executive officers. SUMMARY COMPENSATION TABLE - --------------------------------------------------------------------------------
LONG-TERM ANNUAL COMPENSATION COMPENSATION ----------------- ------------ SHARES UNDERLYING NAME AND PRINCIPAL POSITION(S) SALARY ($) OPTIONS (#) - ---------------------------------------------------------------------------------------------- Marc D. Olin(1)............................................. $227,000 5,000 President and Chief Executive Officer Joseph J. Whang............................................. 190,000 5,833 Chief Financial Officer and Chief Operating Officer Ronald F. Hyland, Sr. ...................................... 175,000 5,000 Senior Vice President and Chief Technology Officer William L. Guttman(1)....................................... 47,292 5,000 Former Co-Chief Executive Officer
- --------------- (1) Mr. Olin and Mr. Guttman served as Co-Chief Executive Officers until September 30, 2001, at which time Mr. Olin became Chief Executive Officer and Mr. Guttman resigned as an executive officer of the Company. EMPLOYMENT AND OTHER AGREEMENTS Effective January 1, 2002, we entered into an employment agreement with Marc D. Olin, our President and Chief Executive Officer. The agreement has a one-year term and renews automatically for subsequent one-year terms, unless terminated. The agreement provides for a base annual salary of $227,000, the issuance of an option to purchase 378,156 shares of common stock with an exercise price of $1.90 per share, and certain fringe benefits. One-eighth of the total number of shares subject to the option vest on June 30, 2002. The remainder vest ratably over the succeeding 42 months. Upon a change in control, other than if Creo acquires more than 50% but less than 100% of our outstanding stock, the vesting of Mr. Olin's option will accelerate by six months. Mr. Olin has entered into a noncompetition agreement in favor of us for two years following the date of his termination of employment with us. If we terminate Mr. Olin's employment without cause or Mr. Olin terminates his employment for good reason, including if Mr. Olin is involuntarily removed from our board of directors, he will be entitled to continue to receive his base salary for one year and his obligation not to compete with us will be reduced to one year. Effective January 1, 2002, we entered into an employment agreement with Joseph J. Whang, our Chief Financial Officer and Chief Operating Officer. The agreement has a one-year term and renews automatically for subsequent one-year terms, unless terminated. The agreement provides for a base annual salary of $190,000, the issuance of an option to purchase 306,306 shares of common stock with an exercise price of $1.90 per share, and certain fringe benefits. One-eighth of the total number of shares subject to the option vest on June 30, 2002. The remainder vest ratably over the succeeding 42 months. Upon a change in control, other than if Creo acquires more than 50% but less than 100% of our outstanding stock, the vesting of Mr. Whang's option will accelerate by six months. Mr. Whang has entered into a noncompetition agreement in favor us for two years following the date of his termination of employment with us. If we terminate Mr. Whang's employment without cause or - -------------------------------------------------------------------------------- 51 MANAGEMENT - -------------------------------------------------------------------------------- Mr. Whang terminates his employment for good reason, he will be entitled to continue to receive his base salary for one year and his obligation not to compete with us will be reduced to one year. Effective January 1, 2002, we entered into an employment agreement with Ronald F. Hyland, Sr., our Senior Vice President and Chief Technology Officer. The agreement has a one-year term and renews automatically for subsequent one-year terms, unless terminated. The agreement provides for a base annual salary of $175,000, the issuance of an option to purchase 102,102 shares of common stock with an exercise price of $1.90 per share, and certain fringe benefits. One-eighth of the total number of shares subject to the option vest on June 30, 2002. The remainder vest ratably over the succeeding 42 months. Upon a change in control, other than if Creo acquires more than 50% but less than 100% of our outstanding stock, the vesting of Mr. Hyland's option will accelerate by six months. Mr. Hyland has entered into a noncompetition agreement in favor of us for two years following the date of his termination of employment with us. If we terminate Mr. Hyland's employment without cause or Mr. Hyland terminates his employment for good reason, he will be entitled to continue to receive his base salary for one year and his obligation not to compete with us will be reduced to one year. We have also entered into loan agreements with our executive officers. These agreements are described in "Related party transactions -- Transactions with management." STOCK OPTIONS The following table sets forth certain information with respect to stock options granted to our named executive officers during the fiscal year ended December 31, 2001. The options were granted under our 2000 stock incentive plan and vest over a four-year period, with one-eighth of the shares vesting after six months and the remaining shares vesting ratably thereafter on a monthly basis over 42 months. In accordance with the rules of the Securities and Exchange Commission, the table sets forth the potential realizable value over the term of the option based upon assumed rates of stock price appreciation of 5% and 10% compounded annually. These amounts do not represent our estimate of future stock price performance. OPTION GRANTS IN 2001 - --------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK SHARES TOTAL OPTIONS PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM(1) OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------- NAME GRANTED FISCAL YEAR SHARE DATE 5% 10% - ----------------------------------------------------------------------------------------------------- Marc D. Olin............... 5,000 3.12% $ 45.00 5/30/11 $ -- $ -- Joseph J. Whang............ 5,833 3.64% 45.00 5/30/11 -- -- Ronald F. Hyland, Sr. ..... 5,000 3.12% 45.00 5/30/11 -- -- William L. Guttman(2)...... 5,000 3.12% 45.00 5/30/11 -- --
- --------------- (1)Based on an assumed initial public offering price of $8.00 per share. (2) These options became fully vested as of September 30, 2001. - -------------------------------------------------------------------------------- 52 MANAGEMENT - -------------------------------------------------------------------------------- The following table sets forth certain information with respect to the year-end number and value of unexercised options held by each of our named executive officers as of December 31, 2001. The value was calculated based on the difference between the fair market value of the underlying common stock and the exercise price of the option. No options were exercised by our named executive officers during the year ended December 31, 2001. 2001 YEAR-END OPTION VALUES - --------------------------------------------------------------------------------
NUMBER OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 2001 DECEMBER 31, 2001 ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------------------------------------------------------ Marc D. Olin...................... 5,082 10,733 $ -- $ -- Joseph J. Whang................... 2,377 6,789 -- -- Ronald F. Hyland, Sr. ............ 2,825 5,680 -- -- William L. Guttman................ 15,815 -- -- --
STOCK PLANS 1999 STOCK OPTION PLAN Our 1999 stock option plan was adopted by our board of directors and approved by our stockholders in July 1999. Our 1999 stock option plan provides for the granting to employees and officers of incentive stock options within the meaning of Section 422 of the Internal Revenue Code and for the granting to employees, officers, directors and consultants of nonstatutory stock options and stock appreciation rights. A total of 21,872 shares of our common stock have been reserved for issuance under the 1999 stock option plan, all of which were subject to outstanding options and were fully vested as of March 15, 2002. Our board of directors has determined that no further options will be granted under the 1999 stock option plan. The 1999 stock option plan provides that, in the event of our acquisition by another corporation, each outstanding option may be assumed or substituted for by the successor corporation. 2000 STOCK INCENTIVE PLAN Our 2000 stock incentive plan was adopted by our board of directors and approved by our stockholders in February 2000. The 2000 stock incentive plan provides for the discretionary grant of incentive stock options to employees and officers, and for the discretionary grant of nonstatutory stock options, stock appreciation rights, stock units and stock purchase rights to employees, officers, directors, and consultants. The 2000 stock incentive plan provides for automatic grants to non-employee directors of nonstatutory stock options. A total of 263,761 shares of our common stock has been reserved for issuance under our 2000 stock incentive plan, all of which were subject to outstanding options as of March 15, 2002. On March 5, 2002, concurrently with the adoption of the 2002 stock incentive plan, the board of directors determined that no additional grants or awards, including automatic directors' grants, will be made under the plan. The compensation committee of the board will generally serve as administrator of the 2000 stock incentive plan upon completion of this offering. The administrator of our 2000 stock incentive plan generally has the power to determine the terms of the options, stock purchase rights, stock appreciation rights and stock units granted, including: the exercise price, if any, of each award; the number of shares subject to each award; the exercisability of each award; and the form of consideration, if any, payable on the exercise of each award. - -------------------------------------------------------------------------------- 53 MANAGEMENT - -------------------------------------------------------------------------------- The board of directors has the authority to amend, suspend, or terminate the 2000 stock incentive plan, so long as no such action affects any shares of common stock previously issued and sold or any award previously granted under the 2000 stock incentive plan. The maximum number of shares subject to options and/or stock appreciation rights each optionee may be granted during a fiscal year is 41,666 shares. Restricted stock and stock unit grants are limited to 4,166 shares per person in any fiscal year. The exercise price of all nonstatutory stock options granted automatically to non-employee directors must be at least equal to the fair market value of the common stock on the date of grant. The exercise price of other nonstatutory stock options and stock purchase rights granted under the 2000 stock incentive plan is determined by the administrator. Nonstatutory stock options intended to quality as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code, will be granted with an exercise price at least equal to the fair market value of our common stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of our outstanding capital stock, the exercise price of any incentive stock option granted will be at least equal 110% of the fair market value on the grant date and the term of such incentive stock option will not exceed five years. The term of all other options granted under our 2000 stock incentive plan may not exceed ten years. Options generally expire not later than 90 days following a termination of employment or twelve months following an optionee's death or permanent disability. The 2000 stock incentive plan provides that, in the event that we are acquired by another corporation, or sell substantially all of our assets, each award may be assumed or an equivalent award substituted for by the successor corporation. If the outstanding awards are not assumed or substituted for by the successor corporation, the board of directors may provide for accelerated vesting of the options. 2002 KEY EXECUTIVE STOCK INCENTIVE PLAN The 2002 key executive stock incentive plan was adopted by our board of directors and approved by our stockholders in February 2002. The 2002 key executive stock incentive plan provides for the discretionary grant of incentive stock options and nonstatutory stock options to key employees and nonstatutory stock options to directors. A total of 1,701,698 shares of our common stock have been reserved for issuance under our 2002 key executive stock incentive plan, all of which were subject to outstanding options as of March 15, 2002. Unless terminated sooner, the 2002 key executive stock incentive plan will terminate automatically in February 2009, seven years from its effective date. The compensation committee of the board will serve as administrator of the 2002 key executive stock incentive plan, unless and until the board of directors elects to serve as administrator. The administrator of the 2002 key executive stock incentive plan has the authority to determine the terms of the options granted, including: the exercise price of each award; the number of shares subject to each award; and the form of consideration payable on the exercise of each award. The board of directors has the authority to amend, suspend, or terminate the 2002 key executive stock incentive plan, so long as no such action affects any award previously granted under the 2002 key executive stock incentive plan. The 2002 key executive stock incentive plan provides that, in the event we are party to a merger or other reorganization, each award may be assumed or an equivalent award substituted for by the successor corporation. Any outstanding awards that are not assumed or substituted for by the successor corporation will terminate upon the completion of the merger or reorganization. - -------------------------------------------------------------------------------- 54 MANAGEMENT - -------------------------------------------------------------------------------- 2002 STOCK INCENTIVE PLAN Our 2002 stock incentive plan was adopted by our board of directors in March 2002 and approved by our stockholders in 2002. The 2002 stock incentive plan provides for the discretionary grant of incentive stock options to employees, including officers and employee directors, and for the discretionary grant of nonstatutory stock options, stock appreciation rights, stock units and stock purchase rights to employees, directors and consultants. A total of 1,700,000 shares of our common stock has been reserved for issuance under our 2002 stock incentive plan. This number includes 69,572 shares which were available for issuance under our 2000 stock incentive plan on March 5, 2002, the date on which that plan was terminated. We anticipate granting options to purchase 850,000 shares of our common stock to employees prior to the completion of this offering. Unless terminated sooner, the 2002 stock incentive plan will terminate automatically in March 2012, ten years from its effective date. The compensation committee of the board will generally serve as administrator of the 2002 stock incentive plan from and after the date of this offering. The administrator of our 2002 stock incentive plan generally has the power to determine the terms of the options, stock purchase rights, stock appreciation rights and stock units granted, including: the exercise price, if any, of each award; the number of shares subject to each award; the exercisability of each award; and the form of consideration, if any, payable on the exercise of each award. The board of directors has the authority to amend, suspend, or terminate the 2002 stock incentive plan, so long as no such action affects any shares of common stock previously issued and sold or any award previously granted under the 2002 stock incentive plan. The maximum number of shares subject to options and/or stock appreciation rights each optionee may be granted during a fiscal year is 1,250,000 shares. Restricted stock and stock unit grants are limited to 125,000 in any fiscal year (except in the case of restricted stock issued upon "early exercise" of unvested stock options). The exercise price of all incentive stock options and nonstatutory stock options granted automatically to non-employee directors must be at least equal to the fair market value of the common stock on the date of grant. The exercise price of other nonstatutory stock options and stock purchase rights granted under the 2002 stock incentive plan is determined by the administrator, but with respect to nonstatutory stock options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code, the exercise price must be at least equal to the fair market value of our common stock on the date of the grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of our outstanding capital stock, the exercise price of any incentive stock option granted must at least equal 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The term of all other options granted under the 2002 stock incentive plan may not exceed ten years. The 2002 stock incentive plan provides that, in the event that we are party to a merger or other reorganization, each award may be assumed or an equivalent award substituted for by the successor corporation. Any outstanding awards that are not assumed or substituted for by the successor corporation will terminate upon the completion of the merger or reorganization. 2002 EMPLOYEE STOCK PURCHASE PLAN Our 2002 employee stock purchase plan was approved by our board of directors in March 2002 and by our stockholders in 2002. The 2002 purchase plan is effective upon the effective date of our registration statement of which this prospectus is a part. A total of 750,000 shares of our common stock has been reserved for issuance under the 2002 purchase plan. No more than 250,000 shares may be issued under the plan in any calendar year. - -------------------------------------------------------------------------------- 55 MANAGEMENT - -------------------------------------------------------------------------------- Under the 2002 purchase plan, which is intended to qualify under Section 423 of the Internal Revenue Code, our board of directors may determine the duration and frequency of stock purchase periods. Initially the plan will operate using consecutive, overlapping, 24-month offering periods. Each offering period will include four approximately six-month purchase periods. The offering periods generally start on the first trading day on or after May 1 and November, 1 each year, except for the first such offering period which commences on the first trading day on or after the effective date of this offering and ends on April 30, 2004. Our employees and the employees of any eligible subsidiaries may participate in the 2002 purchase plan. An employee may not be granted an option to purchase stock under the 2002 purchase plan if, immediately after the grant, the employee will own stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock. The 2002 purchase plan permits participants to purchase our common stock through payroll deductions of up to 15% of their total compensation, including bonuses and commissions. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each purchase period. The price of stock purchased under the 2002 purchase plan is generally 85% of the lower of the fair market value of the common stock either at the beginning of the offering period or at the end of the purchase period. No participant will be granted an option under our 2002 purchase plan to the extent that his or her right to purchase common stock accrues at a rate that exceeds $25,000 worth of common stock (based on the fair market of the common stock on the date of grant of the option) for each calendar year in which the option is outstanding at any time. A participant may withdraw all contributions credited to his or her account under the 2002 purchase plan at any time prior to the end of the purchase period. In the event the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, the participants will be withdrawn from the current offering period following exercise and automatically reenrolled in a new offering period. Rights granted under the 2002 purchase plan are not transferable by a participant other than upon death or by a special determination by the plan administrator. Each outstanding option under the 2002 purchase plan will be subject to the acquisition agreement in the event we merge with or into another corporation or sell substantially all of our assets. Our board of directors has the authority to amend or terminate the 2002 purchase plan, except that no such action may adversely affect any outstanding rights to purchase stock under the 2002 purchase plan, provided that the board of directors may terminate an offering period on any exercise date if the board determines that the termination of the 2002 purchase plan is in our best interest. The board of directors may, in its sole discretion, amend the 2002 purchase plan to the extent necessary and desirable to avoid unfavorable financial accounting consequences by altering the purchase price for any offering period, shortening any offering period or allocating remaining shares among the participants. Unless earlier terminated by our board of directors, the 2002 purchase plan will terminate automatically twenty years from its effective date. 401(K) PLAN We have established a 401(k) plan, which allows our employees to contribute up to 15% of their annual compensation, up to a statutorily prescribed annual limit of $11,000 in 2002. Employees become eligible to participate in the 401(k) plan upon commencement of their employment with us. Employee participants may elect to invest their accounts under the 401(k) plan in various established funds. The plan permits, but does not require, us to make contributions on behalf of employees. To date, we have not made any cash contributions to the plan. - -------------------------------------------------------------------------------- 56 - -------------------------------------------------------------------------------- Related party transactions TRANSACTIONS WITH MANAGEMENT In November 1999, in connection with the issuance and sale of 12,728 shares of common stock to Marc D. Olin, our President and Chief Executive Officer, we provided a loan to Mr. Olin, evidenced by a note in the principal amount of $99,282 at an annual interest rate of 6%. The note is secured by the purchased shares and is with recourse to Mr. Olin with respect to 30% of the original principal balance and all accrued and unpaid interest. In March 2000, Mr. Olin repaid $61,478 of this loan. Unless we elect to accelerate the note for a material breach of the note or the stock pledge agreement, the note is due on November 7, 2004. The largest amount outstanding under the note during 2001 was $31,197. As of January 31, 2002, the total amount outstanding under the note is $31,329. In November 1999, in connection with the issuance and sale of 5,295 shares of common stock to Ronald F. Hyland, Sr., our Senior Vice President and Chief Technology Officer, we provided a loan to Mr. Hyland, evidenced by a note, in the principal amount of $36,536 at an annual interest rate of 6%. The note is secured by the purchased shares and is with recourse to Mr. Hyland with respect to 30% of the original principal balance and all accrued and unpaid interest. Unless we elect to accelerate the note for a material breach of the note or the stock pledge agreement, the note is due on November 7, 2004. The largest amount outstanding under the note during 2001 was $41,238. As of January 31, 2002, the total amount outstanding under the note is $41,421. In November 1999, in connection with the issuance and sale of 55,156 shares of common stock to William L. Guttman, our former Co-Chief Executive Officer, we provided a loan to Mr. Guttman, evidenced by a note, in the principal amount of $380,581 at an annual interest rate of 6%. The note was secured by the purchased shares and was originally issued with recourse to Mr. Guttman with respect to 30% of the original principal balance and all accrued and unpaid interest. As of April 2001, Mr. Guttman had repaid $273,879 of the original principal balance and we released our security interest in 52,785 of the pledged shares. As a result, sole recourse for the outstanding balance of the note is to the remaining 2,371 pledged shares. The largest amount outstanding under the note during 2001 was $125,561. As of January 31, 2002, the outstanding balance of the note was $126,095. Unless we elect to accelerate the note for a material breach of the note or the stock pledge agreement, the note is due on November 7, 2004. In April 2001, in connection with the termination of his employment, we entered into a separation agreement with Mr. Guttman, pursuant to which we agreed to accelerate the vesting of his options to purchase common stock. Pursuant to the agreement, he agreed to serve, upon request, as a consultant to us and not to compete with us or solicit our employees through April 2003. In April 2001, we provided a loan to Mr. Guttman, evidenced by a note, in the principal amount of $641,583 at an annual interest rate of 4.58% and with a maturity date of October 5, 2001. The note was secured by a pledge of 14,257 shares of our common stock and was without recourse to Mr. Guttman. We and Mr. Guttman agreed that the shares would be valued at $45.00 per share. The largest amount outstanding under the note during 2001 was $661,175. When Mr. Guttman did not repay the note upon maturity, we acquired the 14,257 shares of common stock that were pledged to secure the note in full satisfaction of the note. During 2001, we also paid Mr. Guttman $99,191 for an option to purchase shares of our common stock owned by him, which option has expired. In December 1999, in connection with the issuance and sale of 33,942 shares of common stock to Joseph J. Whang, our Chief Financial Officer and Chief Operating Officer, we provided a loan to Mr. Whang, evidenced by a note, in the principal amount of $1,048,826 with an interest rate of 6%. The note is secured by the purchased shares and is with full recourse to Mr. Whang. The largest - -------------------------------------------------------------------------------- 57 RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- amount outstanding under the note during 2001 was $1,182,209. During December 2001 and January 2002, Mr. Whang sold 33,565 of such shares of common stock to certain of our preferred stockholders for aggregate consideration of $1,168,083. Mr. Whang used the proceeds from the sale of his common stock to repay principal and interest on his note. As of January 31, 2002, the note had an outstanding balance of $14,486 and was secured by a pledge of 377 of the original purchased shares. Unless we elect to accelerate the note for a material breach of the note or the stock pledge agreement, the remaining principal balance is due on December 21, 2004. AGREEMENTS WITH CREO AND ITS AFFILIATES STRATEGIC ALLIANCE AGREEMENT We entered into a strategic alliance agreement with Creo in February 2000 and amended the agreement in December 2001. We agreed with Creo to undertake joint sales and marketing efforts, not to compete with each other's business, and not to solicit the employment of each other's employees. Creo has the right to sell any of our products anywhere in the world, subject to our pricing guidelines, and we will reimburse Creo for its costs incurred in connection with sales of our products. During 2001, we paid Creo $60,675 in commissions for sales channel services. We are required to provide our products to Creo on terms that are at least as favorable as those offered to others. Under the terms of this agreement, Creo has an exclusive and perpetual right to provide, and has a right of first refusal to develop, any content management and workflow products for us. If Creo develops any of these products for us, we are required to reimburse Creo's development costs and we and Creo would jointly own the technology. Any improvement, modification, or development of an existing Creo product would remain the sole property of Creo, and we would have to license it from Creo. We did not pay Creo for any content management or workflow development services in 2001. The agreement provides us with a right of first refusal to develop Creo's e-commerce services. The agreement does not have a specified termination date. Either we or Creo may terminate the agreement upon the occurrence of certain events, including the breach of the agreement by the other party. In addition, Creo may terminate the agreement at any time beginning two years after Creo is no longer one of our stockholders. SALES CHANNEL AGREEMENT We entered into a sales channel agreement with Creo in December 2001. Under the terms of this agreement, Creo has agreed to provide sales representatives to sell our software solutions to printers and pre-press providers in North America, and we have agreed to reimburse some of Creo's costs and pay Creo a commission on those sales. Neither party is obligated to continue the sales channel agreement beyond 2002. Either we or Creo may terminate the agreement upon the occurrence of certain events, including the breach of the agreement by the other party. In addition, Creo may terminate the agreement if we appoint another third-party sales representative to printers and pre-press providers in North America. CREDIT AGREEMENT In December 2001, we entered into a $23.6 million credit agreement with Iris Graphics Inc., a wholly-owned subsidiary of Creo Inc. As of December 31, 2001, the annual interest rate on the amount outstanding was 18.9%. At December 31, 2001, we were not in compliance with the quarterly cash flow covenant of this credit agreement, which would have resulted in an additional 3% of interest until the default was cured. Iris Graphics waived compliance with this covenant. Our obligations under this agreement are secured by all of our tangible and intangible property. The credit agreement also contains restrictive covenants affecting our business, including limitations on our product development expenditures, capital expenditures, and investments, and on our ability to incur additional indebtedness and pay dividends, as well as requirements that we satisfy certain financial covenants. If we fail to comply with the requirements of this credit agreement (other than satisfaction of financial covenants), - -------------------------------------------------------------------------------- 58 RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- then Iris Graphics could declare all outstanding amounts, together with accrued interest, to be immediately due and payable. If we could not repay these amounts, then Iris Graphics could proceed against the collateral, which would seriously harm our ability to continue our business. We intend to use the proceeds of this offering to repay the amounts outstanding under this loan in full. In connection with this repayment, we will pay a prepayment fee of $3.5 million. LICENSE AGREEMENT We entered into a software, data and content license agreement with Creo in December 2001. Under this agreement, if we file bankruptcy or fail to continue our business operations Creo has the right to modify and sell on its own behalf any of our products. Creo's right to modify and sell our products on its own behalf will continue until we are no longer in bankruptcy or we resume business operations for 60 days. To secure our obligations under this agreement, we agreed to escrow the source code for our software. If Creo sells any of our products under the license agreement, Creo will pay us a royalty on each sale based on a percentage of the net sales revenue received by Creo, and we will reimburse Creo for any improvements to our products which Creo makes under the license agreement. Creo may terminate the license agreement at any time. In addition, the license agreement terminates if the strategic alliance agreement with Creo is terminated, or if we repay all amounts due under, or if Iris Graphics assigns to a third party its interests in, the credit agreement between us and Iris Graphics, an affiliate of Creo. BOARD OF DIRECTORS Amos Michelson, the chief executive officer and a director of Creo, is currently the chairman of our board of directors. Judi Hess, President of Graphic Arts for Creo, is also a member of our board of directors. Mr. Michelson and Ms. Hess were elected to our board of directors under the terms of a voting agreement between us and some of our stockholders. The voting agreement terminates upon the completion of this offering. Mr. Michelson's and Ms. Hess' duties to Creo and its stockholders may conflict with his or her duties, as a director of our company, to us and our stockholders. We do not have any plans or agreement with Creo that would determine how to resolve potential conflicts of interest. TRANSACTIONS WITH CERTAIN STOCKHOLDERS In October 2000 and March 2001, we sold shares of our Series E-1 preferred stock to the following investors for an aggregate purchase price of $66,500,000 (the share numbers set forth below reflect the number of shares of common stock issuable upon conversion of the Series E-1 preferred stock upon completion of this offering):
NUMBER OF INVESTOR SHARES PURCHASE PRICE - --------------------------------------------------------------------------------------------- Creo SRL.................................................... 4,804,804 $32,000,000 HarbourVest Partners VI--Direct Fund L.P. .................. 2,252,252 $15,000,000 Mellon Ventures II, L.P. ................................... 1,876,876 $12,500,000 Seligman New Technologies Fund II, Inc. .................... 1,051,051 $ 7,000,000
In connection with convertible debt financings and a term loan financing we issued warrants to purchase shares of Series E-1 preferred stock, Series F preferred stock, and common stock to the - -------------------------------------------------------------------------------- 59 RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- following investors (all share numbers set forth below reflect the number of shares of common stock issued or issuable upon exercise of the warrants):
NUMBER OF SHARES EXERCISE INVESTOR DATE OF ISSUANCE UNDERLYING WARRANT PRICE - ---------------------------------------------------------------------------------------------- Creo SRL........................... July 14, 2000 4,166 $ 120.00 July 28, 2000 4,166 $ 120.00 September 27, 10,416 $ 18.00 2001 November 28, 2001 22,522 $ 6.66 December 31, 2001 368,305 $ 0.02 Mellon Ventures II, L.P............ July 14, 2000 4,166 $ 120.00 July 28, 2000 4,166 $ 120.00 August 29, 2000 8,333 $ 120.00 September 27, 10,416 $ 18.00 2001 November 28, 2001 22,522 $ 6.66
In December 2001, we sold shares of our Series F preferred stock to the following investors for an aggregate purchase price of $14,888,384 (the share numbers set forth below reflect the number of shares of common stock issuable upon conversion of the Series F preferred stock upon completion of this offering):
NUMBER OF INVESTOR SHARES PURCHASE PRICE - --------------------------------------------------------------------------------------------- HarbourVest Partners VI--Direct Fund L.P. .................. 750,422 $ 4,652,620 Mellon Ventures II, L.P. ................................... 1,200,676 $ 7,444,192 Seligman New Technologies Fund II, Inc. .................... 450,253 $ 2,791,572
- -------------------------------------------------------------------------------- 60 - -------------------------------------------------------------------------------- Principal stockholders The following table sets forth information regarding the beneficial ownership of our common stock as of February 28, 2002 and as adjusted to reflect the sale of the common stock offered by us under this prospectus by: - - each of our directors and named executive officers; - - all directors and executive officers as a group; and - - each person who is known by us to own beneficially more than 5% of our common stock. We have determined beneficial ownership in the table in accordance with the rules of the Securities and Exchange Commission. To our knowledge, except as set forth in the footnotes below, each stockholder identified in the table possesses sole voting and investment power with respect to all shares of common stock shown as beneficially owned by such stockholder. For purposes of the table below, we have assumed that 22,696,272 shares of common stock will be outstanding upon completion of this offering, based on 15,196,272 shares outstanding as of February 28, 2002. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have deemed shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days of February 28, 2002 to be outstanding, but we have not deemed these shares to be outstanding for computing the percentage ownership of any other person. Except as otherwise noted, the address of each person listed in the table is c/o Printcafe Software, Inc., Forty 24th Street, Pittsburgh, Pennsylvania 15222.
PERCENTAGE OF COMMON STOCK BENEFICIALLY OWNED NUMBER OF SHARES ------------------------- OF COMMON STOCK BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING - ------------------------------------------------------------------------------------------------------- 5% STOCKHOLDERS: Creo SRL(1)..................................... 6,291,672 41.3% 27.7% 2nd Street, Holetown St. James, Barbados Mellon Ventures II, L.P.(2)..................... 3,200,777 21.0 14.1 c/o Mellon Ventures, Inc. One Mellon Center Suite 5210 Pittsburgh, PA 15258 HarbourVest Partners VI--Direct Fund L.P.(3) ... 3,012,657 19.8 13.3 c/o HarbourVest Partners, LLC One Financial Center, 44th Floor Boston, MA 02111 Seligman New Technologies Fund II, Inc.(4) ..... 1,507,293 9.9 6.6 c/o J. & W. Seligman & Co. Incorporated 100 Park Avenue New York, NY 10017 DIRECTORS AND NAMED EXECUTIVE OFFICERS: Marc D. Olin(5)................................. 145,656 1.0 * Joseph J. Whang(6).............................. 3,518 * * Ronald F. Hyland, Sr.(7)........................ 23,770 * * William L. Guttman(8)........................... 89,943 * * Amos Michelson(9)............................... -- -- -- Charles J. Billerbeck(10)....................... 3,151,174 20.7 13.9 Victor A. Cohn(11).............................. 1,272 * * Thomas J. Gill(12).............................. 5,105 * * Judi Hess....................................... -- -- -- Geraldine B. Sinclair(13)....................... 636 * * All directors and executive officers as a group (9 persons)(14)............................... 3,311,182 21.9 14.7
- ------------ * Less than 1%. - -------------------------------------------------------------------------------- 61 PRINCIPAL STOCKHOLDERS - -------------------------------------------------------------------------------- (1) Creo SRL is a wholly-owned subsidiary of Creo Inc., whose address is 3700 Gilmore Way, Burnaby, British Columbia, Canada V5G 4M1. Creo may be deemed to be the beneficial owner of these shares. Includes 41,270 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of February 28, 2002. (2) Mellon Ventures II, L.P. is a majority-owned subsidiary of Mellon Financial Corp. The general partner of Mellon Ventures II, L.P. is MVMA II L.P., and the general partner of MVMA II L.P. is MVMA Inc. Includes 49,603 shares of common stock issuable upon the exercise of warrants exercisable within 60 days of February 28, 2002. (3) The general partner of HarbourVest Partners VI -- Direct Fund L.P. is HarbourVest VI -- Direct Associates LLC, and the managing member of HarbourVest VI -- Direct Associates LLC is HarbourVest Partners, LLC. (4) J. & W. Seligman & Co. Incorporated is the investment advisor of Seligman New Technologies Fund II, Inc. (5) Includes 6,330 shares of common stock issuable upon exercise of options exercisable within 60 days of February 28, 2002. (6) Includes 3,141 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2002. (7) Includes 3,465 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2002. (8) Includes 15,815 shares of common stock issuable upon exercise of options exercisable within 60 days of February 28, 2002. Mr. Guttman served as our Co-Chief Executive Officer until September 30, 2001 and as a director until December 31, 2001. (9) Does not include 6,291,672 shares beneficially owned by Creo Inc. Mr. Michelson is Chief Executive Officer and a director of Creo Inc. Mr. Michelson disclaims beneficial ownership of these shares. (10) Consists of the 3,151,174 shares of common stock held of record by Mellon Ventures II, L.P. Mr. Billerbeck disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in Mellon Ventures II, L.P. Mr. Billerbeck is a Senior Managing Director of Mellon Ventures, Inc. (11)Consists of 1,272 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2002. (12) Consists of 5,105 shares of common stock issuable upon exercise of options exercisable within 60 days of February 28, 2002. (13)Consists of 636 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2002. (14) Includes 19,949 shares of common stock issuable upon the exercise of options and warrants exercisable within 60 days of February 28, 2002. - -------------------------------------------------------------------------------- 62 - -------------------------------------------------------------------------------- Description of capital stock GENERAL Upon the completion of this offering, we will be authorized to issue 100,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. As of March 15, 2002, there were 15,196,272 shares of common stock outstanding, held of record by approximately 130 stockholders. These amounts assume the conversion of all outstanding shares of preferred stock into common stock, which will occur upon completion of this offering. In addition, as of March 15, 2002, there were 1,987,331 shares of common stock subject to outstanding options and 296,069 shares of common stock subject to outstanding warrants. Upon completion of this offering, there will be 22,696,272 shares of common stock outstanding, assuming no exercise of outstanding stock options or warrants. The following description of our capital stock does not purport to be complete and is subject to, and qualified in its entirety by, our certificate of incorporation and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part, and by the provisions of applicable Delaware law. COMMON STOCK Each share of common stock entitles its holder to one vote on all matters to be voted upon by stockholders. Subject to preferences that may apply to any outstanding preferred stock, holders of common stock may receive ratably any dividends that the board of directors may declare out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and any liquidation preference of preferred stock that may be outstanding. The common stock has no preemptive rights, conversion rights, or other subscription rights, or redemption or sinking fund provisions. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock that we will issue upon completion of this offering will be fully paid and non-assessable. PREFERRED STOCK Upon completion of the offering, 1,000,000 shares of undesignated preferred stock will be authorized, and no shares will be outstanding. Our board has the authority to issue preferred stock in one or more series and to establish the rights and restrictions granted to or imposed on any unissued shares of preferred stock and to fix the number of shares constituting any series without any further vote or action by the stockholders. Our board has the authority, without approval of the stockholders, to issue preferred stock that has voting and conversion rights superior to the common stock, which could have the effect of delaying or preventing a change in control. We currently have no plans to issue any shares of preferred stock. WARRANTS At March 15, 2002, there were warrants outstanding to purchase an aggregate of 296,069 shares of our common stock. Generally, each warrant contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant under certain circumstances, including stock dividends, stock splits, reorganizations, reclassifications, and consolidations. - -------------------------------------------------------------------------------- 63 DESCRIPTION OF CAPITAL STOCK - -------------------------------------------------------------------------------- REGISTRATION RIGHTS The holders of 14,491,790 shares of common stock or their transferees and the holders of warrants to purchase 90,873 shares of common stock or their transferees are entitled to certain rights with respect to the registration of such shares under the Securities Act of 1933, as amended. These rights are provided under the terms of an agreement between us and the holders of these securities. Demand registration rights. Subject to limitations in the agreement, the holders of these securities may require, on two occasions beginning six months after the date of this prospectus, that we use our best efforts to register these securities for public resale, provided, among other limitations, that the proposed aggregate selling price, net of any underwriters' discounts or commissions, is at least $10 million. Piggyback registration rights. If we register any of our common stock either for our own account or for the account of other security holders, the holders of these securities are entitled to include their shares of common stock in that registration, subject to the ability of the underwriters to limit the number of shares included in the offering. Form S-3 registration rights. The holders of at least 5% of these securities then outstanding may also require us, not more than twice in any twelve-month period, to register all or a portion of these securities on Form S-3 when the use of that form becomes available to us, provided, among other limitations, that the proposed aggregate selling price, net of any underwriters' discounts or commissions, is at least $1 million. We will be responsible for paying all registration expenses, and the holders selling their shares will be responsible for paying all selling expenses. DELAWARE ANTITAKEOVER LAW AND SELECTED CHARTER AND BYLAW PROVISIONS Provisions of Delaware law and our charter documents could make our acquisition and the removal of incumbent officers and directors more difficult. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate with us first. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date that the person became an interested stockholder unless, subject to exceptions, the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation's voting stock. These provisions may have the effect of delaying, deferring, or preventing a change in control without further action by the stockholders. Our certificate of incorporation provides that stockholder action can be taken only at an annual or special meeting of stockholders and may not be taken by written consent. Our bylaws provide that special meetings of stockholders can be called only by the board of directors, the Chairman of the Board, if any, or the Chief Executive Officer. Moreover, the business permitted to be conducted at any special meeting of stockholders is limited to the business brought before the meeting by the board of directors, the Chairman of the Board, if any, or the Chief Executive Officer. Our bylaws provide that stockholders must follow an advance notification procedure for certain stockholder nominations of - -------------------------------------------------------------------------------- 64 DESCRIPTION OF CAPITAL STOCK - -------------------------------------------------------------------------------- candidates for the board of directors and for certain other stockholder business to be conducted at an annual meeting or special meeting. Our certificate of incorporation and bylaws divide our board of directors into three classes, each class to be as nearly equal in number of directors as possible. At each annual meeting of stockholders, directors in each class will be elected for three-year terms to succeed the directors of that class whose terms are expiring. Charles Billerbeck and Amos Michelson will be class I directors whose term will expire in 2003. Victor Cohn and Thomas Gill will be class II directors whose terms will expire in 2004. Marc Olin, Judi Hess, and Geraldine Sinclair will be class III directors whose terms will expire in 2005. In accordance with the Delaware General Corporation Law, directors serving on classified boards of directors may only be removed from office for cause. These provisions may have the effect of delaying, deferring, or preventing a change in control without further action by the stockholders. As permitted by the Delaware General Corporation Law, we have included a provision in our certificate of incorporation to eliminate the personal liability of our officers and directors for monetary damages for breach or alleged breach of their fiduciary duties as officers or directors, other than in cases of fraud or other willful misconduct. In addition, our bylaws provide that we are required to indemnify our officers and directors even when indemnification would otherwise be discretionary, and we are required to advance expenses to our officers and directors as incurred in connection with proceedings against them for which they may be indemnified. NASDAQ SYMBOL We have applied to have our common stock quoted on the Nasdaq National Market under the symbol "PCAF." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is Mellon Investor Services. - -------------------------------------------------------------------------------- 65 - -------------------------------------------------------------------------------- Shares eligible for future sale Prior to this offering, there has been no public market for our common stock. We cannot predict the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after the restrictions lapse, or the perception that those sales may occur, could cause the prevailing market price to decrease or to be lower than it might be in the absence of those sales or perceptions. SALE OF RESTRICTED SHARES Upon completion of this offering, we will have outstanding 22,696,272 shares of common stock. The 7,500,000 shares of common stock being sold in this offering will be freely tradable, unless they are purchased by any of our "affiliates," as that term is defined in Rule 144 under the Securities Act, in which case they may only be sold in compliance with the limitations described below. The remaining 15,196,272 shares are "restricted shares" within the meaning of Rule 144 under the Securities Act. These remaining shares are eligible for public sale only if registered under the Securities Act or sold in accordance with Rule 144 or Rule 701 under the Securities Act, which are summarized below. As a result of the lock-up agreements described below and the provisions of Rules 144, 144(k), and 701, the restricted shares will be available for sale in the public market as follows: - - 198,801 shares will first become eligible for sale on the date of this prospectus; - - 3,319 shares will first become eligible for sale 90 days after the date of this prospectus; - - 12,068,834 shares will first become eligible for sale upon the expiration of the lock-up agreements, described below, or other contractual restrictions, beginning 180 days after the date of this prospectus; and - - 333 shares will first become eligible for sale 164 days after the date of this prospectus, and 2,924,985 shares will become eligible for sale at various times beginning 260 days after the date of this prospectus, upon the expiration of applicable holding periods under Rule 144. LOCK-UP AGREEMENTS All of our executive officers and directors and certain stockholders, who collectively hold an aggregate of 14,937,118 shares of common stock, have agreed that they will not sell or otherwise dispose of any common stock owned by them without the prior written consent of UBS Warburg for a period of 180 days from the date of this prospectus. UBS Warburg may, in its sole discretion and at any time without notice, release some or all of the shares subject to lock-up agreements prior to the expiration of the 180-day period. RULE 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person deemed to be our affiliate, or a person holding restricted shares who beneficially owns shares that were not acquired from us or our affiliates within the previous year, is entitled to sell within any three-month period a number of shares that does not exceed the greater of: - - 1% of the then outstanding shares of common stock, or approximately 226,963 shares immediately after this offering, assuming no exercise of the underwriters' over-allotment option; or - -------------------------------------------------------------------------------- 66 SHARES ELIGIBLE FOR FUTURE SALE - -------------------------------------------------------------------------------- - - the average weekly trading volume of the common stock during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales under Rule 144 are subject to requirements relating to manner of sale, notice and availability of current public information about us. However, if a person, or persons whose shares are aggregated, is not deemed to have been our affiliate at any time during the 90 days immediately preceding the sale, he or she may sell his or her restricted shares under Rule 144(k) without regard to the limitations described above, if at least two years have elapsed since the later of the date the shares were acquired from us or from our affiliate. RULE 701 Rule 701 permits resales of shares in reliance upon Rule 144 but without compliance with some restrictions, including the holding period requirements, of Rule 144. Any employee, officer, director, or consultant who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to sell their Rule 701 shares without complying with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 permits affiliates to sell their Rule 701 shares without having to comply with the Rule 144 holding period restrictions. All holders of Rule 701 shares are required to wait 90 days after the date of this prospectus before selling such shares. STOCK PLANS We intend to file registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under our stock plans. We expect to file the registration statements covering the shares offered under our 1999 stock option plan, our 2000 stock incentive plan, our 2002 stock incentive plan, our 2002 key executive stock incentive plan, and our 2002 employee stock purchase plan within 180 days after the date of this prospectus. These registration statements will automatically become effective upon filing. Accordingly, shares registered under these registration statements will be available for sale in the open market, unless those shares are subject to vesting restrictions with us or the contractual restrictions described above. Upon the expiration of the lock-up agreements 180 days after the date of this prospectus, 488,956 additional shares of common stock will be eligible for sale upon the exercise of vested options. REGISTRATION RIGHTS In addition, after this offering, holders of 14,491,790 shares of common stock and the holders of warrants to purchase 90,873 shares of common stock will be entitled to rights to cause us to register the sale of those shares under the Securities Act. Registration of these shares would result in these shares, except for shares purchased by our affiliates, becoming freely tradable without restriction under the Securities Act immediately on the effectiveness of the registration. For a further description of the registration rights, see "Description of capital stock -- Registration rights." - -------------------------------------------------------------------------------- 67 - -------------------------------------------------------------------------------- Underwriting We and the underwriters named below have entered into an underwriting agreement concerning the shares we are offering. Subject to conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. UBS Warburg LLC, Robertson Stephens, Inc., U.S. Bancorp Piper Jaffray Inc., and McDonald Investments Inc., are the representatives of the underwriters.
UNDERWRITERS NUMBER OF SHARES - -------------------------------------------------------------------------------- UBS Warburg LLC............................................. Robertson Stephens, Inc. ................................... U.S. Bancorp Piper Jaffray Inc. ............................ McDonald Investments Inc. .................................. ---------------- Total.................................................. 7,500,000 ================
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have a 30-day option to buy from us up to an additional shares at the initial public offering price less the underwriting discounts and commissions. If any shares are purchased under this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional 1,125,000 shares.
NO EXERCISE FULL EXERCISE - -------------------------------------------------------------------------------------------- Per share................................................... $ $ Total.................................................. $ $
We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $1.3 million. Expenses include the Securities and Exchange Commission and NASD filing fees, Nasdaq National Market listing fees, printing, legal, accounting, and transfer agent and registrar fees, and other miscellaneous fees and expenses. Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock to be offered. All of our directors and officers, and certain stockholders collectively holding approximately 65.8% of our common stock immediately upon the closing of this offering, have agreed with the underwriters not to sell, offer to sell, contract to sell, hypothecate, pledge, grant any option to purchase, or otherwise dispose of, directly or indirectly, or file a registration statement with the SEC under the Securities Act in respect of, any of our common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus through the date ending 180 days after the date of this prospectus without the prior written consent of UBS Warburg LLC. - -------------------------------------------------------------------------------- 68 UNDERWRITING - -------------------------------------------------------------------------------- At our request, certain of the underwriters have reserved for sale, at the initial public offering price, up to 525,000 shares of our common stock being offered for sale to our customers and business partners. At the discretion of our management, other parties, including our employees, may participate in the reserved share program. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated by us and the representatives of the underwriters. The principal factors to be considered in determining the initial public offering price will include: - - the information set forth in this prospectus and otherwise available to the representatives; - - the history and the prospects for the industry in which we compete; - - the ability of our management; - - our prospects for future earnings, the present state of our development, and our current financial position; - - the general condition of the securities markets at the time of this offering; and - - the recent market prices of, and demand for, publicly traded common stock of comparable companies. In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include stabilizing transactions. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. The underwriters have advised us that, pursuant to Regulation M under the Securities Act of 1933, some persons participating in the offering may engage in such stabilizing transactions. These transactions may also include short sales and purchases or cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Short sales may be either "covered short sales" or "naked short sales." Covered short sales are sales made in an amount not greater than the underwriters' over-allotment option to purchase additional shares in the offering. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider among other things, the price of the shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchased in the offering. A syndicate covering transaction is a bid for, or the purchase of, our common stock on behalf of the underwriters to reduce a syndicate short position. If the underwriters create a syndicate short position, they may choose to reduce or cover this position by either exercising all or part of the over-allotment option to purchase additional shares from us or by engaging in syndicate covering transactions. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares in the open market. However, they must close out any naked short position by purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for - -------------------------------------------------------------------------------- 69 UNDERWRITING - -------------------------------------------------------------------------------- purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. A stabilizing bid is a bid for, or the purchase of, shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of our common stock. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain, or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, the underwriters may discontinue them at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market, or otherwise. We have agreed to indemnify the underwriters against some liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect thereof. - -------------------------------------------------------------------------------- 70 - -------------------------------------------------------------------------------- Legal matters The validity of the common stock offered by this prospectus will be passed upon for us by Morgan, Lewis & Bockius LLP, Pittsburgh, Pennsylvania. Selected legal matters in connection with this offering will be passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts. Experts The consolidated financial statements of Printcafe Software, Inc. at December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. Where you can find more information We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits which are part of the registration statement. For further information with respect to us and the common stock offered by this prospectus, we refer you to the registration statement and to the exhibits. Statements made in this prospectus concerning the contents of any document referred to in this prospectus are not necessarily complete. With respect to each such document filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved. The registration statement and the exhibits may be inspected without charge at the public reference facility maintained by the SEC at 450 Fifth Street, N.W., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Copies of all or any part of the registration statement may be obtained from the SEC's offices upon payment of fees prescribed by the SEC. The SEC maintains a World Wide web site that contains reports, proxy and information statements and other information regarding registrants, like us, that file electronically with the SEC. The address of the site is www.sec.gov. Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and, accordingly, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and the web site of the SEC referred to above. - -------------------------------------------------------------------------------- 71 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- Index to consolidated financial statements
PAGE - ------------------------------------------------------------------- Report of Independent Auditors.............................. F-3 Consolidated Balance Sheets................................. F-4 Consolidated Statements of Operations....................... F-5 Consolidated Statements of Stockholders' Equity (Deficit)... F-6 Consolidated Statements of Cash Flows....................... F-8 Notes to Consolidated Financial Statements.................. F-9
- -------------------------------------------------------------------------------- F-1 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- (This page has been left blank intentionally.) - -------------------------------------------------------------------------------- F-2 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- Report of independent auditors To the Board of Directors and Stockholders of Printcafe Software, Inc. We have audited the accompanying consolidated balance sheets of Printcafe Software, Inc. (formerly printCafe, Inc.) and its subsidiaries as of December 31, 2000 and 2001 and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Printcafe Software, Inc. and its subsidiaries at December 31, 2000 and 2001 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP February 11, 2002 Pittsburgh, Pennsylvania - -------------------------------------------------------------------------------- F-3 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
PRO FORMA STOCKHOLDERS' EQUITY DECEMBER 31, DECEMBER 31, ----------------------------- 2001 2000 2001 (UNAUDITED) - -------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents.................................. $ 15,206,499 $ 8,648,460 Accounts receivable, net of allowance for doubtful accounts of $685,000 in 2000 and $570,000 in 2001................. 6,079,189 7,145,323 Other current assets....................................... 1,676,879 1,897,305 ------------- ------------- Total current assets..................................... 22,962,567 17,691,088 ------------- ------------- Property and equipment, net................................. 6,980,793 4,698,665 Purchased technology, net................................... 31,535,926 17,077,860 Customer lists, net......................................... 30,962,773 16,724,981 Goodwill, net............................................... 42,055,313 22,479,980 Other intangibles, net...................................... 1,461,112 829,947 ------------- ------------- Total assets............................................. $ 135,958,484 $ 79,502,521 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Line of credit............................................. $ 2,000,000 $ 2,000,000 Accounts payable........................................... 5,604,877 2,491,566 Accrued compensation and related taxes..................... 915,458 1,046,963 Accrued and other liabilities.............................. 3,538,332 3,291,368 Deferred revenue........................................... 7,544,205 9,109,295 Restructuring reserve...................................... 637,811 487,242 Current portion of long-term debt-related party............ 6,494,770 -- Current portion of long-term debt.......................... 170,435 184,079 Current portion of capital lease obligations............... 265,656 65,203 ------------- ------------- Total current liabilities................................ 27,171,544 18,675,716 ------------- ------------- Long-term debt-related party................................ 35,604,051 33,038,994 Long-term debt.............................................. 509,726 325,648 Obligations under capital leases............................ 101,568 33,794 Other long-term liabilities................................. 800,000 -- Stock purchase plan......................................... 333,540 124,941 Commitments and contingencies (Note 7)...................... -- -- Redeemable preferred stock.................................. 104,230,394 137,489,441 -- Stockholders' equity (deficit): Series A convertible preferred stock, $0.0001 par value; 2,500,000 and 2,455,798 shares authorized at December 31, 2000 and 2001, respectively; 2,455,798 shares issued and outstanding at December 31, 2000 and 2001, respectively, liquidation value of $5,648,335.......................... 246 246 -- Series A-1 convertible preferred stock, $0.0001 par value; 10,250,000 and 10,090,707 shares authorized at December 31, 2000 and 2001, respectively; 9,808,611 and 9,815,249 shares issued at December 31, 2000 and 2001, respectively; 9,603,010 and 9,609,558 shares outstanding at December 31, 2000 and 2001, respectively, liquidation value of $20,219,973..................................... 981 982 -- Class A common stock, $.0001 par value; 250,000,000 shares authorized at December 31, 2000 and 100,000,000 shares authorized at December 31, 2001 and pro forma, 323,682, 361,863, and 15,088,764 shares issued at December 31, 2000, 2001 and pro forma, respectively; 323,682, 347,606, and 15,074,507 shares outstanding at December 31, 2000 and 2001 and pro forma, respectively..................... 32 36 1,509 Class C common stock, $.0001 par value; 304,417 shares authorized at December 31, 2000, 37,750 shares issued and outstanding at December 31, 2000......................... 4 -- -- Additional paid-in capital................................. 75,860,392 76,095,348 213,584,544 Warrants................................................... 6,220,418 8,651,168 8,651,168 Deferred compensation...................................... (149,102) (100,046) (100,046) Accumulated other comprehensive loss: Foreign translation adjustment............................. (33,233) (49,841) (49,841) Retained deficit........................................... (112,054,352) (192,506,344) (192,506,344) Treasury stock, 14,257 shares of common stock at December 31, 2001, and 205,601 and 205,691 shares of Series A-1 convertible preferred stock at December 31, 2000 and 2001, respectively....................................... (1,166,110) (1,807,828) (1,807,828) Notes receivable from stockholders......................... (1,471,615) (469,734) (469,734) ------------- ------------- ------------- Total stockholders' equity (deficit)..................... (32,792,339) (110,186,013) 27,303,428 ------------- ------------- ------------- Total liabilities and stockholders' equity (deficit)..... $ 135,958,484 $ 79,502,521 $ 79,502,521 ============= ============= =============
See accompanying notes. - -------------------------------------------------------------------------------- F-4 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, --------------------------------------------- 1999 2000 2001 - ------------------------------------------------------------------------------------------------------ Revenue: License and subscription............................. $ 1,298,262 $ 8,879,533 $ 18,102,962 Maintenance.......................................... 1,089,660 15,239,171 20,601,126 Professional services and other...................... 2,023,367 1,214,940 3,163,570 ------------ ------------- ------------ Total revenue...................................... 4,411,289 25,333,644 41,867,658 Cost of revenue: License and subscription............................. 128,813 2,683,647 3,935,423 Maintenance.......................................... 319,952 7,337,199 6,088,353 Professional services and other...................... 966,013 636,639 1,572,042 ------------ ------------- ------------ Total cost of revenue.............................. 1,414,778 10,657,485 11,595,818 ------------ ------------- ------------ Gross profit........................................... 2,996,511 14,676,159 30,271,840 Operating expenses: Sales and marketing (exclusive of warrant expense of $3,840,918 and $1,054,278 for the years ended December 31, 2000 and 2001, respectively).......... 847,968 20,541,686 19,113,333 Research and development............................. 1,899,715 11,307,392 12,180,162 General and administrative (exclusive of stock-based compensation expense of $7,274,312, $866,414, and $49,056 for the years ended December 31, 1999, 2000 and 2001, respectively, and exclusive of warrant expense of $437,000 for the year ended December 31, 2000).............................................. 2,704,415 24,524,773 7,645,266 Depreciation......................................... 231,571 2,060,240 3,820,940 Amortization......................................... 774,081 39,480,907 49,052,031 Stock-based compensation and warrants................ 7,274,312 5,144,331 1,103,334 Restructuring charge................................. - 1,185,000 2,098,000 ------------ ------------- ------------ Total operating expenses........................... 13,732,062 104,244,329 95,013,066 ------------ ------------- ------------ Loss from operations................................... (10,735,551) (89,568,170) (64,741,226) Other income (expense): Interest and dividend income......................... 21,345 589,364 323,004 Interest expense..................................... (87,433) (253,620) (195,720) Interest expense -- related party.................... -- (6,253,437) (5,434,210) Other................................................ (117,186) (232,561) 44,653 ------------ ------------- ------------ Total other expense................................ (183,274) (6,150,254) (5,262,273) ------------ ------------- ------------ Net loss............................................... (10,918,825) (95,718,424) (70,003,499) Accretion of redeemable preferred stock................ - (4,857,893) (10,448,493) ------------ ------------- ------------ Net loss attributable to common stock.................. $(10,918,825) $(100,576,317) $(80,451,992) ============ ============= ============ Net loss per share, basic and diluted.................. $ (43.41) $ (309.76) $ (224.55) Weighted average shares used to compute basic and diluted loss per share............................... 251,549 324,693 358,286
See accompanying notes. - -------------------------------------------------------------------------------- F-5 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
SERIES A PREFERRED SERIES A-1 PREFERRED COMMON STOCK CLASS A COMMON STOCK ------------------ -------------------- ------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998............. -- $ -- -- $ -- 286,338 $ 29 -- $ -- S corporation distribution.............. -- -- -- -- -- -- -- -- Acquisition of minority interests....... -- -- -- -- -- -- -- -- Issuance of common stock to management............................ -- -- -- -- 7,055 -- -- -- Sale of stock to 401(k) plan............ -- -- -- -- 1,509 -- -- -- Accretion of 401(k) plan................ -- -- -- -- -- -- -- -- Acquisition of nth degree software, inc. ................................. 2,455,798 246 -- -- 29,230 3 -- -- Conversion of common stock issued in the acquisition of nth degree software, inc. ................................. -- -- 876,897 88 (29,230) (3) -- -- Conversion of common stock into preferred stock....................... -- -- 8,848,199 885 (294,940) (29) -- -- Sale of common stock to management...... -- -- -- -- 96,323 10 -- -- Sale of common stock to nonemployee..... -- -- -- -- 33,943 3 -- -- Stock-based compensation................ -- -- -- -- -- -- -- -- Net loss................................ -- -- -- -- -- -- -- -- --------- ----- --------- ----- ---------- ---- ----------- ------ Balance at December 31, 1999............. 2,455,798 246 9,725,096 973 130,228 13 -- -- --------- ----- --------- ----- ---------- ---- ----------- ------ Reclassification of common stock........ -- -- -- -- (130,228) (13) 130,228 13 Repurchase of 190,948 shares of Series A-1 preferred stock................... -- -- -- -- -- -- -- -- Issuance of common stock for acquisitions.......................... -- -- -- -- -- -- 175,131 17 Issuance of common stock................ -- -- -- -- -- -- 7,531 1 Issuance of common stock for services... -- -- -- -- -- -- 10,707 1 Exercise of stock options............... -- -- 30,737 3 -- -- 85 -- Sale of stock to 401(k) plan............ -- -- 52,778 5 -- -- -- -- Accretion of 401(k) plan................ -- -- -- -- -- -- -- -- Repurchase of 14,653 shares of Series A-1 preferred stock from 401(k) plan.................................. -- -- -- -- -- -- -- -- Stock-based compensation................ -- -- -- -- -- -- -- -- Amortization of stock-based compensation.......................... -- -- -- -- -- -- -- -- Issuance of warrants.................... -- -- -- -- -- -- -- -- Interest on note receivable............. -- -- -- -- -- -- -- -- Repayment of note receivable, net of interest.............................. -- -- -- -- -- -- -- -- Accretion of redeemable preferred stock................................. -- -- -- -- -- -- -- -- Net loss................................ -- -- -- -- -- -- -- -- Foreign currency translation adjustment............................ -- -- -- -- -- -- -- -- Total comprehensive loss............. -- -- -- -- -- -- -- -- --------- ----- --------- ----- ---------- ---- ----------- ------ Balance at December 31, 2000............. 2,455,798 246 9,808,611 981 -- -- 323,682 32 --------- ----- --------- ----- ---------- ---- ----------- ------ Reclassification of common stock........ -- -- -- -- -- -- 37,750 4 Issuance of common stock as legal settlement............................ -- -- -- -- -- -- 333 -- Exercise of warrants for redeemable preferred stock....................... -- -- -- -- -- -- -- -- Repurchase of 14,257 shares of common stock................................. -- -- -- -- -- -- -- -- Interest on notes receivable............ -- -- -- -- -- -- -- -- Exercise of stock options............... -- -- 6,638 1 -- -- 98 -- Accretion of 401(k) plan................ -- -- -- -- -- -- -- -- Repurchase of 90 shares of Series A-1 preferred stock from 401(k) plan...... -- -- -- -- -- -- -- -- Amortization of stock-based compensation.......................... -- -- -- -- -- -- -- -- Issuance of warrants.................... -- -- -- -- -- -- -- -- Repayment (issuance) of note receivable............................ -- -- -- -- -- -- -- -- Accretion of redeemable preferred stock................................. -- -- -- -- -- -- -- -- Net loss................................ -- -- -- -- -- -- -- -- Foreign currency translation adjustment............................ -- -- -- -- -- -- -- -- ------ Total comprehensive loss............. -- -- -- -- -- -- -- -- --------- ----- --------- ----- ---------- ---- ----------- ------ Balance at December 31, 2001............. 2,455,798 $ 246 9,815,249 $ 982 -- $ -- 361,863 $ 36 ========= ===== ========= ===== ========== ==== =========== ======
See accompanying notes. - -------------------------------------------------------------------------------- F-6 PRINTCAFE SOFTWARE, INC. - --------------------------------------------------------------------------------
ACCUMULATED CLASS C COMMON STOCK ADDITIONAL OTHER ----------------------- PAID-IN DEFERRED COMPREHENSIVE SHARES AMOUNT CAPITAL WARRANTS COMPENSATION LOSS - ------------------------------------------------------------------------------------------------------------ -- $ -- $ (153,664) $ -- $ -- $ -- -- -- -- -- -- -- -- -- 1,296,000 -- -- -- -- -- 254,000 -- -- -- -- -- 54,312 -- -- -- -- -- (54,307) -- -- -- -- -- 7,664,950 -- -- -- -- -- (85) -- -- -- -- -- (856) -- -- -- -- -- 670,410 -- -- -- -- -- 1,050,202 -- -- -- -- -- 7,274,312 -- -- -- -- -- -- -- -- -- ---------- ------ ------------ ----------- ------------- --------- -- -- 18,055,274 -- -- -- ---------- ------ ------------ ----------- ------------- --------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 43,571,064 -- -- -- 37,750 4 11,927,931 -- -- -- -- -- 1,174,125 -- -- -- -- -- 39,814 -- -- -- -- -- 306,110 -- -- -- -- -- (229,442) -- -- -- -- -- -- -- -- -- -- -- 1,015,516 -- (1,015,516) -- -- -- -- -- 866,414 -- -- -- -- 6,220,418 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (33,233) -- -- -- -- -- -- ---------- ------ ------------ ----------- ------------- --------- 37,750 4 75,860,392 6,220,418 (149,102) (33,233) ---------- ------ ------------ ----------- ------------- --------- (37,750) (4) -- -- -- -- -- -- 15,000 -- -- -- -- -- -- (2,283,496) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 11,357 -- -- -- -- -- 208,599 -- -- -- -- -- -- -- -- -- -- -- -- -- 49,056 -- -- -- -- 4,714,246 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- (16,608) -- -- -- -- -- -- ---------- ------ ------------ ----------- ------------- --------- -- $ -- $ 76,095,348 $ 8,651,168 $ (100,046) $ (49,841) ========== ====== ============ =========== ============= ========= NOTES RECEIVABLE RETAINED TREASURY FROM DEFICIT STOCK STOCKHOLDERS TOTAL - --- ----------------------------------------------------------------------- $ (507,762) $ -- $ -- $ (661,397) (51,448) -- -- (51,448) -- -- -- 1,296,000 -- -- -- 254,000 -- -- -- 54,312 -- -- -- (54,307) -- -- -- 7,665,199 -- -- -- -- -- -- -- -- -- -- (670,420) -- -- -- (1,050,205) -- -- -- -- 7,274,312 (10,918,825) -- -- (10,918,825) --------------- ------------ ---------- --------------- (11,478,035) -- (1,720,625) 4,857,846 --------------- ------------ ---------- --------------- -- -- -- -- -- (1,107,498) -- (1,107,498) -- -- -- 43,571,081 -- -- -- 11,927,936 -- -- -- 1,174,126 -- -- -- 39,817 -- -- -- 306,115 -- -- -- (229,442) -- (58,612) -- (58,612) -- -- -- -- -- -- -- 866,414 -- -- -- 6,220,418 -- -- (86,347) (86,347) -- -- 335,357 335,357 (4,857,893) -- -- (4,857,893) (95,718,424) -- -- (95,718,424) -- -- -- (33,233) --------------- -- -- -- (95,751,657) --------------- ------------ ---------- --------------- (112,054,352) (1,166,110) (1,471,615) (32,792,339) --------------- ------------ ---------- --------------- -- -- -- -- -- -- -- 15,000 -- -- -- (2,283,496) -- (641,583) -- (641,583) -- -- (109,838) (109,838) -- -- -- 11,358 -- -- -- 208,599 -- (135) -- (135) -- -- -- 49,056 -- -- -- 4,714,246 -- -- 1,111,719 1,111,719 (10,448,493) -- -- (10,448,493) (70,003,499) -- -- (70,003,499) -- -- -- (16,608) --------------- -- -- -- (70,020,107) --------------- ------------ ---------- --------------- $ (192,506,344) $ (1,807,828) $ (469,734) $ (110,186,013) =============== ============ ========== ===============
- -------------------------------------------------------------------------------- F-7 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------------------- 1999 2000 2001 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(10,918,825) $(95,718,424) $(70,003,499) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................. 1,005,652 41,541,147 52,872,971 Provision for doubtful accounts........................... 250,000 935,000 576,000 Common stock issued for services.......................... -- 1,174,126 15,000 Issuance of warrants...................................... -- 6,220,418 2,430,750 Stock-based compensation.................................. 7,274,312 866,414 49,056 Interest expense on note receivable from stockholders..... -- (86,347) (109,838) Changes in assets and liabilities, net of effects from acquisition of business: Accounts receivable....................................... (206,954) 520,136 (1,642,134) Receivables from related parties.......................... 60,571 335,357 -- Other assets.............................................. 1,339 138,428 (237,033) Accounts payable.......................................... 694,088 664,430 (3,113,311) Accrued liabilities....................................... (14,546) 1,795,983 (115,459) Restructuring reserve..................................... -- 637,811 (150,569) Deferred revenue.......................................... 1,323,076 1,255,798 1,565,090 ------------ ------------ ------------ Net cash used in operating activities................. (531,287) (39,719,723) (17,862,976) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of businesses, net of cash acquired............. 60,016 (23,704,999) -- Intellectual property acquisition costs..................... -- (1,200,000) (949,675) Purchase of property, plant, and equipment.................. (147,552) (5,100,203) (1,538,812) ------------ ------------ ------------ Net cash used in investing activities................. (87,536) (30,005,202) (2,488,487) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt--related party........................... -- -- 23,600,000 Proceeds from debt.......................................... 1,344,207 -- -- Principal payments on debt--related party................... -- (3,920,000) (30,098,821) Principal payments on debt.................................. (393,682) (890,594) (170,434) Net proceeds (repayments) on line of credit................. (240,000) 1,500,000 -- Principal payments on capital lease obligations............. (28,274) (238,299) (268,227) S corporation distributions................................. (51,448) -- -- Repurchase of common and preferred stock.................... (122,474) (1,166,110) (135) Issuance of common stock.................................... 54,312 12,234,051 -- Net proceeds from bridge loans.............................. -- 15,000,000 -- Issuance of redeemable preferred stock...................... -- 62,372,501 20,527,057 Proceeds from note receivable repayment by stockholder...... -- -- 1,111,719 Debt origination costs...................................... -- -- (277,510) Issuance of note receivable to management................... -- -- (641,583) Exercise of stock options................................... -- 39,817 11,358 ------------ ------------ ------------ Net cash provided by financing activities............. 562,641 84,931,366 13,793,424 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents............ (56,182) 15,206,441 (6,558,039) Cash and cash equivalents--beginning of year................ 56,240 58 15,206,499 ------------ ------------ ------------ Cash and cash equivalents--end of year...................... $ 58 $ 15,206,499 $ 8,648,460 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest.................................... $ 79,686 $ 4,570,897 $ 4,712,828 NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of minority interests........................... $ 1,296,000 $ -- $ -- Assets recorded under capital leases........................ $ -- $ 410,960 $ -- Common stock issued for acquisitions........................ $ 7,665,199 $ 43,571,096 $ -- Warrants attached to debt................................... $ -- $ -- $ 2,283,496 Accretion of redeemable preferred stock..................... $ -- $ 4,857,893 $ 10,448,493 Accretion of 401(k) plan.................................... $ 54,307 $ 229,442 $ (208,599) Common stock received in satisfaction of receivable from related party............................................. $ -- $ -- $ 641,583
See accompanying notes. - -------------------------------------------------------------------------------- F-8 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Printcafe Software, Inc. (the Company) provides software solutions designed specifically for the printing industry supply chain. The Company's procurement applications, which are designed for print buyers, integrate with its software solutions designed for printers, and facilitate collaboration between printers and print buyers over the Web. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all significant intercompany balances and transactions. UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY (DEFICIT) The Board of Directors has authorized the Company to file a Registration Statement with the Securities and Exchange Commission permitting the Company to sell shares of common stock in an initial public offering (IPO). If the IPO is consummated as presently anticipated, all shares of Series A, Series A-1, Series B, Series C, Series D, Series E-1 and Series F preferred stock (preferred stock) will automatically convert into 14,726,901 shares of the Company's common stock at various conversion ratios as discussed in Note 9. REVENUE RECOGNITION The Company's revenue recognition policy is governed by Statement of Position (SOP) 97-2, Software Revenue Recognition, issued by the American Institute of Certified Public Accountants (AICPA). The Company derives its revenues from licenses and subscriptions for its products as well as from the provision of related services, including installation and training, consulting, customer support, and maintenance contracts. Revenues are recognized only if persuasive evidence of an agreement exists, delivery has occurred, all significant vendor obligations are satisfied, the fee is fixed, determinable, and collectible and there is vendor-specific objective evidence (VSOE) to support the allocation of the total fee to a multi-element arrangement. Many of our agreements include warranty provisions. Historically, these provisions have not had a significant impact on our revenue recognition. In those instances where customer acceptance may be in question, all revenue relating to that arrangement is deferred until the warranty period has expired. Additional revenue recognition criteria by revenue type are listed below. License and subscription revenue License and subscription revenue includes fees for perpetual licenses and periodic subscriptions. The Company recognizes revenues on license fees after a license agreement has been signed, the product has been delivered, the fee is fixed, determinable and collectible, and there is VSOE to support the allocation of the total fee to a multielement arrangement (if applicable). If VSOE cannot be obtained for certain elements of the contract, the Company recognizes revenue using the residual method under which revenue is allocated to the undelivered elements and the residual amounts of revenue are allocated to the delivered elements. The Company recognizes revenues on periodic subscriptions over the subscription term for unlimited subscriptions and based on the value of orders processed for our customers through the system for limited subscriptions. Revenue is recognized for subscription orders processed through resellers over the subscription term of the underlying agreement, beginning upon installation. - -------------------------------------------------------------------------------- F-9 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Maintenance revenue Maintenance revenue is derived from the sale of maintenance and support contracts, which provide customers with the right to receive maintenance releases of the licensed products and access to customer support staff. Maintenance revenue is recognized on a straight-line basis over the term of the contract which is typically one year. Payments for maintenance revenue is normally received in advance and are nonrefundable. Professional services and other revenue Professional services and other revenue is derived from variable fees for installation, training, and consulting. Revenue for professional services such as installation and training, system integration projects, and consulting is primarily recognized as the services are performed. If these services are part of a multielement contract under which VSOE cannot be obtained for certain elements, they may be deferred either until acceptance of any related software or over the license period. SHIPPING AND HANDLING COSTS Shipping and handling costs are expensed as incurred and are included in cost of revenue. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and interest-bearing money market deposits with financial institutions having original maturities of 90 days or less. Cash equivalents are stated at cost, which approximates market value. The amounts held by major financial institutions may exceed the amount of insurance provided on such deposits. These deposits may generally be redeemed upon demand and, therefore, are subject to minimal risk. FAIR VALUE OF FINANCIAL INSTRUMENTS For certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, recorded amounts approximate fair value due to the relative short maturity period. The fair value of the notes receivable at December 31, 2001 from common stockholders approximated $389,903 and was determined using discounted cash flow analyses. A discount rate of 9.5% was utilized. On December 31, 2001, the Company entered into new agreements for its related party debt (Note 6). As a result, the carrying amount of this debt approximates market value as of fiscal year end 2001. The carrying amount of the line of credit approximates market value because it has an interest rate that varies with market interest rates. The fair values of the obligations under capital leases are estimated based on current interest rates available to the Company for debt instruments with similar terms, degrees of risk, and remaining maturities. The carrying values of these obligations approximate their respective fair values. The estimated fair values may not be representative of the actual values of these financial instruments that could have been realized as of the period end or that will be realized in the future. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line and accelerated methods over the estimated useful lives of the related assets (generally three to five years). Leasehold improvements are amortized over the lesser of their useful lives or the remaining term of the lease. Amortization of assets recorded under capital leases is included in depreciation expense. Upon disposal, assets and related accumulated depreciation are removed from the Company's accounts and the resulting gains or losses are reflected in the statement of operations. - -------------------------------------------------------------------------------- F-10 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INTANGIBLE ASSETS AND PURCHASED TECHNOLOGY Intangible assets and purchased technology are related mainly to the business acquisitions discussed in Note 2. Amortization is recorded on a straight-line basis over the estimated useful lives (generally three years) of the remaining assets and consists of the following at December 31, 2001:
DESCRIPTION AMOUNT - -------------------------------------------------------------------------- Customer list............................................... $ 42,713,372 Purchased technology........................................ 43,707,533 Patent...................................................... 2,047,423 Goodwill.................................................... 58,729,710 ------------ Total intangible assets..................................... 147,198,038 Less accumulated amortization............................... (90,085,270) ------------ Intangible assets and purchased technology, net............. $ 57,112,768 ============
IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically assesses the impairment of long-lived assets, including identifiable intangibles and related goodwill, in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. The Company also periodically assesses the impairment of enterprise-level goodwill in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 17, Intangible Assets. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include, but are not limited to, significant underperformance relative to historical or expected operating results, significant changes in the manner of utilizing the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends, and the Company's estimated fair value relative to net book value. When the Company determines that the carrying value of goodwill may not be recoverable, the Company measures any impairment using a projected discounted cash flow model with a discount rate commensurate with the risk inherent in the Company's current business model. No impairment charge has been recorded in any of the periods presented. STOCK-BASED COMPENSATION AND WARRANTS The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). SFAS No. 123 permits the Company to continue accounting for stock-based compensation as set forth in APB Opinion No. 25, Accounting for Stock Issued to Employees, provided the Company discloses the pro forma effect on net income and earnings per share of adopting the full provisions of SFAS No. 123. Accordingly, the Company continues to account for stock-based compensation under APB Opinion No. 25 and has provided the required pro forma disclosures. The Company accounts for equity instruments issued to nonemployees and pursuant to strategic alliance arrangements in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling Goods or Services. SOFTWARE DEVELOPMENT COSTS Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized in accordance with SFAS No. 86, Computer Software to be - -------------------------------------------------------------------------------- F-11 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Sold, Leased or Otherwise Marketed. Because the Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date, with the exception of the technology acquired from acquisitions during 1999, 2000, and 2001 (Note 2). The value of the purchased technology was capitalized and is being amortized on a straight-line basis over three years (its estimated useful life). INCOME TAXES The Company follows the liability method of accounting for income taxes pursuant to SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax laws and rates applicable to the periods in which the differences are expected to reverse. The Company provides for a valuation allowance to reduce deferred tax assets to their estimated realizable value. CONCENTRATION OF CREDIT RISK For the years ended December 31, 1999, 2000, and 2001, revenues from foreign customers approximated 5%, 5%, and 11%, respectively, of the Company's total revenues. The Company does not require collateral from its customers. Credit losses related to such customers historically have been minimal and within management's expectations. ADVERTISING Advertising and promotion costs are expensed as incurred and totaled approximately $285,107, $1,829,395, and $1,437,237 for the years ended December 31, 1999, 2000, and 2001, respectively. FOREIGN CURRENCY TRANSLATION The functional currency of the Company's foreign subsidiaries is the local currency. The Company translates all assets and liabilities to U.S. dollars at the current exchange rates as of the applicable balance sheet date. Revenue and expenses are translated at the prior month ending exchange rate prevailing during the period. Gains and losses resulting from the translation of the foreign subsidiaries' financial statements are reported as a separate component of total other comprehensive loss in stockholder's equity. Net gains and losses resulting from foreign exchange transactions, which are recorded in the consolidated statements of operations, were not significant during any of the periods presented. COMPREHENSIVE LOSS The Company reports comprehensive income or loss in accordance with the provisions of SFAS No. 130, Reporting Comprehensive Income. Comprehensive income or loss, as defined, includes all changes in equity (net assets) during a period from nonowner sources. Tax effects of other comprehensive income or loss are not considered material for any period. RECENT ACCOUNTING PRONOUNCEMENTS In November 2001, the Emerging Issues Task Force reached consensus on EITF No. 01-9, Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products. EITF No. 01-9 addresses the accounting for consideration given by a vendor to a customer and is a codification of EITF No. 00-14, Accounting for Certain Sales Incentives, EITF No. 00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales Incentives Offers and Offers for Free Products or Services to be Delivered in the Future, and EITF No. 00-25, Vendor Income - -------------------------------------------------------------------------------- F-12 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products. The Company has evaluated the impact of EITF No. 01-9 and does not believe that upon adoption it will have a significant impact on the Company's financial statements. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121 and provides a single accounting model for long-lived assets to be disposed of. The new rules significantly change what would have to be met to classify an asset as held for sale. In addition, more dispositions will qualify for discontinued operations treatment in the income statement as the criteria for discontinued operation presentation is changed to a component of the business rather than a segment of the business. The Company will be required to apply SFAS No. 144 as of January 1, 2002. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests or more frequently when events or circumstances occur indicating that goodwill might be impaired. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of SFAS No. 142 is expected to result in a decrease in net loss of approximately $19.6 million in 2002 and $2.9 million in 2003. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets as of January 1, 2002. The Company has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, which is effective, as amended, for all quarters in fiscal years beginning after June 15, 2000, establishes accounting and reporting standards for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. As the Company does not currently engage in derivative or hedging activities, the adoption of this standard did not have a significant impact on the Company's financial statements. LOSS PER SHARE Basic and diluted loss per share have been computed using the weighted average number of shares of common stock outstanding during the period. Potential common shares from conversion of convertible preferred stock and exercise of stock options and warrants are excluded from historical diluted net loss per share because they would be antidilutive. The total number of shares excluded from diluted net loss per share relating to these securities was 419,224, 11,182,780, and 15,301,135 shares for the years ended December 31, 1999, 2000, and 2001, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. - -------------------------------------------------------------------------------- F-13 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. ACQUISITIONS nth degree software, inc. On October 29, 1999, the Company acquired the outstanding common and preferred stock of nth degree software, inc. (nth degree), a provider of software for the printing industry. The aggregate purchase price of $8,915,199 (including transaction costs of $330,000) consisted of 29,230 shares of common stock valued at $69 per share and, 2,455,798 shares of Series A preferred stock valued at $2.30 per share and $920,000 in notes payable. This transaction was accounted for as a purchase in accordance with APB Opinion No. 16 (APB 16). The excess of the purchase price over the fair value of assets acquired and liabilities assumed in the acquisition of $9,079,587 is classified as goodwill. The estimated fair value of the assets acquired and liabilities assumed of nth degree are as follows:
AMOUNT - ------------------------------------------------------------------------ Current assets.............................................. $ 148,579 Property and equipment...................................... 266,666 Customer list............................................... 295,887 Goodwill.................................................... 9,079,587 Current liabilities......................................... (229,953) Long-term liabilities....................................... (645,567) ---------- $8,915,199 ==========
Programmed Solutions, Inc. On February 9, 2000, the Company acquired the outstanding common stock of Programmed Solutions, Inc. (PSI), a provider of software for the printing industry. The aggregate purchase price of $25,129,953 (including transaction costs of $129,953) consisted of 57,471 shares of common stock valued at $174 per share and $15,000,000 in cash. This transaction was accounted for as a purchase in accordance with APB 16. The excess of the purchase price over the fair value of assets acquired and liabilities assumed in the acquisition of $6,308,698 is classified as goodwill. The estimated fair value of the assets acquired and liabilities assumed of PSI are as follows:
AMOUNT - ------------------------------------------------------------------------- Current assets (including cash of $397,709)................. $ 2,517,396 Property and equipment...................................... 648,544 Purchased technology........................................ 9,569,367 Customer list............................................... 7,946,674 Goodwill.................................................... 6,308,698 Other long-term assets...................................... 81,725 Current liabilities......................................... (1,942,451) ----------- $25,129,953 ===========
A.H.P Software, Inc. On March 8, 2000, the Company acquired the outstanding common stock of A.H.P Software, Inc. (AHP), a provider of software for the printing industry. The aggregate purchase price of $4,445,969 (including transaction costs of $144,414) consisted of 13,218 shares of common stock valued at $264.90 per share and $800,000 in cash. This transaction was accounted for as a purchase in - -------------------------------------------------------------------------------- F-14 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) accordance with APB 16. The excess of the purchase price over the fair value of assets acquired and liabilities assumed in the acquisition of $4,429,100 is classified as goodwill. The estimated fair value of the assets acquired and liabilities assumed of AHP are as follows:
AMOUNT - ------------------------------------------------------------------------ Current assets (including cash of $26,492).................. $ 411,528 Property and equipment...................................... 23,207 Purchased technology........................................ 632,425 Customer list............................................... 306,454 Goodwill.................................................... 4,429,100 Other long-term assets...................................... 3,293 Current liabilities......................................... (1,360,038) ---------- $4,445,969 ==========
Hagen Systems, Inc. On March 9, 2000, the Company acquired the outstanding common stock of Hagen Systems, Inc. (Hagen), a provider of software for the printing industry. The aggregate purchase price of $40,560,910 (including transaction costs of $160,917) consisted of 77,010 shares of common stock valued at $264.90 per share, notes payable of $12,000,000 and $8,000,000 in cash. This transaction was accounted for as a purchase in accordance with APB 16. The excess of the purchase price over the fair value of assets acquired and liabilities assumed in the acquisition of $15,406,219 is classified as goodwill. The estimated fair value of the assets acquired and liabilities assumed of Hagen are as follows:
AMOUNT - ------------------------------------------------------------------------- Current assets (including cash of $1,401,340)............... $ 2,660,436 Property and equipment...................................... 439,624 Purchased technology........................................ 13,162,589 Customer list............................................... 11,856,606 Goodwill.................................................... 15,406,219 Current liabilities......................................... (2,964,564) ----------- $40,560,910 ===========
M Data, Inc. d/b/a PrintSmith On March 10, 2000, the Company acquired the outstanding common stock of M Data, Inc. (M Data), a provider of software for the printing industry. The aggregate purchase price of $11,174,256 (including transaction costs of $124,264) consisted of 5,674 shares of common stock valued at $352.50 per share, $7,000,000 in notes payable and $2,050,000 in cash. This transaction was accounted for as a purchase in accordance with APB 16. The excess of the purchase price over the fair value of assets acquired and liabilities assumed in the acquisition of $2,668,632 is classified as goodwill. - -------------------------------------------------------------------------------- F-15 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The estimated fair value of the assets acquired and liabilities assumed of M Data are as follows:
AMOUNT - ------------------------------------------------------------------------- Current assets (including cash of $57,179).................. $ 492,497 Property and equipment...................................... 107,503 Purchased technology........................................ 4,088,009 Customer list............................................... 4,491,139 Goodwill.................................................... 2,668,632 Current liabilities......................................... (673,524) ----------- $11,174,256 ===========
Logic Associates, Inc. On April 7, 2000, the Company acquired the outstanding common stock of Logic Associates, Inc. (Logic), a provider of software for the printing industry. The aggregate purchase price of $55,991,442 (including transaction costs of $223,079) consisted of 21,758 shares of common stock valued at $352.50 per share and $48,098,821 in notes payable. This transaction was accounted for as a purchase in accordance with APB 16. The excess of the purchase price over the fair value of assets acquired and liabilities assumed in the acquisition of $19,823,888 is classified as goodwill. The estimated fair value of the assets acquired and liabilities assumed of Logic are as follows:
AMOUNT - ------------------------------------------------------------------------- Current assets (including cash of $1,044,908)............... $ 3,000,356 Property and equipment...................................... 2,445,524 Purchased technology........................................ 16,155,143 Customer list............................................... 17,816,612 Goodwill.................................................... 19,823,888 Other long-term assets...................................... 3,621 Current liabilities......................................... (2,281,296) Long-term debt.............................................. (972,406) ----------- $55,991,442 ===========
Had these acquisitions taken place at the beginning of fiscal 1999 and 2000 the unaudited pro forma results of operations would have been as follows for the years ended December 31, 1999 and 2000, respectively.
YEARS ENDED DECEMBER 31, ---------------------------- 1999 2000 - ------------------------------------------------------------------------------------------ Revenue..................................................... $ 55,610,000 $ 32,727,000 Operating loss.............................................. (57,041,000) (81,750,000) Net loss.................................................... (63,524,000) (89,139,000) Net loss attributable to common stock....................... (63,524,000) (93,997,000) Pro forma loss per share, basic and diluted................. (133.79) (261.06) Weighted average shares, basic and diluted.................. 474,799 360,063
- -------------------------------------------------------------------------------- F-16 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The unaudited pro forma results are not necessarily indicative of the results of operations which would have been reported had the acquisitions occurred prior to the beginning of the periods presented, and they are not intended to be indicative of future results. 3. ALLOWANCE FOR DOUBTFUL ACCOUNTS Activity in the allowance for doubtful accounts is as follows:
BALANCE - ----------------------------------------------------------------------- Balance, December 31, 1998.................................. $ -- Net charge to expense....................................... 250,000 Amounts written off......................................... -- --------- Balance, December 31, 1999.................................. 250,000 Net charge to expense....................................... 935,000 Amounts written off......................................... (500,000) --------- Balance, December 31, 2000.................................. 685,000 Net charge to expense....................................... 576,000 Amounts written off......................................... (691,000) --------- Balance, December 31, 2001.................................. $ 570,000 =========
4. PROPERTY AND EQUIPMENT Property and equipment consist of the following:
DECEMBER 31, ---------------------------- 2000 2001 - ------------------------------------------------------------------------------------------ Buildings and leasehold improvements........................ $ 1,648,830 $ 1,734,453 Equipment and fixtures...................................... 11,600,574 12,601,747 ------------ ------------ 13,249,404 14,336,200 Less accumulated depreciation............................... (6,268,611) (9,637,535) ------------ ------------ $ 6,980,793 $ 4,698,665 ============ ============
5. LINE OF CREDIT The Company's line of credit agreement has a maximum borrowing capacity of $2,000,000. The line of credit accrues interest at prime (4.75% at December 31, 2001). Interest is due monthly and the principal balance is due on demand. The line of credit is collateralized by substantially all of the Company's assets. As of December 31, 2000 and 2001, the entire $2,000,000 was outstanding. - -------------------------------------------------------------------------------- F-17 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. DEBT AND RELATED PARTY DEBT Long-term debt consists of the following:
DECEMBER 31, -------------------------- 2000 2001 - ---------------------------------------------------------------------------------------- Debt: Note payable to bank, payable in monthly installments of $18,086 through July 2004 including interest at 7.62%, collateralized by substantially all of the Company's assets.................................................... $ 680,161 $ 509,727 Less current portion........................................ 170,435 184,079 ----------- ----------- $ 509,726 $ 325,648 =========== =========== Related Party Debt: Notes payable to stockholders in connection with the acquisition of M Data, Inc................................ $ 4,000,000 $ -- Notes payable to stockholders in connection with the acquisition of Hagen Systems, Inc......................... 12,000,000 -- Notes payable to stockholders in connection with the acquisition of Logic Associates, Inc...................... 23,604,051 -- Notes payable to stockholders in connection with the acquisition of Logic Associates, Inc...................... 2,494,770 -- Notes payable to stockholders in connection with the acquisition of M Data, Inc., due upon the earlier of an occurrence of an underwritten public offering which results in aggregate net cash proceeds to the Company of not less than $150 million or in twenty-four successive monthly installments commencing January 1, 2003, plus interest at 12%........................................... -- 4,000,000 Notes payable to stockholders in connection with the acquisition of Hagen Systems, Inc. due upon the earlier of the occurrence of an initial public offering or in thirty-six successive monthly installments commencing January 1, 2003. Current interest is due and payable at either prime plus 8% or LIBOR plus 10% (11.9% at December 31, 2001); an additional 7% of interest accrues monthly and is deferred until December 31, 2007. Collateralized by substantially all of the Company's assets................. -- 8,000,000 Note payable to stockholder due upon the earlier of the consummation of a third party asset sale or in eleven successive quarterly installments of $1,180,000 commencing March 31, 2005 plus a final payment of $10,620,000 due on December 31, 2007. Current interest is due and payable at either prime plus 8% or LIBOR plus 10% (11.9% at December 31, 2001); an additional 7% of interest accrues monthly and is deferred until December 31, 2007. Collateralized by substantially all of the Company's assets................. -- 23,600,000 ----------- ----------- 42,098,821 35,600,000 Less current portion........................................ 6,494,770 -- Less debt origination costs................................. -- 2,561,006 ----------- ----------- $35,604,051 $33,038,994 =========== ===========
- ------------ The note payable to the bank includes various restrictive covenants which, among other things, require the Company to maintain a certain debt service coverage ratio. At December 31, 2000 and 2001, the - -------------------------------------------------------------------------------- F-18 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Company was not in compliance with this covenant. The bank waived compliance with this covenant through January 1, 2003. In 2000, the Company issued 5,500,000 shares of Series E-1 preferred stock to Creo SRL in exchange for 692,433 shares of Creo Inc. common stock. The Company subsequently transferred the shares to a third party in satisfaction of $22 million of the Company's debt obligation to the third party. No gain or loss was recognized on this transaction, as the fair value of each of the aggregate Series E-1 preferred stock issued and the aggregate Creo Inc. stock received and used to retire the debt was $22 million. During 2000, the Company received bridge loans in the amount of $15,000,000 from certain Series B, C, and D preferred stockholders. The bridge loans bore interest at 6% and converted into 3,750,000 shares of Series E-1 preferred stock on October 30, 2000 at $4.00 per share. The Company issued warrants to purchase 750,000 shares of common stock in conjunction with these loans valued at $1,942,500, using the Black-Scholes valuation model with the following assumptions: volatility of 1.0; no expected dividend yield; risk-free interest rate of 6.0%; and an estimated life of three years (Note 11). The estimated fair value of these warrants was recorded as interest expense in 2000. During 2001, the Company received bridge loans in the amount of $4,500,000 from certain Series B, C, D, and E-1 preferred stockholders. The bridge loans bore interest at 12% and converted into $2,250,000 of long-term stockholder debt and 562,500 shares of Series F preferred stock at $4.00 per share on December 31, 2001. The Company issued warrants to purchase 700,000 shares in conjunction with these bridge loans which were valued at $1,161,250, using the Black-Scholes valuation model with the following assumptions: volatility of 1.0; no expected dividend yield; risk-free interest rate of 5.09%; and an estimated life of ten years (Note 11). The estimated fair value of these warrants was recorded as interest expense in 2001. On December 31, 2001, the Company entered into new agreements for its related-party debt. Notes payable to stockholders issued in connection with the acquisition of Logic totaling $23,604,051 were repaid along with $4,000,000 of the outstanding notes payable to stockholders issued in connection with the acquisition of Hagen. In addition, new agreements were entered into with the former stockholders of Hagen and M Data. Accordingly, new payment periods and interest rates related to the remaining $8,000,000 of debt for Hagen and $4,000,000 of debt for M Data were established as disclosed above. Funds used for the repayments were obtained from a $23,600,000 note payable issued to Iris Graphics, a subsidiary of one of the Company's stockholders, and the issuance of 3,722,096 shares of Series F preferred stock at $4 per share (Note 9). The Iris Graphics note includes financial covenants based on cash flows and revenues. At December 31, 2001, the Company was not in compliance with the quarterly cash flow covenant, which would have resulted in an additional 3% of interest until the default was cured. Iris Graphics waived compliance with this covenant through March 31, 2002. The Company may prepay any portion of the loan after December 31, 2003 with a 1% penalty. Upon an initial public offering of the Company's stock, 50% of the outstanding balance can be prepaid without penalty. In conjunction with incurrence of the debt, Iris Graphics was also issued a warrant to purchase 570,874 shares of Series F preferred stock at an exercise price of $.01 per share. The estimated fair value of this warrant of $2,283,496 will be recorded to interest expense over the term of the related debt using the interest method (Note 11). Future minimum debt payments at December 31, 2001 are as follows: 2002--$184,079; 2003--$4,865,503; 2004--$4,793,521; 2005--$7,386,624; 2006--$4,720,000; and 2007--$14,160,000. - -------------------------------------------------------------------------------- F-19 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. COMMITMENTS AND CONTINGENCIES LEASE OBLIGATIONS The Company leases office equipment, vehicles, and office facilities in various locations. Rental expense under these operating leases was $225,074, $1,372,748, and $1,670,239 for the years ended December 31, 1999, 2000, and 2001, respectively. At December 31, 2001, future commitments under all noncancelable operating leases are as follows:
THIRD RELATED PARTY PARTY - ---------------------------------------------------------------------------------------- 2002........................................................ $ 1,528,611 $ 687,290 2003........................................................ 1,310,189 694,802 2004........................................................ 910,494 713,238 2005........................................................ 918,333 721,077 2006........................................................ 812,387 648,007 Thereafter.................................................. 171,688 171,688 ----------- ----------- $ 5,651,702 $ 3,636,102 =========== ===========
The Company leases equipment under various capital leases. These capital leases expire in various years through 2003 and may be renewed for periods ranging from one to five years. Amortization of leased assets is included in depreciation and amortization expense. Future minimum payments under capital leases with initial terms of one year or more consisted of the following at December 31, 2001:
CAPITAL LEASES - ---------------------------------------------------------------------- 2002........................................................ $ 69,927 2003........................................................ 34,757 -------- Total minimum lease payments................................ 104,684 Amounts representing interest............................... (5,687) -------- Present value of net minimum lease payments (including current portion of $65,203)............................... $ 98,997 ========
LEGAL PROCEEDINGS The Company is involved in disputes and litigation in the normal course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's business, financial condition, or results of operations. The Company has accrued for estimated losses in the accompanying financial statements for those matters where it believes that the likelihood that a loss has occurred is probable and the amount of loss is reasonably estimable. Although management currently believes the outcome of other outstanding legal proceedings, claims, and litigation involving the Company will not have a material adverse effect on its business, financial condition, or results of operations, litigation is inherently uncertain and there can be no assurance that existing or future litigation will not have a material adverse effect on the Company's business, financial condition, or results of operations. - -------------------------------------------------------------------------------- F-20 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. INCOME TAXES The reconciliation of the effective income tax rate is as follows:
DECEMBER 31, --------------------------- 1999 2000 2001 - ------------------------------------------------------------------------------------------- Federal income tax statutory rate........................... 34.0% 34.0% 34.0% Increases (decreases): Nondeductible items, including goodwill amortization...... (30.0) (8.0) (12.0) State income taxes, net of federal benefit................ 6.0 6.0 6.0 Taxes absorbed by the stockholders of the Company prior to conversion from S corporation.......................... (3.0) -- -- Change in valuation allowance............................. (7.0) (32.0) (28.0) ----- ----- ----- Total income tax expense.................................... 0.0% 0.0% 0.0% ===== ===== =====
Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ------------------------------ 2000 2001 - ------------------------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards....................... $ 23,448,184 $ 29,363,483 Deferred revenue....................................... 946,374 1,580,772 Bad debt expense....................................... 274,000 228,000 Depreciation/amortization.............................. 149,360 841,620 Accrued expenses....................................... 2,265,799 2,994,573 Other.................................................. 4,686 2,686 ------------ ------------ Total deferred tax assets........................... 27,088,403 35,011,134 Deferred tax liabilities: Identified intangibles................................. 24,999,480 13,481,138 Tax accounting change.................................. 181,520 104,164 ------------ ------------ Total deferred tax liabilities...................... 25,181,000 13,585,302 Valuation allowance.................................... 1,907,403 21,425,832 ------------ ------------ Net deferred tax asset.............................. $ -- $ -- ============ ============
A full valuation allowance has been recorded at December 31, 2000 and 2001, based on management's determination that the recognition criteria for realization of the net deferred tax assets has not been met. At December 31, 2001, the Company had accumulated net operating loss carryforwards for tax purposes of approximately $73.4 million, which will expire beginning in 2015 through 2021. Utilization of certain net operating loss carryforwards is subject to limitations under Section 382 of the Internal Revenue Code. Additionally, certain state tax restrictions will apply to the utilization amount and timing of the net operating loss carryforwards. - -------------------------------------------------------------------------------- F-21 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY At December 31, 2001, the number of authorized shares of common stock and preferred stock was 100,000,000 shares and 70,789,957 shares, respectively. The designations of the common and preferred stock are as follows:
SHARES RESERVED NUMBER OF SHARES NUMBER OF SHARES FOR FUTURE AUTHORIZED OUTSTANDING ISSUANCE - ----------------------------------------------------------------------------------------------------- Class A common stock.............. 100,000,000 347,606 15,752,811 Preferred stock: Series A........................ 2,455,798 2,455,798 -- Series A-1...................... 10,090,707 9,609,558 488,446 Redeemable preferred stock: Series B........................ 31,186,312 31,186,312 -- Series C........................ 1,915,080 1,915,080 -- Series D........................ 283,125 283,125 -- Series E-1...................... 20,333,333 17,375,000 125,000 Series F........................ 4,525,602 4,292,970 --
PREFERRED STOCK On February 9, 2000, the Company issued 31,186,312 shares of Series B preferred stock for consideration of $25,011,422. On February 15, 2000, the Company issued 1,915,080 shares of Series C preferred stock for consideration of $11,107,464. On March 8, 2000, 190,948 shares of Series A-1 preferred stock were repurchased by the Company for consideration of $1,107,498. On March 8, 2000, the Company issued 283,125 shares of Series D preferred stock for consideration of $2,500,000. On October 30, 2000 and March 1, 2001, the Company issued 15,625,000 shares and 1,750,000 shares, respectively, of Series E-1 preferred stock for consideration of $62,500,000 and $7,000,000, respectively. On December 31, 2001, the Company issued 3,722,096 shares of Series F preferred stock for consideration of $14,888,384. Additionally on December 31, 2001, warrants to purchase 570,874 shares of Series F preferred stock were exercised for $5,709. The Company paid $2,806,990 in transaction costs in conjunction with the issuance of Series B, C, D, E-1, and F preferred stock. DIVIDENDS The holders of Series B, C, D, E-1, and F preferred stock are entitled to receive dividends in preference to any dividends for Series A preferred stock, Series A-1 preferred stock, and common stock at an annual rate per share of $.064, $.464, $.70, $.32, and $.32, respectively. These dividends are payable when and if declared by the Board of Directors. These dividends are not mandatory or cumulative and no interest accrues. - -------------------------------------------------------------------------------- F-22 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) LIQUIDATION AND REDEMPTION In the event of liquidation, the holders of Series F preferred stock are entitled to $8.5973 per share plus declared dividends, distributed on a pro rata basis to the holders in preference to any distribution of assets of the Company to the holders of Series A, A-1, B, C, D, and E-1 preferred stock and common stock. The holders of Series E-1 preferred stock are entitled to $8.00 per share plus declared dividends, distributed on a pro rata basis to the holders in preference to any distribution of any assets of the Company to the holders of shares Series A, A-1, B, C, and D preferred stock and common stock. The holders of Series B, C, and D preferred stock are entitled to $.802 per share plus declared dividends, $5.80 per share plus declared dividends and $8.83 per share plus declared dividends, respectively, distributed on a pro rata basis to the holders in preference to any distribution to the holders of Series A and A-1 preferred stock and common stock. The holders of Series A preferred stock are entitled to $2.30 per share plus declared dividends, distributed on a pro rata basis to the holders in preference to any distribution to the holders of Series A-1 preferred stock and common stock. The holders of Series A-1 preferred stock are entitled to $2.06 per share plus declared dividends, distributed on a pro rata basis to the holders in preference to any distribution to the holders of common stock. Any remaining assets will be distributed on a pro rata basis among the holders of the common stock. If an initial public offering has not occurred on or before August 31, 2006, holders of Series B, C, D, E-1, and F preferred stock have the right to request the Company to redeem all shares. The redemption price for all series of preferred stock is the higher of (i) the liquidation preference of a share of such series of preferred stock plus unpaid declared dividends, and (ii) the fair market value of a share of preferred stock as determined by an independent appraiser plus all dividends declared that remain unpaid. During 2000 and 2001, $4,857,893 and $10,448,493, respectively, were accreted as dividends utilizing the interest method so that, at the redemption date, the accreted amount will equal the redemption amount. Series A and A-1 preferred stock have no redemption rights. The estimated preferred stock liquidation and redemption amounts at December 31, 2001 are as follows:
LIQUIDATION REDEMPTION PREFERENCE AMOUNT - ------------------------------------------------------------------------------------------- Series A................................................. $ 5,648,335 $ -- Series A-1............................................... 20,219,973 -- Series B................................................. 25,011,422 46,779,470 Series C................................................. 11,107,464 11,107,464 Series D................................................. 2,499,994 2,499,994 Series E-1............................................... 139,000,000 139,000,000 Series F................................................. 36,907,951 36,907,951 ------------ Estimated amount due August 31, 2006..................................... 236,294,879 Less amounts representing future accretion of redeemable preferred stock.................................................................. 98,805,438 ------------ Accreted redemption amount at December 31, 2001.......................... $137,489,441 ============
- -------------------------------------------------------------------------------- F-23 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONVERSION The preferred stock converts into common stock as determined by multiplying the number of outstanding shares of preferred stock as follows: Series A.................................................... .033 Series A-1.................................................. .033 Series B.................................................... .033 Series C.................................................... .036 Series D.................................................... .039 Series E-1.................................................. .601 Series F.................................................... .645
Each share of preferred stock is convertible into common stock, subject to adjustment as described in the certificate of incorporation. Conversion is automatic upon the closing of an initial public offering. COMMON STOCK On November 1, 1999, all shares of outstanding common stock of the Company were converted on a one-for-one basis into 9,725,096 shares of the Company's Series A-1 preferred stock to provide preferences to the founders of the Company in advance of anticipated common stock transactions. On November 8, 1999 and December 22, 1999, the Company sold a total of 130,266 shares of common stock to certain officers and third parties at purchase prices of $6.90 and $30.90 per share. Promissory notes in the aggregate amount of $1,714,014 were issued to the Company in connection with these sales (Note 14). At December 31, 1999, the notes receivable are included in stockholders' equity on the accompanying statement of stockholders' equity. Stock-based compensation expense totaling $7,274,312 was recorded in 1999 for these transactions. On February 7, 2000, the Company issued 8,485 shares of common stock for $585,465 of software services. On March 9, 2000, the Company issued 2,222 shares of common stock for $588,661 of advertising services. On March 10, 2000, the Company issued 45,281 shares of common stock for consideration of $11,927,936. 10. STOCK OPTION PLANS 1999 STOCK OPTION PLAN During 1999, the Company adopted a stock option plan (the 1999 Plan), which provides for the issuance of stock options for officers, directors, employees, and consultants. A total of 525,822 and 12,027 options to purchase of the Company's Series A-1 preferred stock and common stock, respectively, have been granted pursuant to the 1999 Plan. Options under the 1999 Plan will generally expire ten years from the date of grant. Options granted under the plan vest over five years and become immediately vested upon the filing of a registration statement on Form S-1 or upon a change of control of the Company. On March 14, 2000, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission. All options under the 1999 Plan became fully vested on the filing of the Form S-1; however, a new measurement date did not occur since the accelerated vesting was included in the original grant agreements. - -------------------------------------------------------------------------------- F-24 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The options granted under the 1999 Plan were granted with an exercise price equal to the estimated grant date fair value, as determined by the board of directors. Option activity for options to purchase Series A-1 preferred stock under the 1999 Plan for the years ended December 31, 1999, 2000, and 2001 is as follows:
SERIES A-1 OPTION PRICE WEIGHTED PREFERRED RANGE PER AVERAGE SHARES SHARE EXERCISE PRICE - ---------------------------------------------------------------------------------------------------- Options outstanding, December 31, 1998.......... -- -- -- Granted......................................... 525,822 $1.20 $1.20 Forfeited....................................... 2,967 $1.20 $1.20 ---------- ------------ -------------- Options outstanding, December 31, 1999.......... 522,855 $1.20 $1.20 Exercised....................................... 30,737 $1.20 $1.20 Forfeited....................................... 24,896 $1.20 $1.20 ---------- Options outstanding, December 31, 2000.......... 467,222 $1.20 $1.20 Exercised....................................... 6,639 $1.20 $1.20 Forfeited....................................... 99,203 $1.20 $1.20 ---------- ------------ -------------- Options outstanding, December 31, 2001.......... 361,380 $1.20 $1.20 ========== ============ ==============
As of December 31, 2001, the weighted average remaining contractual life on the 1999 Plan options outstanding was 7.6 years. As of December 31, 2001, options to purchase 361,380 shares of Series A-1 preferred stock were exercisable under the 1999 Plan. 2000 STOCK INCENTIVE PLAN Effective February 10, 2000, the Company adopted the 2000 stock incentive plan (the 2000 Plan), which provides for the issuance of stock options for officers, directors, employees, and consultants. A total of 333,333 shares of common stock may be issued pursuant to the 2000 Plan. Options generally vest over a four-year period in equal annual amounts, or over such other period as the board of directors determines, and may be accelerated in the event of certain transactions such as a merger or a sale of the Company. These options generally expire ten years after the date of grant. - -------------------------------------------------------------------------------- F-25 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes option activity for options to purchase common stock for both the 1999 Plan and the 2000 Plan for the years ended December 31, 1999, 2000, and 2001:
COMMON STOCK OPTION PRICE WEIGHTED OPTIONS RANGE PER AVERAGE OUTSTANDING SHARE EXERCISE PRICE - -------------------------------------------------------------------------------------------- Options outstanding, December 31, 1999................................. -- -- -- Options granted........................ 12,697 $ 34.50 $ 34.50 Options granted........................ 103,530 $ 90.00-$120.00 $119.40 Options granted........................ 42,214 $174.00-$352.50 $229.80 Options exercised...................... 83 $ 34.50 $ 34.50 Options forfeited...................... 3,315 $ 34.50-$352.50 $145.20 ------- --------------- -------------- Options outstanding, December 31, 2000................................. 155,043 $ 34.50-$352.50 $141.60 ------- --------------- -------------- Options granted........................ 160,970 $ 45.00-$120.00 $ 46.50 Options exercised...................... 98 $ 34.50 $ 34.50 Options forfeited...................... 42,309 $ 45.00-$120.00 $ 79.20 ------- --------------- -------------- Options outstanding, December 31, 2001................................. 273,606 $ 34.50-$352.50 $ 95.10 ======= =============== ==============
The options to purchase common stock outstanding as of December 31, 2001 have been segregated into ranges for additional disclosure as follows:
COMMON STOCK COMMON STOCK OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------- -------------------------------- WEIGHTED OPTIONS AVERAGE OUTSTANDING AS REMAINING WEIGHTED EXERCISABLE AS WEIGHTED RANGE OF OF DECEMBER 31, CONTRACTUAL AVERAGE OF DECEMBER 31, AVERAGE EXERCISE PRICES 2001 LIFE EXERCISE PRICE 2001 EXERCISE PRICE - --------------------------------------------------------------------------------------------------- $ 34.50-$ 45.00.. 153,526 8.0 $ 44.40 41,638 $ 43.80 $ 90.00-$120.00.. 85,617 8.8 $ 119.40 26,573 $ 119.40 $174.00-$352.50.. 34,463 8.2 $ 229.80 14,899 $ 231.30 --------------- ----------- -------------- --------------- -------------- 273,606 8.3 $ 91.50 83,110 $ 101.70 =============== =========== ============== =============== ==============
The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock option plans. Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net loss and net loss per share would have been increased by approximately $465,278, $2,200,967, and $4,507,572, or $1.85, $6.87, and $12.74 per share, in 1999, 2000, and 2001, respectively. The following weighted average assumptions were used in the Black-Scholes pricing model: volatility of 1.58 and 1.0, dividend yield of 0.0%, an expected life of three and four years, and average risk-free interest rates of 6.63%, 6.50%, and 4.05% for 1999, 2000, and 2001, respectively. During 2000, the Company granted stock options to certain employees below fair value and to nonemployees for professional services, which resulted in the recognition of $1,015,516 and $866,414 of deferred stock-based compensation and compensation expense, respectively. The deferred stock-based compensation is being amortized over the remaining vesting period. The employee grants were - -------------------------------------------------------------------------------- F-26 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) determined utilizing the intrinsic value method under APB Opinion No. 25. The nonemployee grants were for professional services at exercise prices that approximated fair value at the date of grant. The average fair value of these options was estimated at $3.00 per share on the date of grant using the Black-Scholes option pricing model with the following assumptions: volatility of 1.00, dividend yield of 0.0%, risk-free interest rate of 6.0%, and an expected life of four years. The effects of applying SFAS No. 123 in this pro forma disclosure are not likely to be representative of the effects on reported net income for future years. 11. WARRANTS Strategic In early 2000, the Company entered into two agreements pursuant to which the Company develops private label Web sites. The Company is permitted to disclose these agreements in sales and marketing publications. The Company generates no revenues under these agreements. In return for certain marketing related services during 2000, the Company issued warrants to purchase 65,725 shares of common stock with exercise prices ranging from $174.00 to $264.90. Warrants to purchase 14,928 shares of common stock vested immediately and the remaining warrants vest dependent upon various installation and usage milestones, which vary by agreement. During 2000 and 2001, the Company has recorded $2,903,086 and $324,000, respectively, as warrant expense related to the warrants that vested. The remaining warrants to purchase 35,797 shares, which vest dependent upon installation and usage milestones, will be recorded as warrant expense at the fair value on the dates the milestones are achieved in accordance with EITF No. 96-18. Customers and resellers During January 2000, the Company issued a warrant to purchase 3,333 shares of common stock at an exercise price of $174 per share to a customer. This warrant was immediately exercisable and expires four years from the date of grant. It is exercisable for a period of four years. The fair value of this warrant of $437,000 has been recorded as warrant expense in 2000 in accordance with EITF No. 96-18, because no revenue was generated from the related customer. In March 2000, the Company also granted a warrant to purchase 8,333 shares of common stock to a potential customer at an exercise price of $450. The warrant is exercisable upon entering into a private label site agreement. The warrant is not currently exercisable. In January 2001, the Company granted a warrant to purchase 83,333 shares of common stock to a reseller of the Company's products. This warrant is exercisable until the earlier of 12 months after termination of the agreement with the reseller or the closing date of a merger or consolidation of the Company with or into any other entity. The warrant was exercisable for 8,333 shares as of the date of grant. The Company has recorded $647,500 as warrant expense related to this warrant. The remaining 75,000 shares of common stock are to vest based on performance targets. As of December 31, 2001, warrants to purchase 6,666 of the remaining shares had vested, resulting in a $47,000 reduction in revenue and $83,000 of warrant expense. To the extent the Company generates revenue under the agreement with this reseller, the fair value of the warrant as it vests will continue to be recorded as a reduction of revenue. These warrants will be recorded at fair value on the date the performance targets are met. Debt In conjunction with the bridge loans issued in July and August of 2000 (Note 6), the Company issued warrants to purchase 25,000 shares of common stock at an exercise price of $120 per share. The fair - -------------------------------------------------------------------------------- F-27 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) value of these warrants of $1,942,500 was initially recorded as a debt discount and then amortized as interest expense upon the conversion of the notes to equity in October 2000. In conjunction with the bridge loans issued in September and November of 2001 (Note 6), the Company issued warrants to purchase 20,883 shares of common stock and 75,000 shares of Series E-1 preferred stock at exercise prices of $18.00 per share and $4.00 per share, respectively. The fair value of these warrants of $1,161,250 was initially recorded as a debt discount and then amortized as interest expense upon the conversion of the notes to equity in December 2001. On December 31, 2001, the Company issued warrants to purchase 570,874 shares of Series F preferred stock to Iris Graphics in connection with a note payable (Note 6). The fair value of these warrants of $2,283,496 has been recorded as a debt discount and will be amortized as interest expense over the repayment term using the interest method. Other In March 2000, the Company issued warrants to purchase 2,772 shares and 3,333 shares of common stock to an advertising agency and a law firm, respectively, for services. These warrants vested immediately at exercise prices of $450 and $174, respectively. They are exercisable for a period of four years. In accordance with EITF No. 96-18, the fair values of these warrants of $500,832 and $437,000 were recorded to sales and marketing expense and general and administrative expense, respectively, in 2000. In April 2000, the Company also issued warrants to purchase 833 shares of common stock to an equipment manufacturer in return for equipment discounts and a comarketing agreement. These warrants are exercisable upon an initial public offering of the Company's stock at the initial public offering price per share. No expense has been recorded in 2000, as the measurement date has not occurred. In March 2001, the Company granted warrants to purchase 50,000 shares of Series E-1 preferred stock to a broker in connection with the issuance of Series E-1 preferred stock. The fair value of these warrants of $168,000 has been recorded as stock issuance cost. Fair value The fair values of all the warrants described above were estimated using the Black-Scholes valuation model with the following assumptions: volatility of 1.0, no expected dividend yield, risk-free interest rates of 3.22% to 5.09%, and an estimated life of three to ten years. - -------------------------------------------------------------------------------- F-28 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes common stock warrant activity for the years ended December 31, 2000 and 2001:
COMMON STOCK WARRANT PRICE WARRANTS RANGE PER OUTSTANDING SHARE - --------------------------------------------------------------------------------------------- Balance, December 31, 1999............................... -- -- Warrants granted......................................... 86,002 $120.00-$174.00 Warrants granted......................................... 23,327 $266.70-$450.00 ----------- Balance, December 31, 2000............................... 109,329 $120.00-$450.00 =========== Warrants granted......................................... 20,833 $ 18.00 Warrants granted......................................... 83,333 $120.00 ----------- Balance, December 31, 2001............................... 213,495 $ 18.00-$450.00 ===========
During 2001, the Company also granted warrants to purchase 125,000 shares and 570,874 shares of Series E-1 and Series F preferred stock, respectively, at exercise prices of $4.00 and $.01 per share, respectively. All Series F preferred stock warrants were exercised during 2001. 12. DEFINED CONTRIBUTION PLAN The Company has a 401(k) Retirement Plan (the Plan) which covers substantially all eligible employees. The Plan is a defined contribution profit sharing plan in which all eligible participants may elect to have a percentage of their compensation contributed to the Plan, subject to certain guidelines issued by the Internal Revenue Service. The Company may contribute to the Plan at the discretion of the Board of Directors. As of December 31, 2000 and 2001, the Plan held 83,385 shares and 83,294 shares, respectively, of the Company's Series A-1 preferred stock. The holder of the stock under the Plan has an option to put the stock to the Company at the then current fair value during August and February of each year. However, the Company reserves the right not to purchase any shares of Series A-1 preferred stock if the purchase, in the reasonable discretion of the Company, could have an adverse affect on the Company's financial position. As of December 31, 2000 and 2001, the Company has recorded a stock purchase plan liability of $333,540 and $124,941, respectively, equal to the fair value of the stock held by the Plan. To date, the Company has not made any cash contributions to the Plan. 13. RESTRUCTURING CHARGE In September 2000, the Company announced a strategic restructuring to consolidate certain redundant tasks related to the acquisitions completed during 2000. The plan of restructuring approved by the board of directors resulted in a restructuring charge of $1,185,000. This restructuring charge consisted primarily of severance benefits and costs related to the termination of 78 employees during the period from September through December 2000. In May 2001, the Company announced a restructuring that primarily related to the consolidation of certain client support operations into existing facilities, resulting in a restructuring charge of $2,098,000. The plan included terminations of 45 employees and the reduction of leased office space. - -------------------------------------------------------------------------------- F-29 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Activity in the restructuring reserve is as follows:
EMPLOYEE SEVERANCE AND LEASE BENEFITS OBLIGATIONS TOTAL - ----------------------------------------------------------------------------------------------------- Balance, December 31, 1999....................... $ -- $ -- $ -- Restructuring charge............................. 1,185,000 -- 1,185,000 Amounts posted against the reserve............... 547,189 -- (547,189) ----------- --------- ----------- Balance, December 31, 2000....................... 637,811 -- 637,811 Restructuring charge............................. 1,468,286 629,714 2,098,000 Amounts posted against the reserve............... (2,106,097) (142,472) (2,248,569) ----------- --------- ----------- Balance, December 31, 2001....................... $ -- $ 487,242 $ 487,242 =========== ========= ===========
The remaining lease obligation accrual of $487,242 is expected to be paid prior to July 31, 2003. 14. RELATED PARTY TRANSACTIONS On November 8, 1999 and December 22, 1999, promissory notes in the amount of $1,714,014 were received by the Company in conjunction with the sale of 130,266 shares of common stock. The notes bear interest at the annual rate of 6% and are due on November 7, 2004. In the event the value of the stock is insufficient to pay the full amount due under the notes, the Company may seek reimbursement from the borrower for any deficiency up to 30% of the original balance of the note plus accrued interest. The notes receivable are included in stockholders' equity on the accompanying balance sheet. During 2000, $335,357 (including interest of $86,347) was repaid in exchange for cash of $61,478 and a note payable of $273,879. During 2001, $1,111,719 (including interest of $62,893) was repaid by a company executive utilizing proceeds he received from the sale of his common stock to certain preferred stockholders. Additionally, during 1999, 2000, and 2001, $7,170, $86,347, and $90,246, respectively, was recorded as interest income. On April 26, 2001, the Company entered into a secured promissory note with a Company executive for $641,583 plus interest at the annual rate of 4.58%. The note matured October 5, 2001 and was secured by 14,257 shares of common stock owned by the executive. During 2001, the Company took possession of these shares in satisfaction of this note. In addition, the Company repaid an unsecured promissory note issued to the same executive in April 2001 in the original principal amount of $99,191. The Company has also issued notes to related parties (Note 6) and entered into various leases with related parties (Note 7). In February 2000, the Company entered into a strategic alliance agreement, which was restated in December 2001, with Creo Products, Inc (Creo), a shareholder. As part of the alliance, the Company signed a comprehensive services agreement. During 2001, $60,675 was paid as commissions under the agreement. 15. SUBSEQUENT EVENTS On January 2, 2002, the Company effected a one-for-thirty reverse stock split of issued and outstanding common stock. All common stock prices and amounts impacted by the split have been retroactively adjusted. Certain share calculations resulting in fractional amounts have been rounded to the nearest whole number. - -------------------------------------------------------------------------------- F-30 PRINTCAFE SOFTWARE, INC. - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On January 31, 2002, the Company issued 188,736 shares of Series F preferred stock for consideration of $754,944. On February 5, 2002, the Company's board of directors adopted the 2002 Key Executive Stock Incentive Plan. The Company has reserved 2,833,333 shares of Series E-1 preferred stock for grants under the plan. As of February 11, 2002, the Company had granted options to purchase 2,820,633 shares of Series E-1 preferred stock with an exercise price of $1.14 per share. Options to purchase 25,400 shares and 2,795,233 shares vest over one year and four year periods, respectively. On February 11, 2002, the Company changed its name from printCafe, Inc. to Printcafe Software, Inc. 16. SUPPLEMENTARY QUARTERLY DATA (UNAUDITED) A summary of the Company's quarterly financial results for the years ended December 31, 2000 and 2001 follows:
FOR THE QUARTER ENDED -------------------------------------------------------------------------- MARCH 31, 2000 JUNE 30, 2000 SEPTEMBER 30, 2000 DECEMBER 31, 2000 - -------------------------------------------------------------------------------------------------------- Revenue................... $ 2,113,204 $ 6,926,540 $ 7,559,632 $ 8,734,268 Loss from operations...... (15,477,917) (27,380,950) (24,432,958) (22,276,345) Net loss.................. (15,441,052) (28,980,368) (27,672,236) (23,624,768) Net loss attributable to common stock............ (15,588,725) (29,563,510) (27,129,468) (28,295,693) Net loss per share, basic and diluted............. $ (71.55) $ (82.13) $ (75.06) $ (78.29)
FOR THE QUARTER ENDED -------------------------------------------------------------------------- MARCH 31, 2001 JUNE 30, 2001 SEPTEMBER 30, 2001 DECEMBER 31, 2001 - -------------------------------------------------------------------------------------------------------- Revenue................... $ 9,561,500 $ 10,314,856 $ 10,733,379 $ 11,257,923 Loss from operations...... (18,624,765) (19,221,003) (13,886,019) (13,009,439) Net loss.................. (19,542,245) (20,345,451) (15,684,945) (14,430,858) Net loss attributable to common stock............ (23,146,981) (24,425,155) (19,929,280) (12,950,576) Net loss per share, basic and diluted............. $ (64.03) $ (67.56) $ (55.10) $ (36.15)
The quarters ended September 30, 2000 and June 30, 2001 include a restructuring charge of $1,185,000 and $2,098,000, respectively (Note 13). - -------------------------------------------------------------------------------- F-31 [Inside back cover] This graphic contains the logo "printCafe(TM) The operating system for print.(TM)" in the center of the page. The background contains geometric shapes of varying shades of blue and photographs of a printing press (upper left corner), a desktop computer (lower left corner), rolls of paper (center right), and office buildings (lower right corner). [Back cover] This graphic contains the logo "printCafe(TM) The operating system for print.(TM)" in the center of the page. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the sale of the securities being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee, and the Nasdaq National Market listing fee.
AMOUNT TO BE PAID - ------------------------------------------------------------------------ SEC registration fee........................................ $ 7,142 NASD filing fee............................................. 8,000 Nasdaq National Market listing fee.......................... 100,000 Printing and engraving expenses............................. 300,000 Legal fees and expenses..................................... 400,000 Accounting fees and expenses................................ 300,000 Blue Sky qualification fees and expenses.................... 10,000 Transfer Agent and Registrar fees........................... 3,500 Miscellaneous fees and expenses............................. 200,000 ---------- Total..................................................... $1,328,642 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") permits a corporation, in its certificate of incorporation, to limit or eliminate, subject to certain statutory limitations, the liability of directors to the corporation or its stockholders for monetary damages for breaches of fiduciary duty, except for liability (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any transaction from which the director derived an improper personal benefit. Article VIII of the registrant's Amended and Restated Certificate of Incorporation (Exhibit 3.1(c) hereto), to be in effect upon consummation of the offering of the securities to which this registration statement relates, provides that the personal liability of directors of the registrant is eliminated to the fullest extent permitted by the DGCL. Under Section 145 of the DGCL, a corporation has the power to indemnify directors and officers under certain prescribed circumstances and subject to certain limitations against certain costs and expenses, including attorneys' fees actually and reasonably incurred in connection with any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, to which any of them is a party by reason of being a director or officer of the corporation, if it is determined that the director or officer acted in accordance with the applicable standard of conduct set forth in such statutory provision. Article VIII of the registrant's Amended and Restated Certificate of Incorporation (Exhibit 3.1(c) hereto), to be in effect upon consummation of the offering of the securities to which this registration statement relates, provides that the registrant will indemnify any person made or threatened to be made party to an action or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that such person is or was a director or officer of the registrant, or served at any other enterprise as a director or officer at the request of registrant. Article VIII further proscribes any amendment or repeal of Article VIII, to eliminate or reduce its effect, for any action or proceeding that would accrue or arise prior to such amendment or repeal. Article VI of the registrant's Amended and Restated Bylaws (Exhibit 3.2(b) hereto), to be in effect upon consummation of the offering of the securities to which this registration statement relates, provides that the registrant, to the II-1 maximum extent and in the manner permitted by the DGCL, will indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the registrant. Under this provision, a director or officer includes any person who (a) is or was a director of officer of the registrant, (b) is or was serving as a director or officer, at the request of the registrant, of another entity, or (c) was a director or officer of a corporation which was a predecessor corporation of the registrant. Article VI further permits the registrant to maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the registrant, or is or was serving at the request of the registrant as a director, officer, employee or agent of another entity, against any liability asserted against such person and incurred by such person in any such capacity or arising out of her status as such, whether or not the registrant would have the power to indemnify such person against such liability under the DGCL. The registrant maintains directors' and officers' liability insurance. The registrant, in order to provide additional protection to directors and officers, has entered into Indemnification Agreements with its officers and directors (Exhibit 10.11 hereto). The Indemnification Agreement provides that the registrant shall indemnify the indemnitee for third party claims, by reason of the fact that indemnitee is or was a director or officer of the registrant, or any subsidiary of the registrant, or serving in any capacity of any other entity at the request of the registrant, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement (if such settlement is approved in advance by the registrant, which approval shall not be unreasonably withheld) actually and reasonably incurred by indemnitee in connection with such action, if indemnitee acted in good faith and in a manner indemnitee reasonably believed to be in or not opposed to the best interests of the registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe indemnitee's conduct was unlawful. The registrant shall indemnify the indemnitee for proceedings by or in the right of the registrant, by reason of the fact that indemnitee is or was a director or officer of the registrant, or any subsidiary of the registrant, or serving in any capacity of any other entity at the request of the registrant, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the registrant, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by indemnitee in connection with the defense or settlement if indemnitee acted in good faith, and in a manner indemnitee reasonably believed to be in or not opposed to the best interests of the registrant and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which indemnitee shall have been finally adjudicated by court order or judgement to be liable to the registrant in the performance of indemnitee's duty to the registrant and its stockholders, unless and only to the extent that the court in which such action or proceeding shall deem proper. The Underwriting Agreement (Exhibit 1.1 hereto) provides for cross-indemnification between the registrant and the underwriters, with respect to certain matters, including liabilities under the Securities Act of 1933, as amended. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since February 1999, the registrant has sold and issued the following securities, as adjusted for 100-for-1 stock split of the registrant's common stock effective September 1, 1999 and the reclassification of common stock to Series A-1 preferred stock effective November 1, 1999, and the conversion of Class C common stock to Class A common stock, Series C-1 preferred stock to Series C preferred stock, Series D-1 preferred stock to Series D preferred stock and Series E-2 and E-3 preferred stock to Series E-1 preferred stock effective December 31, 2001. The following issuances have not been adjusted for a 1-for-30 reverse split effective as of January 2, 2002: 1. On March 11, 1999, the registrant issued an aggregate of 8,802,939 shares of Series A-1 preferred stock to four investors as consideration for the merger of three companies with and into the registrant. II-2 2. On July 31, 1999, the registrant granted options to purchase an aggregate of 525,822 shares of Series A-1 preferred stock to employees, consultants and directors of the registrant at an exercise price of $1.20 per share under the registrant's 1999 stock option plan. 3. On September 9, 1999, the registrant issued 45,259 shares of Series A-1 preferred stock to the registrant's 401(k) plan at $1.20 per share, for an aggregate purchase price of $54,310. 4. On November 1, 1999, the registrant entered into a merger agreement pursuant to which the registrant issued an aggregate of 876,897 shares of Series A-1 preferred stock and 2,455,798 shares of Series A preferred stock to the former shareholders of nth degree software, inc. in partial consideration for the merger of nth degree software, inc. with and into the registrant. 5. On November 8, 1999, the registrant issued an aggregate of 2,889,690 shares of common stock to five employees at $0.23 per share, for an aggregate purchase price of $0.7 million. 6. On December 16, 1999, the registrant issued 254,550 shares of common stock as consideration for the acquisition of the assets of Mills Davis Inc. 7. On December 22, 1999, the registrant issued 1,018,278 shares of common stock to one employee at $1.03 per share, for an aggregate purchase price of $1.0 million. 8. On January 3, 2000, the registrant granted options to purchase 380,915 shares of common stock to employees and consultants of the registrant at an exercise price of $1.15 per share pursuant to the registrant's 1999 stock option plan. 9. On January 13, 2000, the registrant entered into a stock purchase agreement pursuant to which the registrant issued an aggregate of 1,724,138 shares of common stock to the former shareholders of Programmed Solutions, Inc. in partial consideration for the acquisition of all of the issued and outstanding capital stock of Programmed Solutions, Inc. 10. On February 8, 2000, in connection with its reincorporation in Delaware, the registrant issued 4,162,518 shares of common stock, 2,455,798 shares of Series A preferred stock, and 9,725,096 shares of Series A-1 preferred stock of the Delaware corporation in exchange for the outstanding shares of the Pennsylvania corporation, on a one share for one share basis. 11. On February 9, 2000, the registrant issued 31,186,312 shares of Series B preferred stock to one investor at $0.802 per share, for an aggregate purchase price of $25.0 million. 12. On February 15, 2000, the registrant issued an aggregate of 1,915,080 shares of Series C preferred stock to ten investors at $5.80 per share, for an aggregate purchase price of $11.1 million. 13. On February 22, 2000, the registrant entered into an agreement and plan of merger pursuant to which the registrant issued 2,310,305 shares of common stock to the former stockholders of Hagen Systems, Inc. in partial consideration for the merger of Hagen Systems, Inc. with and into a wholly-owned subsidiary of the registrant. 14. On March 1, 2000, the registrant granted a warrant to purchase 100,000 shares of common stock to a customer at an exercise price of $5.80 per share. 15. On March 3, 2000, the registrant granted warrants to purchase an aggregate of 1,000,000 shares of common stock to a customer at an exercise price of $5.80 per share. 16. On March 3, 2000, the registrant granted a warrant to purchase 100,000 shares of common stock to a service provider at an exercise price of $5.80 per share. 17. On March 7, 2000, the registrant granted warrants to a strategic partner to purchase 521,739 shares of common stock at an exercise price of $5.80 per share and 450,000 shares of common stock at an exercise price of $8.89 per share. II-3 18. On March 8, 2000, the registrant entered into an agreement and plan of reorganization pursuant to which the registrant issued 396,552 shares of common stock to the former shareholder of A.H.P. Systems, Inc. in partial consideration for the merger of A.H.P. Systems, Inc. with and into a wholly-owned subsidiary of the registrant. 19. On March 8, 2000, the registrant issued 283,125 shares of Series D preferred stock to one investor at $8.83 per share, for an aggregate purchase price of $2.5 million. 20. On March 8, 2000, the registrant issued an aggregate of 1,358,430 shares of common stock to 20 investors at $8.83 per share, for an aggregate purchase price of $12.0 million. 21. On March 9, 2000, the registrant issued 66,666 shares of common stock to a service provider in return for up to $500,000 of future advertising through March 2002. 22. On March 9, 2000, the registrant granted a warrant to purchase 83,333 shares of common stock to a service provider at an exercise price of $15.00 per share. 23. On March 10, 2000, the registrant granted a warrant to purchase 250,000 shares of common stock to a strategic partner at an exercise price of $15.00 per share. 24. On March 10, 2000, the registrant entered into a stock purchase agreement pursuant to which the registrant issued 652,727 shares of common stock to three former shareholders of Logic Associates, Inc. in partial consideration for the acquisition of all of the issued and outstanding shares of capital stock of Logic Associates, Inc. 25. On March 10, 2000, the registrant entered into a stock purchase agreement pursuant to which the registrant issued 170,212 shares of common stock to two former stockholders of M Data, Inc. in partial consideration for the acquisition by a wholly-owned subsidiary of the registrant of all of the issued and outstanding common stock of M Data, Inc. 26. On March 10, 2000, the registrant issued 52,778 shares of Series A-1 preferred stock to the registrant's 401(k) plan at $5.80 per share, for an aggregate purchase price of $306,112. 27. On April 17, 2000, the registrant granted a warrant to purchase 25,000 shares of common stock to an investor at an exercise price equal to the initial public offering price. 28. On July 14, 2000, the registrant issued a convertible promissory note in the original principal amount of $2.5 million and a warrant to purchase 125,000 shares of common stock at an exercise price of $4.00 per share to each of two investors. 29. On July 28, 2000, the registrant issued a convertible promissory note in the original principal amount of $2.5 million and a warrant to purchase 125,000 shares of common stock at an exercise price of $4.00 per share to each of two investors. 30. On August 29, 2000, the registrant issued a convertible promissory note in the original principal amount of $5.0 million and a warrant to purchase 250,000 shares of common stock at an exercise price of $4.00 to an investor. 31. On October 30, 2000, the registrant issued an aggregate of 15,625,000 shares of Series E-1 preferred stock to six investors at $4.00 per share, for an aggregate purchase price of $62.5 million. 32. On January 4, 2001, in connection with the execution of a marketing alliance agreement the registrant granted a warrant to purchase 2,500,000 shares of common stock to the other party to the agreement at an exercise price of $4.00 per share. 33. On March 12, 2001, the registrant issued 1,750,000 shares of Series E-1 preferred stock to one investor at $4.00 per share, for an aggregate purchase price of $7.0 million. II-4 34. Between November 28, 2000 and March 23, 2001 the registrant issued an aggregate of 5,499 shares of common stock at $1.15 per share in connection with the exercise of options under the registrant's 1999 stock option plan. 35. Between March 27, 2000 and August 22, 2001 the registrant issued an aggregate of 37,376 shares of Series A-1 preferred stock at $1.20 per share in connection with the exercise of options under the registrant's 1999 stock option plan. 36. On September 26, 2001, the registrant issued 10,000 shares of common stock to a former employee in settlement of a claim. 37. On September 27, 2001, the registrant issued a convertible promissory note in the original principal amount of $750,000 and a warrant to purchase 312,500 shares of common stock at an exercise price of $0.60 per share to each of two investors. 38. On October 16, 2001, the registrant granted a warrant to purchase 50,000 shares of Series E-1 preferred stock to a service provider at an exercise price of $4.00 per share. 39. On November 28, 2001, the registrant issued a convertible promissory note in the original principal amount of $750,000 and a warrant to purchase 37,500 shares of Series E-1 preferred stock at an exercise price of $4.00 per share to each of two investors. 40. On December 27, 2001, the registrant issued two convertible promissory notes each in the original principal amount of $750,000 to two investors. 41. On December 31, 2001, the registrant issued an aggregate of 3,722,096 shares of Series F preferred stock to three investors at $4.00 per share, for an aggregate purchase price of $14.9 million. 42. On December 31, 2001, the registrant granted a warrant to purchase 570,874 shares of Series F preferred stock to an investor at an exercise price of $0.01 per share and issued 570,874 shares of Series F preferred stock for an aggregate purchase price of $5,709 upon exercise of the warrant. 43. Between February 25, 2000 and December 31, 2001, the registrant granted options to purchase 9,201,484 shares of common stock to employees, consultants, and directors at exercise prices ranging from $1.50 to $11.75 per share pursuant to the registrant's 2000 stock incentive plan. 44. On January 31, 2002, the registrant issued 188,736 shares of Series F preferred stock to an investor at $4.00 per share, for an aggregate purchase price of $0.8 million. 45. On February 5, 2002, the registrant granted options to purchase 2,820,633 shares of Series E-1 preferred stock to employees and directors at an exercise price of $1.14 per share. 46. On February 5, 2002, the registrant issued warrants to purchase 7,500 shares of common stock to an investor at an exercise price equal to the initial public offering price. 47.On March 5, 2002, the registrant granted options to purchase 12,700 shares of Series E-1 preferred stock to a director at an exercise price of $1.14 per share. The issuances of the above securities were intended to be exempt from registration under the Securities Act in reliance on Section 4(2) thereof or Regulation D promulgated thereunder, or other applicable exemptions of the Securities Act as transactions by an issuer not involving any public offering. In addition, the issuances described in clauses 2, 3, 8, 26, 34, 35, 43, 45, and 47 above were intended to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated thereunder. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and warrants issued in such transactions. The registrant believes that all recipients had adequate access to information about the registrant's financial condition and operations through their relationships with the registrant and through the opportunity to ask questions of and receive answers from the registrant's management, and that all such recipients had such knowledge and experience in financial and business matters that they were capable of evaluating, alone or together with their advisors, the merits and risks of their investments in the registrant's securities. II-5 ITEM 16. EXHIBITS. (a) EXHIBITS. The following exhibits are filed as part of this registration statement:
NUMBER DESCRIPTION - -------- ------------------------------------------------------------ 1.1** Form of Underwriting Agreement. 3.1(a)* Registrant's Amended and Restated Certificate of Incorporation (to be replaced by Exhibit 3.1(c) upon the closing of this offering). 3.1(b)* Certificate of Amendment to Amended and Restated Certificate of Incorporation. 3.1(c) Form of registrant's Amended and Restated Certificate of Incorporation (to be in effect upon the closing of this offering). 3.2(a)* Registrant's Amended and Restated Bylaws (to be replaced by Exhibit 3.2(b) upon the closing of this offering). 3.2(b) Form of registrant's Amended and Restated Bylaws (to be in effect upon the closing of this offering). 5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the common stock being registered. 10.1 Registrant's 1999 Stock Option Plan. 10.2 Registrant's 2000 Stock Incentive Plan. 10.3 Registrant's 2002 Employee Stock Purchase Plan. 10.4 Registrant's 2002 Key Executive Stock Incentive Plan. 10.5 Registrant's 2002 Employee Stock Incentive Plan. 10.6 Employment Agreement effective January 1, 2002 between the registrant and Marc Olin. 10.7 Employment Agreement effective January 1, 2002 between the registrant and Joseph J. Whang. 10.8 Employment Agreement effective January 1, 2002 between the registrant and Ronald F. Hyland, Sr. 10.9 Amended and Restated Strategic Alliance Agreement dated December 31, 2001 between the registrant and Creo Products, Inc. 10.10 2002 Sales Channel Agreement dated as of January 1, 2002 between the registrant, Creo Products Inc., and CreoScitex America, Inc. 10.11* Form of Indemnification Agreement between the registrant and each of its officers and directors. 10.12 Credit Agreement dated December 31, 2001 between the registrant and Iris Graphics Inc. 10.13 Guarantee and Collateral Agreement dated as of December 31, 2001 made by the registrant and certain of its subsidiaries in favor of Iris Graphics Inc. 10.14 Series F Preferred Stock Purchase Agreement dated December 31, 2001 between the registrant and the purchasers listed on Exhibit A thereto. 10.15 Fifth Amended and Restated Investors' Rights Agreement dated December 31, 2001. 10.16* Series E Preferred Stock Purchase Agreement dated October 30, 2000 between the registrant and the investors listed on Exhibit A thereto, as amended March 12, 2001. 10.17* Stock Purchase Agreement dated as of November 8, 1999 between the registrant and Marc Olin. 10.18* Secured Promissory Note dated as of November 8, 1999 between the registrant, as lender, and Marc Olin, as borrower. 10.19* Pledge Agreement dated as of November 8, 1999 between the registrant and Marc Olin. 10.20* Stock Purchase Agreement dated as of December 22, 1999 between the registrant and Joseph J. Whang. 10.21* Secured Promissory Note dated as of December 22, 1999 between the registrant, as lender, and Joseph J. Whang, as borrower.
II-6
NUMBER DESCRIPTION - -------- ------------------------------------------------------------ 10.22* Pledge Agreement dated as of December 22, 1999 between the registrant and Joseph J. Whang. 10.23* Stock Purchase Agreement dated as of November 8, 1999 between the registrant and Ronald F. Hyland, Sr. 10.24* Secured Promissory Note dated as of November 8, 1999 between the registrant, as lender, and Ronald F. Hyland, Sr., as borrower. 10.25* Pledge Agreement dated as of November 8, 1999 between the registrant and Ronald F. Hyland, Sr. 10.26 Separation and Mutual General Release Agreement dated April 26, 2001 between the registrant and William L. Guttman. 10.27 Letter Agreement dated April 26, 2001 between the registrant and William L. Guttman. 10.28(a) Pledge Agreement dated as of November 8, 1999 between the registrant and William L. Guttman. 10.28(b) Amendment to Pledge Agreement dated April 26, 2001 between the registrant and William L. Guttman. 10.29* Stock Purchase Agreement dated as of November 8, 1999 between the registrant and William L. Guttman. 10.30* Secured Promissory Note dated as of November 8, 1999 between the registrant, as lender, and William L. Guttman, as borrower. 10.31+ License Agreement effective March 9, 2000 by and between the registrant and Henry B. Freedman. 10.32 Secured Promissory Note dated April 26, 2001 between the registrant, as lender, and William Guttman, as borrower. 10.33 Unsecured Promissory Note dated April 26, 2001 between William Guttman, as lender, and the registrant, as borrower. 10.34 Option Agreement dated April 26, 2001 by and between William Guttman and the registrant. 10.35** Marketing Alliance Agreement dated January 4, 2001 by and between A.T. Kearney Procurement Solutions, Inc. (f/k/a CoNext Holdings, Inc.). 21.1* Subsidiaries of the registrant. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Morgan, Lewis & Bockius LLP (included in opinion filed as Exhibit 5.1). 24.1 Power of Attorney (Previously filed as to certain individuals, and included in the signature page of this registration statement as to one additional individual).
- ------------ * Previously filed. ** To be filed by Amendment. + Portions of this exhibit have been omitted based on a request for confidential treatment by the Commission. The omitted portions of this exhibit have been filed separately with the Commission. (b) FINANCIAL STATEMENT SCHEDULES. All financial statement schedules have been omitted because they are inapplicable or are not required under applicable provisions of Regulation S-X, or because the information that would otherwise be included in such schedules is contained in the registrant's financial statements or notes thereto. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-7 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Pittsburgh, Commonwealth of Pennsylvania, on March 27, 2002. PRINTCAFE SOFTWARE, INC. By: /s/ MARC D. OLIN ------------------------------------ Marc D. Olin President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE - --------------------------------------------------- -------------------------------- -------------- /s/ MARC D. OLIN President, Chief Executive March 27, 2002 - --------------------------------------------------- Officer and Director Marc D. Olin /s/ JOSEPH J. WHANG Chief Financial Officer and March 27, 2002 - --------------------------------------------------- Chief Operating Officer Joseph J. Whang (Principal Financial and Accounting Officer) * Chairman of the Board March 27, 2002 - --------------------------------------------------- Amos Michelson * Director March 27, 2002 - --------------------------------------------------- Charles J. Billerbeck * Director March 27, 2002 - --------------------------------------------------- Victor A. Cohn * Director March 27, 2002 - --------------------------------------------------- Thomas J. Gill * Director March 27, 2002 - --------------------------------------------------- Judi Hess
*By: /s/ MARC D. OLIN --------------------------------- Attorney-in-fact, pursuant to powers of attorney previously filed as part of this registration statement. KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears below hereby constitutes and appoints, jointly and severally, Marc D. Olin and Joseph J. Whang, and each of them, as her attorney-in-fact and agent, with full power of substitution and resubstitution, for her and in her name, place, and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement, and any and all registration statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this registration statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following person in the capacity and on the date indicated:
SIGNATURE CAPACITY DATE - --------------------------------------------------- -------------------------------- -------------- /s/ GERALDINE B. SINCLAIR Director March 27, 2002 - --------------------------------------------------- Geraldine B. Sinclair
II-9 EXHIBIT INDEX
NUMBER DESCRIPTION - -------- ------------------------------------------------------------ 1.1** Form of Underwriting Agreement. 3.1(a)* Registrant's Amended and Restated Certificate of Incorporation (to be replaced by Exhibit 3.1(c) upon the closing of this offering). 3.1(b)* Certificate of Amendment to Amended and Restated Certificate of Incorporation. 3.1(c) Form of registrant's Amended and Restated Certificate of Incorporation (to be in effect upon the closing of this offering). 3.2(a)* Registrant's Amended and Restated Bylaws (to be replaced by Exhibit 3.2(b) upon the closing of this offering). 3.2(b) Form of registrant's Amended and Restated Bylaws (to be in effect upon the closing of this offering). 5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the common stock being registered. 10.1 Registrant's 1999 Stock Option Plan. 10.2 Registrant's 2000 Stock Incentive Plan. 10.3 Registrant's 2002 Employee Stock Purchase Plan. 10.4 Registrant's 2002 Key Executive Stock Incentive Plan. 10.5 Registrant's 2002 Employee Stock Incentive Plan. 10.6 Employment Agreement effective January 1, 2002 between the registrant and Marc Olin. 10.7 Employment Agreement effective January 1, 2002 between the registrant and Joseph J. Whang. 10.8 Employment Agreement effective January 1, 2002 between the registrant and Ronald F. Hyland, Sr. 10.9 Amended and Restated Strategic Alliance Agreement dated December 31, 2001 between the registrant and Creo Products, Inc. 10.10 2002 Sales Channel Agreement dated as of January 1, 2002 between the registrant, Creo Products Inc., and CreoScitex America, Inc. 10.11* Form of Indemnification Agreement between the registrant and each of its officers and directors. 10.12 Credit Agreement dated December 31, 2001 between the registrant and Iris Graphics Inc. 10.13 Guarantee and Collateral Agreement dated as of December 31, 2001 made by the registrant and certain of its subsidiaries in favor of Iris Graphics Inc. 10.14 Series F Preferred Stock Purchase Agreement dated December 31, 2001 between the registrant and the purchasers listed on Exhibit A thereto. 10.15 Fifth Amended and Restated Investors' Rights Agreement dated December 31, 2001. 10.16* Series E Preferred Stock Purchase Agreement dated October 30, 2000 between the registrant and the investors listed on Exhibit A thereto, as amended March 12, 2001. 10.17* Stock Purchase Agreement dated as of November 8, 1999 between the registrant and Marc Olin. 10.18* Secured Promissory Note dated as of November 8, 1999 between the registrant, as lender, and Marc Olin, as borrower. 10.19* Pledge Agreement dated as of November 8, 1999 between the registrant and Marc Olin. 10.20* Stock Purchase Agreement dated as of December 22, 1999 between the registrant and Joseph J. Whang. 10.21* Secured Promissory Note dated as of December 22, 1999 between the registrant, as lender, and Joseph J. Whang, as borrower. 10.22* Pledge Agreement dated as of December 22, 1999 between the registrant and Joseph J. Whang.
NUMBER DESCRIPTION - -------- ------------------------------------------------------------ 10.23* Stock Purchase Agreement dated as of November 8, 1999 between the registrant and Ronald F. Hyland, Sr. 10.24* Secured Promissory Note dated as of November 8, 1999 between the registrant, as lender, and Ronald F. Hyland, Sr., as borrower. 10.25* Pledge Agreement dated as of November 8, 1999 between the registrant and Ronald F. Hyland, Sr. 10.26 Separation and Mutual General Release Agreement dated April 26, 2001 between the registrant and William L. Guttman. 10.27 Letter Agreement dated April 26, 2001 between the registrant and William L. Guttman. 10.28(a) Pledge Agreement dated as of November 8, 1999 between the registrant and William L. Guttman. 10.28(b) Amendment to Pledge Agreement dated April 26, 2001 between the registrant and William L. Guttman. 10.29* Stock Purchase Agreement dated as of November 8, 1999 between the registrant and William L. Guttman. 10.30* Secured Promissory Note dated as of November 8, 1999 between the registrant, as lender, and William L. Guttman, as borrower. 10.31+ License Agreement effective March 9, 2000 by and between the registrant and Henry B. Freedman. 10.32 Secured Promissory Note dated April 26, 2001 between the registrant, as lender, and William Guttman, as borrower. 10.33 Unsecured Promissory Note dated April 26, 2001 between William Guttman, as lender, and the registrant, as borrower. 10.34 Option Agreement dated April 26, 2001 by and between William Guttman and the registrant. 10.35** Marketing Alliance Agreement dated January 4, 2001 by and between A.T. Kearney Procurement Solutions, Inc. (f/k/a CoNext Holdings, Inc.). 21.1* Subsidiaries of the registrant. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Morgan, Lewis & Bockius LLP (included in opinion filed as Exhibit 5.1). 24.1 Power of Attorney (Previously filed as to certain individuals, and included in the signature page of this registration statement as to one additional individual).
- ------------ * Previously filed. ** To be filed by Amendment. + Portions of this exhibit have been omitted based on a request for confidential treatment by the Commission. The omitted portions of this exhibit have been filed separately with the Commission. EX-3.1.C 3 j9249402ex3-1_c.txt 7TH AMENDED & RESTATED CERT. OF INCORPORATION Exhibit 3.1(c) SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PRINTCAFE SOFTWARE, INC. 1. (a) The name of the corporation is Printcafe Software, Inc. (b) The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on January 5, 2000 and the name of the corporation was printCafe, Inc. The First Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 4, 2000 pursuant to which the corporation's name was changed to Prograph Systems, Inc. The Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 9, 2000 pursuant to which the corporation's name was changed to printCafe, Inc. The Third Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 15, 2000. The Fourth Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 8, 2000. The Fifth Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on October 30, 2000. The Sixth Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on January 2, 2002. 2. Pursuant to Sections 228, 242, and 245 of the General Corporation Law of the State of Delaware, this Seventh Amended and Restated Certificate of Incorporation restates and further amends the provisions of the Sixth Amended and Restated Certificate of Incorporation of the corporation as heretofore amended and supplemented. 3. The text of the Certificate of Incorporation of the corporation as heretofore amended and supplemented is hereby amended and restated in its entirety to read as follows: ARTICLE I NAME The name of the corporation is Printcafe Software, Inc. ARTICLE II REGISTERED AGENT The address of the registered office of the corporation in the State of Delaware is 15 East North Street, City of Dover, County of Kent. The name of its registered agent at such address is Incorporating Services, Ltd. ARTICLE III PURPOSE The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV CAPITAL STOCK The total number of shares of stock which the corporation shall have authority to issue is One Hundred and One Million (101,000,000) shares, which shall be divided into two classes as follows: A. One Hundred Million (100,000,000) shares of Common Stock, the par value of each of which shares is One Hundredth of a Cent ($0.0001), amounting in the aggregate to Ten Thousand Dollars ($10,000); and B. One Million (1,000,000) shares of Preferred Stock, the par value of each of which shares is One Hundredth of a Cent ($0.0001), amounting in the aggregate to One Hundred Dollars ($100.00). The corporation's board of directors is hereby expressly authorized to provide by resolution or resolutions from time to time for the issue of the Preferred Stock in one or more series, the shares of each of which series may have such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be permitted under the General Corporation Law of the State of Delaware and as shall be stated in the resolution or resolutions providing for the issue of such stock adopted by the board of directors pursuant to the authority expressly vested in the board of directors hereby. ARTICLE V DIRECTORS A. The business and affairs of the corporation shall be managed by or under the direction of a board of directors consisting of such total number of authorized directors as shall be fixed by, or in the manner provided in, the bylaws. The board of directors shall be divided into three classes, designated Class I, Class II, and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of authorized directors. Class I directors shall serve for a term ending upon the annual meeting of stockholders held in 2003, Class II directors shall serve for a term ending upon the annual meeting of stockholders held in 2004, and Class III directors shall serve for a term ending upon the annual meeting of stockholders held in 2005. At each succeeding annual meeting of stockholders beginning with the annual meeting of stockholders held in 2003, successors to the class of directors whose term expires at such annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of 2 directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent directors. A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, incapacitation, or removal from office, and except as otherwise required by law. B. Except as otherwise required by law, vacancies and newly created directorships resulting from any increase in the total number of authorized directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. A director may be removed by the stockholders only for cause. C. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock issued by the corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, and other features of such directorships shall be governed by the terms of this Seventh Amended and Restated Certificate of Incorporation applicable thereto and such directors so elected shall not be divided into classes pursuant to this Article V, in each case unless expressly provided by such terms. ARTICLE VI BYLAWS In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware: A. The board of directors of the corporation is expressly authorized to adopt, amend, or repeal the bylaws of the corporation. B. Elections of directors need not be by written ballot unless the bylaws of the corporation shall so provide. C. The books of the corporation may be kept at such place within or without the State of Delaware as the bylaws of the corporation may provide or as may be designated from time to time by the board of directors of the corporation. 3 ARTICLE VII LIMITATION OF LIABILITY No director shall be personally liable to the corporation or the holders of shares of capital stock for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of the duty of loyalty of such director to the corporation or such holders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which such director derives an improper personal benefit. No amendment to or repeal of this Article VII shall apply to or have any effect on the liability or alleged liability of any director for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. If the laws of the State of Delaware are hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent then permitted. No repeal or modification of this Article VII shall adversely affect any right of or protection afforded to a director of the corporation existing immediately prior to such repeal or modification. ARTICLE VIII INDEMNIFICATION The corporation shall indemnify and may advance expenses to its officers and directors to the fullest extent permitted by law from time to time in effect. Without limiting the generality of the foregoing, the bylaws of the corporation may provide for indemnification and advancement of expenses to the corporation's officers, directors, employees, and agents on such terms and conditions as the board of directors may from time to time deem appropriate or advisable. ARTICLE IX ACTION BY STOCKHOLDERS Effective immediately upon the corporation becoming subject to the periodic reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, with respect to any class of its capital stock: A. No action required to be taken or which may be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting. B. The power of the stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. C. Special meetings of the stockholders of the corporation may be called only by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized 4 directorships at the time any such resolution is presented to the Board of Directors for adoption), the chairman of the board of directors, or the chief executive officer. ARTICLE X AMENDMENTS Except as provided herein, from time to time any of the provisions of this Seventh Amended and Restated Certificate of Incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this Seventh Amended and Restated Certificate of Incorporation are granted subject to the provisions of this Article X. * * * IN WITNESS WHEREOF, this Seventh Amended and Restated Certificate of Incorporation has been signed on the ___ day of _____, 2002, by the undersigned officer thereunto duly authorized. ------------------------------- Marc D. Olin Chief Executive Officer and President 5 EX-3.2.B 4 j9249402ex3-2_b.txt AMENDED & RESTATED BYLAWS Exhibit 3.2(b) ----------------------------------------------------------------- AMENDED AND RESTATED BYLAWS OF PRINTCAFE SOFTWARE, INC. ----------------------------------------------------------------- As adopted by the Board of Directors, effective as of ____________ __, 2002. AMENDED AND RESTATED BYLAWS OF PRINTCAFE SOFTWARE, INC. ARTICLE I OFFICES Section 1.01 Registered Office. The registered office of the Corporation shall be at Incorporating Services, Ltd., 15 East North Street, in the City of Dover, County of Kent, State of Delaware, until otherwise established by a resolution of the Board of Directors of the Corporation (the "Board of Directors") and a certificate certifying the change is filed in the manner provided by statute. Section 1.02 Additional Offices. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 2.01 Annual Meetings. An annual meeting of stockholders shall be held at such date, time, and place, either within or without the State of Delaware, as the Board of Directors shall each year fix. At such annual meeting, the stockholders shall elect members of the Board of Directors in accordance with Article III of these Bylaws and transact such other business as may properly be brought before the meeting. Section 2.02 Special Meetings. Special meetings of the stockholders, for any purpose or purposes described in the notice of the meeting, may be called only by: (a) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption); (b) the Chairman of the Board; or (c) the Chief Executive Officer. Special meetings of the stockholders shall be held at such place, on such date and at such time as the person or persons calling the meeting shall fix. Business transacted at any special meeting shall be confined to the purpose or purposes stated in the notice of such meeting. Section 2.03 Notice of Meetings. Written notice of all meetings of stockholders shall be given stating the place, date, and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation as then in effect (the "Certificate of 1 Incorporation"), such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting, by depositing it in the United States mail, postage prepaid, directed to each stockholder at his or her address as it appears on the records of the Corporation. An affidavit of the Secretary, Assistant Secretary, or transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. No notice need be given to any person with whom communication is unlawful or to any person who has waived. Section 2.04 Adjournments. Any meeting of stockholders may adjourn from time to time to reconvene at the same or another place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. Section 2.05 Quorum. At each meeting of stockholders the holders of a majority of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except to the extent otherwise required by applicable law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes then outstanding, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporation's stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation) shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation's stock held by it in a fiduciary capacity. Section 2.06 Organization. Every meeting of the stockholders shall be presided over by the Chairman of the Board, if any, or, if the Chairman of the Board is not present (or, if there is none), one of the following persons in the order stated: (a) the Chief Executive Officer, if one has been appointed; (b) the President; (c) a Vice President; (d) if none of the individuals named in clauses (a), (b) or (c) is present, such person who may have been chosen by the Board of Directors; or (e) if no individual named in clause (d) is present, a chairman to be chosen by the stockholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting and who are present in person or represented by proxy. The Secretary of the Corporation, or such other person as may be appointed by the chairman of the meeting, shall act as secretary of the meeting. Section 2.07 Voting. (a) At any meeting of stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy. Except as otherwise provided by the Delaware 2 General Corporation Law (the "DGCL") or the Certificate of Incorporation, each stockholder of record shall be entitled to one vote for each share of capital stock having voting power registered in such stockholder's name on the books of the Corporation. (b) All elections shall be determined by a plurality vote, and, except as otherwise provided by law or the Certificate of Incorporation, all other matters shall be determined by a vote of a majority of the shares present in person or represented by proxy and voting on such other matters. (c) If a vote is to be taken by written ballot, then each such ballot shall state the name of the stockholder or proxy voting and such other information as the chairman of the meeting deems appropriate. Section 2.08 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed by the Board of Directors, then the record date shall be as provided by applicable law. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 2.09 List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder; provided, however, that the Corporation shall not be required to include electronic mail addresses or other electronic contact information on such lists. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting; or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.10 Notice of Stockholder Business; Nominations. (a) Annual Meetings of Stockholders. (i) Nominations of persons for election to the Board of Directors and 3 the proposal of business to be considered by the stockholders shall be made at an annual meeting of stockholders: (A) pursuant to the Corporation's notice of such meeting; (B) by or at the direction of the Board of Directors; or (C) by any stockholder of the Corporation who was a stockholder of record at the time of the giving of the notice provided for in this Section 2.10, who is entitled to vote at such meeting, and who complies with the notice procedures set forth in this Section 2.10. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i) of this Section 2.10, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice must be delivered to the Secretary at the principal executive offices of the Corporation not less than 120 days prior to the first anniversary of the date of the Corporation's release of proxy materials to stockholders in connection with the previous year's annual meeting; provided, however, that in the event the Corporation did not conduct an annual meeting the previous year or if the date of the annual meeting is advanced by more than 30 days or delayed by more than 30 days from such anniversary date, then notice by the stockholder, in order to be timely, must be delivered not later than the close of business on the later of the 120th day prior to the annual meeting or the 10th day following the day on which the date on which public announcement (as defined herein) of the date of such meeting is first made by the Corporation. (iii) The stockholder's notice described in subparagraph (a)(ii) of this Section 2.10 shall set forth: (A) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made: (1) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner; and 4 (2) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner. (b) Special Meetings of Stockholders. (i) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of such meeting. (ii) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of such meeting: (A) by or at the direction of the Board of Directors; or (B) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who is entitled to vote at the meeting, and who complies with the notice procedures set forth in this Section 2.10. (iii) If the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, then any such stockholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by subparagraph (a)(ii) of this Section 2.10 shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (c) General. (i) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.10 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.10. Except as otherwise provided by law or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.10 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. (ii) For purposes of this Section 2.10, the term "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14, or 15(d) of the Exchange Act. 5 (iii) Notwithstanding the foregoing provisions of this Section 2.10, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 2.10 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE III BOARD OF DIRECTORS Section 3.01 Number; Classes; Qualification. The Board of Directors shall consist of no less than three and no more than 12 members. The total number of authorized directors shall be fixed from time to time within such range by a duly adopted resolution of the Board of Directors. The Board of Directors shall be divided into three classes, designated Class I, Class II, and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of authorized directors. Directors need not be stockholders of the Corporation. Section 3.02 Initial Terms; Subsequent Terms. (a) The initial term of office of directors of : (i) Class I shall expire at the annual meeting of stockholders held in 2003; (ii) Class II shall expire at the annual meeting of stockholders held in 2004; and (iii) Class III shall expire at the annual meeting of stockholders held in 2005. (b) Each subsequent term of office of each class shall expire at each third succeeding annual meeting of stockholders after the election of the directors of such class. Subject to the provisions of the Certificate of Incorporation, each director shall serve until his or her successor is elected and qualified or until his or her earlier resignation or removal. No decrease in the total number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 3.03 Resignation; Removal; Vacancies. Any director may resign at any time upon written notice to the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery of such written notice to the Corporation. It shall not be necessary for a resignation to be accepted before it becomes effective. Subject to the rights of any holders of any preferred stock of the Corporation then outstanding and the Certificate of Incorporation: (a) any director, directors, or the entire Board of Directors may be removed, with cause, by the holders of a majority of the shares then entitled to vote at an election of directors; 6 (b) except as otherwise required by law, vacancies and newly created directorships resulting from any increase in the total number of authorized directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the total number of authorized directors shall have the same remaining term as that of his or her predecessor. Any director elected to fill a vacancy shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the Class to which such director has been elected expires, and until such director's respective successor is elected, except in the case of the death, resignation, or removal of such director. Section 3.04 Regular Meetings. Regular meetings of the Board of Directors may be held at such places, within or without the State of Delaware, and at such times as the Board of Directors may from time to time determine. Notice of regular meetings need not be given if the dates, times and places thereof are fixed by resolution of the Board of Directors. Section 3.05 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, or a majority of the members of the Board of Directors then in office and may be held at any time, date, or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date, and place of such meeting shall be given, orally or in writing, by the person or persons calling the meeting to all directors at least four days before the meeting if the notice is mailed (which shall be by first class, registered or certified United States mail), or at least 24 hours before the meeting if such notice is given by telephone, hand delivery, overnight or similar courier, telegram, telex, mailgram, facsimile, or similar communication method. Section 3.06 Telephonic Meetings Permitted. Members of the Board of Directors, or any committee of the Board, may participate in a meeting of the Board of Directors or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to such means shall constitute presence in person at such meeting. Section 3.07 Quorum; Vote Required for Action. At all meetings of the Board of Directors a majority of the directors then in office shall constitute a quorum for the transaction of business; provided that in no event shall a quorum be less than one-third of the total number of authorized directors. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 3.08 Organization. Meetings of the Board of Directors shall be presided over: (a) by the Chairman of the Board; (b) in the absence of the Chairman of the Board, by the President (if a director); and (c) in the absence or ineligibility of the President, by a chairman chosen at the meeting by a majority of those directors present. The Secretary, or such other person as the chairman of the meeting may appoint, shall act as secretary of the meeting. Section 3.09 Written Action by Directors. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a 7 meeting if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee, respectively. Written consents representing actions taken by the Board of Directors or committee may be executed by telex, telecopy, or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original. Section 3.10 Powers. The Board of Directors may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Section 3.11 Compensation of Directors. Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. ARTICLE IV COMMITTEES Section 4.01 Creation. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members of such committee present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Section 4.02 Powers. (a) Subject to paragraph (b) of this Section 4.02, any committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it. (b) Notwithstanding paragraph (a) of this Section 4.02, no committee shall have the power or authority to: (i) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in subsection (a) of Section 151 of the DGCL, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation, or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the 8 number of shares of any series of stock or authorize the increase or decrease of the shares of any series); (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the DGCL; (iii) recommend to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation's property and assets; (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution; (v) amend these Bylaws; or (vi) unless the resolution of the Board of Directors expressly provides to the contrary, declare a dividend, authorize the issuance of stock, or adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL. Section 4.03 Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter, and repeal rules for the conduct of its business. In the absence of such rules, each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these Bylaws. ARTICLE V OFFICERS Section 5.01 Designations. The officers of the Corporation shall be chosen by the Board of Directors. The Board of Directors shall choose a Chairman of the Board, a President, a Secretary, and a Treasurer (together, the "Required Officers"), and may choose a Chief Executive Officer, a Chief Operating Officer, a Chief Financial Officer, an Executive Vice President or Executive Vice Presidents, a Vice President or Vice Presidents, one or more Assistant Secretaries and/or Assistant Treasurers, and other officers and agents as it shall deem necessary or appropriate (together, the "Permitted Officers"). All officers of the Corporation shall exercise such powers and perform such duties as shall from time to time be determined by the Board of Directors. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide. Section 5.02 Term of Office; Removal. Subject to the next sentence of this Section 5.02, each officer of the Corporation shall hold office until such officer's successor is chosen and shall qualify. Any officer elected or appointed by the Board of Directors may be removed, with or without cause, at any time by the affirmative vote of a majority of the directors then in office. Such removal shall not prejudice the contract rights, if any, of the person so removed. Any vacancy occurring in any office of the Corporation may be filled for the unexpired portion of the term by the Board of Directors. 9 Section 5.03 Compensation. The salaries of all officers of the Corporation shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of the fact that such person is also a director of the Corporation. Section 5.04 The Chairman of the Board. The Chairman of the Board, if any, shall be an officer of the Corporation and, subject to the direction of the Board of Directors, shall perform such executive, supervisory, and management functions and duties as may be assigned to the Chairman of the Board from time to time by the Board of Directors. The Chairman of the Board shall, if present, preside at all meetings of stockholders and of the Board of Directors. Section 5.05 The Chief Executive Officer. The Chief Executive Officer, if any, shall be an officer of the Corporation and, subject to the direction of the Board of Directors, shall perform such executive, supervisory, and management functions and duties as may be assigned to the Chief Executive Officer from time to time by the Board of Directors or by the Chairman of the Board (if the Chairman of the Board be so authorized by the Board of Directors). Section 5.06 The President. (a) The President shall, subject to the direction of the Board of Directors, have general supervision over the business and operations of the Corporation. The President shall, in general and unless otherwise prescribed by the Board of Directors, perform all duties incident to the office of President and such other duties as from time to time may be assigned by the Board of Directors, the Chairman of the Board (if the Chairman of the Board be so authorized by the Board of Directors), or the Chief Executive Officer. (b) Unless otherwise prescribed by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend, act, and vote at any meeting of security holders of other corporations in which the Corporation may hold securities. At such meeting the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation might have possessed and exercised if it had been present. The Board of Directors may from time to time confer like powers upon any other person or persons. Section 5.07 The Chief Financial Officer and the Chief Operating Officer. The Chief Financial Officer and the Chief Operating Officer shall, subject to the direction of the Board of Directors, perform such executive, supervisory, and management functions and duties as may be assigned to each of them, respectively, from time to time by the Board of Directors, the Chairman of the Board (if the Chairman of the Board be so authorized by the Board of Directors), or the Chief Executive Officer. Section 5.08 The Senior Vice Presidents, the Executive Vice Presidents and the Vice Presidents. The Senior Vice President, if any (or in the event that there be more than one, the Senior Vice Presidents in the order designated, or in the absence of any designation, in the order of their election), or, if none, the Executive Vice President, if any (or in the event that there be more than one, the Executive Vice Presidents in the order designated, or in the absence of any designation, in the order of their election), or, if none, the Vice President, if any (or in the event that there be more than one, the Vice Presidents in the order designated, or in the absence of any 10 designation, in the order of their election), shall, in the absence of, or in the event of the disability of, the President, perform the duties and exercise the powers of the President and shall generally assist the President and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 5.09 The Secretary; Assistant Secretaries. (a) Duties of the Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for any committees, if required. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the Board of Directors, and shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board or the President, under whose supervision the Secretary shall act. The Secretary shall have custody of the seal of the Corporation, and the Secretary or any Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and, when so affixed, the seal may be attested by the Secretary's signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing thereof by such officer's signature. (b) Duties of the Assistant Secretary. The Assistant Secretary, if any (or in the event there be more than one, the Assistant Secretaries in the order designated, or in the absence of any designation, in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's disability, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 5.10 The Treasurer; Assistant Treasurers. (a) Duties of the Treasurer. The Treasurer shall have the custody of the corporate funds and other valuable effects, including securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may from time to time be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, the President and the Board of Directors, at regular meetings of the Board, or whenever they may require it, an account of all transactions and of the financial condition of the Corporation. (b) Duties of the Assistant Treasurer. The Assistant Treasurer, if any (or in the event there shall be more than one, the Assistant Treasurers in the order designated, or in the absence of any designation, in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's disability, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. 11 Section 5.11 Delegation of Authority. Notwithstanding any provision hereof, the Board of Directors may, from time to time, delegate the powers or duties of any officer to any other officers or agents. Section 5.12 Representation of Shares of Other Corporations. Any Required Officer or Permitted Officer, and any other person authorized by the Board of Directors or a Required Officer, may vote, represent, and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations held by the Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority. ARTICLE VI STOCK CERTIFICATES Section 6.01 Form; Signatures. (a) Every holder of stock in the Corporation shall be entitled to have a certificate, signed by the Chairman of the Board, the Chief Executive Officer, or the President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, exhibiting the number and class (and series, if any) of shares owned by such person. Such signatures may be facsimile. A certificate may be manually signed by a transfer agent or registrar other than the Corporation or its employee but may be a facsimile. In case any officer who has signed, or whose facsimile signature was placed on, a certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if such person were such officer at the date of its issue. (b) All stock certificates representing shares of capital stock which are subject to restrictions on transfer or to other restrictions may have imprinted thereon such notation to such effect as may be determined by the Board of Directors. Section 6.02 Registration of Transfer. Upon surrender to the Corporation or any transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, it shall be the duty of the Corporation or its transfer agent to issue a new certificate to the person entitled thereto, to cancel the old certificate, and to record the transaction upon its books. Section 6.03 Registered Stockholders. (a) Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions, to vote as such owner, and to hold liable for calls and assessments any person who is registered on its books as the owner of shares of its capital stock. The Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person. (b) If a stockholder desires that notices and/or dividends shall be sent to a name or address other than the name or address appearing on the stock ledger maintained by the 12 Corporation (or by the transfer agent or registrar, if any), such stockholder shall have the duty to notify the Corporation (or the transfer agent or registrar, if any) in writing, of such desire. Such written notice shall specify the alternate name or address to be used. Any stockholder directing or permitting dividends or other distributions to be sent to a name or address other than that appearing on the Corporation's stock ledger shall bear full responsibility for all taxes, fees, charges, and other sums that may be or become due and payable as a result thereof. Section 6.04 Lost, Stolen, or Destroyed Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation which is claimed to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or such person's legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum, or other security in such form, as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen, or destroyed. ARTICLE VII INDEMNIFICATION Section 7.01 Nature of Indemnity. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that such person is or was (or, to the extent permitted by Delaware law, has agreed to become) a director or officer of the Corporation, or is or was serving (or, to the extent permitted by Delaware law, has agreed to serve) at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity (each of the foregoing, a "Mandatory Indemnitee"), and may indemnify any person who was or is a party or is threatened to be made a party to such an action, suit, or proceeding by reason of the fact that such person is or was (or, to the extent permitted by Delaware law, has agreed to become) an employee or agent of the Corporation, or is or was serving (or, to the extent permitted by Delaware law, has agreed to serve) at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise (each of the foregoing, a "Permissive Indemnitee"), against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person or on such person's behalf in connection with such action, suit, or proceeding and any appeal therefrom, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful; except that in the case of an action or suit by or in the right of the Corporation to procure a judgment in its favor, (a) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (b) no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable to the Corporation unless, and only to the extent that, the 13 Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Section 7.02 Successful Defense. To the extent that any Mandatory Indemnitee or Permissive Indemnitee has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Section 7.01, or in defense of any claim, issue, or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Section 7.03 Determination That Indemnification Is Proper. Any indemnification of a Mandatory Indemnitee or Permissive Indemnitee (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of such person is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 7.01. Any such determination shall be made, with respect to a person who is a director or officer at the time of such determination: (a) by the majority vote of the Board of Directors who were not parties to such action, suit, or proceeding even though less than a quorum; (b) by a committee of such directors designated by majority vote of such directors, even though less than a quorum; (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or (d) by the stockholders. Section 7.04 Advance Payment of Expenses. Unless the Board of Directors otherwise determines in a specific case, expenses incurred by a Mandatory Indemnitee in defending a civil or criminal action, suit, or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such Mandatory Indemnitee to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article VII. Such expenses incurred by a Permissive Indemnitee may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may authorize the Corporation's legal counsel to represent any Mandatory Indemnitee or Permissive Indemnitee in any action, suit, or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. Section 7.05 Survival. The foregoing indemnification provisions shall be deemed to be a contract between the Corporation and each Mandatory Indemnitee or Permissive Indemnitee 14 who serves in any such capacity at any time while these provisions as well as the relevant provisions of the DGCL are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit, or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a contract right may not be modified retroactively without the consent of such Mandatory Indemnitee or Permissive Indemnitee. Section 7.06 Preservation of Other Rights. The indemnification and advancement of expenses provided by this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in any such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. Subject to the limitations set forth in Section 7.05, the Corporation may enter into an agreement with any of its directors, officers, employees, or agents, or any person serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, including employee benefit plans, providing for indemnification and advancement of expenses, including attorneys' fees, that may change, enhance, qualify, or limit any right to indemnification or advancement of expenses created by this Article VII. Section 7.07 Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL. Section 7.08 Severability. If this Article VII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Mandatory Indemnitee and may indemnify each Permissive Indemnitee as to costs, charges and expenses (including attorneys' fees), judgment, fines, and amounts paid in settlement with respect to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article VII that shall not have been invalidated and to the fullest extent permitted by applicable law. Section 7.09 Subrogation. In the event of payment of indemnification to a Mandatory Indemnitee or Permissive Indemnitee, the Corporation shall be subrogated to the extent of such payment to any right of recovery such person may have and such person, as a condition of receiving indemnification from the Corporation, shall execute all documents and do all things that the Corporation may deem necessary or desirable to perfect such right of recovery, including the execution of such documents necessary to enable the Corporation to effectively enforce any such recovery. 15 Section 7.10 No Duplication of Payments. The Corporation shall not be liable under this Article VII to make any payment in connection with any claim made against a Mandatory Indemnitee or Permissive Indemnitee to the extent such person has otherwise received payment (under any insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable hereunder. Section 7.11 Effect of Amendment. Any amendment, repeal, or modification of any provision of this Article VII shall be prospective only, and shall not adversely affect any right or protection conferred on any person pursuant to this Article VII and existing at the time of such amendment, repeal, or modification. ARTICLE VIII NOTICES Section 8.01 Notice. Except as otherwise specifically provided herein or required by law, all notices required to be given pursuant to these Bylaws shall be in writing. No requirement of notice in these Bylaws shall be construed to mean personal notice unless otherwise specifically provided herein. Any notice other than those specifically required herein to be given personally and other than those specifically required herein to be transmitted by a particular means may be given by first class mail or by telegram (with messenger service specified), or courier service, charges prepaid, or by facsimile transmission (with confirmation of receipt) to the address (or to the facsimile number) of the person appearing on the books of the Corporation, or, in the case of directors, supplied to the Corporation for the purpose of notice. Except as otherwise specifically provided herein, if the notice is sent by mail, telegram, or courier service, it shall be deemed to be given when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of facsimile transmission, when transmitted. Section 8.02 Waiver of Notice. Whenever notice is required to be given under any provision of these Bylaws, a written waiver of notice, signed by the person entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice, unless so required by the Certificate of Incorporation. ARTICLE IX GENERAL PROVISIONS Section 9.01 Dividends. Subject to applicable law and the provisions of the Certificate of Incorporation, dividends upon the outstanding capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting and may be paid in cash, in property or in shares of the Corporation's capital stock. The Board of Directors shall have full power, subject to the provisions of law and the Certificate of Incorporation, to determine whether 16 any, and, if so, what part, of the funds legally available for the payment of dividends shall be declared as dividends and paid to the stockholders of the Corporation. Section 9.02 Reserves. The Board of Directors, in its sole discretion, may fix a sum which may be set aside as a fund or reserved over and above the paid-in capital of the Corporation for working capital or as a reserve for any proper purpose, and may, from time to time, increase, diminish or vary such fund or reserve. Section 9.03 Fiscal Year. The fiscal year of the Corporation shall be determined, and may be subsequently changed from time to time, by resolution of the Board of Directors. Section 9.04 Seal. The Board of Directors may provide for a corporate seal, which shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware." Any corporate seal shall otherwise be in such form as may be approved from time to time by the Board of Directors. Section 9.05 Certificate of Incorporation Governs. In the event of any conflict between the provisions of the Certificate of Incorporation and these Bylaws, the provisions of the Certificate of Incorporation shall govern. Section 9.06 Severability. If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable, or in conflict with the provisions of the Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including, without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable, or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable, or in conflict with the Certificate of Incorporation) shall remain in full force and effect. ARTICLE X AMENDMENTS Section 10.01 Amendment by Stockholders. Stockholders of the Corporation holding at least a majority of the Corporation's outstanding voting stock, voting as a single class, shall have the power to adopt, amend, or repeal bylaws of the Corporation. Section 10.02 Amendment by the Board of Directors. To the extent provided in the Certificate of Incorporation, the Board of Directors shall have the power to adopt, amend, or repeal bylaws of the Corporation by an affirmative vote of a majority of the whole Board of Directors, except insofar as bylaws adopted by the stockholders shall otherwise provide. 17 EX-5.1 5 j9249402ex5-1.txt LETTER Exhibit 5.1 One Oxford Centre MORGAN, LEWIS Thirty-Second Floor & BOCKIUS LLP Pittsburgh, PA 15219-6401 COUNSELORS AT LAW 412.560.3300 Fax: 412.560.3399 March 25, 2002 Printcafe Software, Inc. Forty 24th Street, 1st Floor Pittsburgh, Pennsylvania 15222 Re: Registration Statement on Form S-1 File No. 333-82646 Ladies and Gentlemen: We have acted as counsel to Printcafe Software, Inc., a Delaware corporation (the "Company"), in connection with the Registration Statement on Form S-1, File No. 333-82646 (the "Registration Statement"), filed by the Company with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), relating to the public offering of an aggregate of 8,625,000 shares (the "Company Shares") of the Company's Common Stock, par value $.0001 per share ("Common Stock"), to be sold by the Company to the underwriters for whom UBS Warburg LLC, McDonald Investments Inc., Robertson Stephens, Inc., and U.S. Bancorp Piper Jaffray Inc. are acting as representatives (the "Underwriters"), of which up to 1,125,000 shares are shares of Common Stock which the Underwriters will have an option to purchase from the Company solely for the purpose of covering over-allotments. We are familiar with the Registration Statement. We have reviewed the Company's Certificate of Incorporation and Bylaws, each as amended to date. We have also examined such other public and corporate documents, certificates, instruments, and corporate records, and such questions of law, as we have deemed necessary for purposes of expressing an opinion on the matters hereinafter set forth. In all examinations of documents, instruments, and other papers, we have assumed the genuineness of all signatures on original and certified documents and the conformity to original and certified documents of all copies submitted to us as conformed, photostatic, or other copies. Printcafe Software, Inc. March 25, 2002 Page 2 On the basis of the foregoing, we are of the opinion that the Company Shares, when issued and sold in accordance with the plan of distribution set forth in the Registration Statement, will be validly issued, fully paid, and non-assessable. We consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the use of our name in the Prospectus forming a part thereof under the caption "Legal Matters." In giving such consent, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission thereunder, or Item 509 of Regulation S-K. Very truly yours, /s/ MORGAN, LEWIS & BOCKIUS LLP EX-10.1 6 j9249402ex10-1.txt PROGRAPH SYSTEMS, INC. 1999 STOCK OPTION PLAN Exhibit 10.1 PROGRAPH SYSTEMS, INC. 1999 STOCK OPTION PLAN AS ADOPTED BY THE BOARD OF DIRECTORS 1. Purpose. Prograph Systems, Inc., a Pennsylvania corporation ("Company"), hereby adopts this 1999 Stock Option/Incentive Plan (the "Plan"). The Plan is intended to recognize the contributions made to Company by employees of Company, to provide such persons with additional incentive to devote themselves to the future success of Company, and to improve the ability to attract, retain and motivate individuals upon whom Company's sustained growth and financial success depend. Through the Plan, Company will provide such persons with an opportunity to acquire a proprietary interest in Company, and to align their interest with the interests of shareholders, through receipt of rights to acquire Company's Common Stock, par value $0.0001 per Share (the "Common Stock"), and through the transfer or issuance of Common Stock. Furthermore, the Plan may be used to encourage consultants and advisors of Company to further the success of Company. 2. Definitions. Unless the context clearly indicates otherwise, the following terms shall have the following meanings: "Award" shall mean a transfer of Common Stock made pursuant to the terms of the Plan or the grant to a person of performance units, "phantom" units, SARs or other rights containing such terms, benefits or restrictions as the Committee shall specify in the Award Agreement. "Award Agreement" shall mean the agreement between Company and a Grantee with respect to an Award made pursuant to the Plan. "Board" means the Board of Directors of Company. "Change of Control" shall have the meaning as set forth in Section 9 of the Plan. "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute, and the rules and regulations issued pursuant to that statute or any successor statute. "Committee" shall have the meaning set forth in Section 3 of the Plan. "Common Stock" shall have the meaning set forth in Section 1 of the Plan. "Company" means Prograph Systems, Inc., a Pennsylvania corporation. "Disability" means the inability of an Optionee or Award holder to perform the essential duties of his or her position with Company, as determined in good faith by the Committee. "Employee" means an employee of Company. "Fair Market Value" shall have the meaning set forth in Subsection 8(b) of the Plan. "Grantee" shall mean a person to whom an Award has been granted pursuant to the Plan. "ISO" means an Option granted under the Plan which qualifies and is intended to qualify as an "incentive stock option" within the meaning of Section 422(b) of the Code. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations issued pursuant to that statute or any successor statute. "Non-qualified Stock Option" means an Option granted under the Plan which is not intended to qualify, or otherwise does not qualify, as an ISO. "Option" means either an ISO or a Non-qualified Stock Option granted under the Plan. "Optionee" means a person to whom an Option has been granted under the Plan, which Option has not been exercised and has not expired or terminated. "Option Document" means the document described in Section 8 of the Plan, which sets forth the terms and conditions of each grant of Options. "Option Price" means the price at which Shares may be purchased upon exercise of an Option, as calculated pursuant to Subsection 8(b) of the Plan. "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any successor rule. "SAR" shall have the meaning set forth in Section 11 of the Plan. "Section 16 Officers" means any person who is an "officer" within the meaning of Rule 16a-1(f) promulgated under the Exchange Act or any successor rule, and who is subject to the reporting requirements under Section 16 of the Exchange Act with respect to Company's Common Stock. "Securities Act" means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations issued pursuant to that statute or any successor statute. "Shares" means the shares of Common Stock of Company which are the subject of Options or granted as Awards under the Plan. 3. Administration of the Plan. The Board may administer the Plan and/or it may, in its discretion, designate a committee or committees composed of two or more of directors to operate and administer the Plan with respect to all or a designated portion of the participants. (a) Meetings. The Committee shall hold meetings at such times and places as it may determine and shall keep minutes of its meetings. The Committee may take action only upon the agreement of a majority of the whole Committee. Any action which the Committee shall take through a written instrument signed by all its members shall be as effective as though it had been taken at a meeting duly called and held. (b) Exculpation. No member of the Committee shall be personally liable for monetary damages for any action taken or any failure to take any action in connection with the administration of the Plan or the granting of Options or Awards under the Plan, unless (a) the member has breached or failed to perform the duties of such member's office under Subchapter B of Chapter 17 of the Pennsylvania Business Corporation Law, and (b) the breach or failure to perform constitutes self-dealing, wilful misconduct or recklessness; provided, however, that the provisions of this Subsection (b) shall not apply to the responsibility or liability of a member pursuant to any criminal statute, or to the liability of a member for the payment of taxes pursuant to local, Pennsylvania or federal law. (c) Indemnification. Service on the Committee shall constitute service as a member of the Board. Each member of the Committee shall be entitled, without further act on the member's part, to indemnity from Company and to limitation of liability, to the fullest extent provided by applicable law and by Company's Articles of Incorporation and/or Bylaw, in connection with or arising out of any action, suit or proceeding with respect to the administration of the Plan or the granting of Options or Award thereunder in which the member may be involved by reason of the member being or having been a member of the Committee, whether or not the member continues to be a member of the Committee at the time of the action, suit or proceeding. (d) Interpretation. The Committee shall have the power and authority to (i) interpret the Plan, (ii) adopt, amend and revoke rules and regulations for its administration that are not inconsistent with the express terms of the Plan including, without limitation, rules and interpretations to determine the number of shares remaining available for issuance under the Plan, and (iii) waive requirements relating to formalities or other matters that do not either modify the substance of the rights intended to be granted by Options and Awards or constitute a material amendment for any purpose under the Code. Any such actions by the Committee shall be final, binding and conclusive on all parties in interest. (e) Amendment of Options and Awards. Subject to the provisions of the Plan, the Committee shall have the right to amend any Option Document or Award Agreement issued to an Optionee or Award holder, subject to the Optionee's or Award holder's consent, if such amendment is not favorable to the Optionee or Award holder or if such amendment has the effect of changing an ISO to a Non-Qualified Stock Option; provided, however, that the consent of the Optionee or Award holder shall not be required for any amendment made pursuant to Subsection 8(e)(i)(C) or Section 9 of the Plan, as applicable. 4. Grants of Options under the Plan. Grants of Options under the Plan may be in the form of a Non-qualified Stock Option, an ISO or a combination thereof, at the discretion of the Committee. All Grants, unless otherwise specifically designated by the Board or Committee, shall vest in five years from the date of the Grant. The Board specifically reserves the right to amend the vesting schedule by majority vote at any time. 5. Eligibility. All Employees, and consultants and advisors to Company shall be eligible to receive Options and Awards hereunder. Consultants and advisors shall be eligible only if they render bona fide services to Company unrelated to the offer or sale of securities. The Committee, in its sole discretion, shall determine whether an individual qualifies as an Employee. 6. Shares Subject to Plan. The aggregate maximum number of Shares for which Awards or Options may be granted pursuant to the Plan is Ten Thousand (10,000). The number of shares which may be issued under the Plan shall be subject to adjustment in accordance with Section 10. The Shares shall be issued from authorized and unissued Common Stock or Common Stock held in or hereafter acquired for the treasury of Company. If an Option terminates or expires without having been fully exercised for any reason or if Shares subject to an Award have been conveyed back to Company pursuant to the terms of an Award Agreement, the Shares for which the Option was not exercised or the Shares that were conveyed back to Company shall again be available for issuance pursuant to the terms of one or more Options, or one or more Awards, granted pursuant to the Plan. 7. Term of the Plan. The Plan is effective as of August 31, 1999 the date on which it was adopted by the Board, subject to the approval of the Plan within one year after such date by the shareholders in the manner required by state law. If the Plan is not so approved by the shareholders, all Options granted under the Plan shall be null and void. No ISO may be granted under the Plan after August 31, 2000. 8. Option Documents and Terms. Each Option granted under the Plan shall be a Non-qualified Stock Option unless the Option shall be specifically designated at the time of grant to be an ISO. If any Option designated an ISO is determined for any reason not to qualify as an incentive stock option within the meaning of Section 422 of the Code, such Option shall be treated as a Non-qualified Stock Option for all purposes under the provisions of the Plan. Options granted pursuant to the Plan shall be evidenced by the Option Documents in such form as the Committee shall approve from time to time, which Option Documents shall comply with and be subject to the following terms and conditions and such other terms and conditions as the Committee shall require from time to time which are not inconsistent with the terms of the Plan. (a) Number of Option Shares. Each Option Document shall state the number of Shares to which it pertains. An Optionee may receive more than one Option, which may include Options which are intended to be ISOs and Options which are not intended to be ISOs, but only on the terms and subject to the conditions and restrictions of the Plan. (b) Option Price. Each Option Document shall state the Option Price, which, for a Non-qualified Stock Option, need not be the Fair Market Value of the Shares on the date the Option is granted and, for an ISO, shall be at least 100% of the Fair Market Value of the Shares on the date the Option is granted as determined by the Committee in accordance with this Subsection 8(b); provided, however, that if an ISO is granted to an Optionee who then owns, directly or by attribution under Section 424(d) of the Code, shares possessing more than ten percent of the total combined voting power of all classes of stock of Company or an Affiliate, then, to the extent required by Section 424(d) of the Code, the Option Price shall be at least 110% of the Fair Market Value of the Shares on the date the Option is granted. (c) Exercise. No Option shall be deemed to have been exercised prior to the receipt by Company of written notice of such exercise and, unless arrangements satisfactory to Company have been made for payment through a broker in accordance with procedures permitted by rules or regulations of the Federal Reserve Board, receipt of payment in full of the Option Price for the Shares to be purchased. Each such notice shall specify the number of Shares to be purchased and, unless the Shares are covered by a then current registration statement or a Notification under Regulation A under the Securities Act, shall contain the Optionee's acknowledgment, in form and substance satisfactory to Company, that (i) such Shares are being purchased for investment and not for distribution or resale (other than a distribution or resale which, in the opinion of counsel satisfactory to Company, may be made without violating the registration provisions of the Securities Act), (ii) the Optionee has been advised and understands that (A) the Shares have not been registered under the Securities Act and are "restricted securities" within the meaning of Rule 144 under the Securities Act and are subject to restrictions on transfer, and (B) Company is under no obligation to register the Shares under the Securities Act or to take any action which would make available to the Optionee any exemption from such registration, (iii) such Shares may not be transferred without compliance with all applicable federal and state securities laws, and (iv) an appropriate legend referring to the foregoing restrictions on transfer and any other restrictions imposed under the Option Documents may be endorsed on the certificates. Notwithstanding the foregoing, if Company determines that the issuance of Shares should be delayed pending registration under federal or state securities laws, the receipt of an opinion of counsel satisfactory to Company that an appropriate exemption from such registration is available, the listing or inclusion of the Shares on any securities exchange or an automated quotation system or the consent or approval of any governmental regulatory body whose consent or approval is necessary in connection with the issuance of such Shares, Company may defer exercise of any Option granted hereunder until any of the events described in this sentence has occurred. (d) Medium of Payment. Subject to the terms of the applicable Option Document, an Optionee shall pay for Shares (i) in cash, (ii) by certified or cashier's check payable to the order of Company, or (iii) by such other mode of payment as the Committee may approve, including, without limitation, the Optionee's note in form approved by the Committee and payment through a broker in accordance with procedures permitted by rules or regulations of the Federal Reserve Board. The Optionee may also exercise the Option in any manner contemplated by Section 11. Furthermore, the Committee may provide in an Option Document that payment may be made in whole or in part in shares of Company's Common Stock held by the Optionee. If payment is made in whole or in part in shares of Company's Common Stock, then the Optionee shall deliver to Company certificates registered in the name of such Optionee representing the shares owned by such Optionee, free of all liens, claims and encumbrances of every kind and having an aggregate Fair Market Value on the date of delivery that is at least as great as the Option Price of the Shares (or relevant portion thereof) with respect to which such Option is to be exercised by the payment in shares of Common Stock, endorsed in blank or accompanied by stock powers duly endorsed in blank by the Optionee. In the event that certificates for shares of Company's Common Stock delivered to Company represent a number of shares in excess of the number of shares required to make payment for the Option Price of the Shares (or relevant portion thereof) with respect to which such Option is to be exercised by payment in shares of Common Stock, the stock certificate or certificates issued to the Optionee shall represent (i) the Shares in respect of which payment is made, and (ii) such excess number of shares. Notwithstanding the foregoing, the Committee may impose from time to time such limitations and prohibitions on the use of shares of the Common Stock to exercise an Option as it deems appropriate. (e) Termination of Options. (i) No Option shall be exercisable after the first to occur of the following: (A) Expiration of the Option term specified in the Option Document, which, in the case of an ISO, shall not occur after (1) ten years from the date of grant, or (2) five years from the date of grant if the Optionee on the date of grant owns, directly or by attribution under Section 424(d) of the Code, shares possessing more than ten percent of the total combined voting power of all classes of stock of Company or of an Affiliate; (B) Except to the extent otherwise provided in an Optionee's Option Document, a finding by the Committee, after full consideration of the facts presented on behalf of both Company and the Optionee, that the Optionee has been engaged in disloyalty to Company or an Affiliate, including, without limitation, fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of employment or service, or has disclosed trade secrets or confidential information of Company or an Affiliate. In such event, in addition to immediate termination of the Option, the Optionee shall automatically forfeit all Shares for which Company has not yet delivered the share certificates upon refund by Company of the Option Price. Notwithstanding anything herein to the contrary, Company may withhold delivery of share certificates pending the resolution of any inquiry that could lead to a finding resulting in a forfeiture; (C) The date, if any, set by the Committee as an accelerated expiration date in the event of the liquidation or dissolution of Company; (D) The occurrence of such other event or events as may be set forth in this Plan or the Option Document as causing an accelerated expiration of the Option; or (E) Except as otherwise set forth in the Option Document and subject to the foregoing provisions of this Subsection 8(e), three months after the Optionee's employment or service with Company or its Affiliates terminates for any reason other than Disability or death or one year after such termination due to Optionee's Disability or death. With respect to this Subsections 8(e)(i)(E), the only Options that may be exercised during the three-month or one-year period, as the case may be, are Options which were exercisable on the last date of such employment or service and not Options which, if the Optionee were still employed or rendering service during such three-month or one-year period, would become exercisable, unless the Option Document specifically provides to the contrary or the Committee otherwise approves. The terms of an executive severance agreement or other agreement between Company and an Optionee, approved by the Committee or the Board, whether entered into prior or subsequent to the grant of an Option, which provide for Option exercise dates later than those set forth in Subsection 8(e)(i) shall be deemed to be Option terms approved by the Committee and consented to by the Optionee. (ii) Notwithstanding the foregoing, the Committee may extend the period during which all or any portion of an Option may be exercised provided that any change pursuant to this Subsection 8(e)(ii) which would cause an ISO to become a Non-qualified Stock Option may be made only with the consent of the Optionee. (iii) Notwithstanding anything to the contrary contained in the Plan or an Option Document, an ISO shall be treated as a Non-qualified Stock Option to the extent such ISO is exercised at any time after the expiration of the time period permitted under the Code for the exercise of an ISO. (f) Transfers. Except as otherwise provided in this Subsection 8(f), no Option granted under the Plan may be transferred. (g) Limitation on ISO Grants. To the extent that the aggregate fair market value of the shares of Common Stock (determined at the time the ISO is granted) with respect to which ISOs under all incentive stock option plans of Company or its Affiliates are exercisable for the first time by the Optionee during any calendar year exceeds $100,000, such ISOs shall, to the extent of such excess, be treated as Non-qualified Stock Options. (h) Other Provisions. Subject to the provisions of the Plan, the Option Documents shall contain such other provisions, including, without limitation, provisions authorizing the Committee to accelerate the exercisability of all or any portion of an Option granted pursuant to the Plan, additional restrictions upon the exercise of the Option or additional limitations upon the term of the Option, as the Committee deems advisable. 9. Change of Control. In the event of a Change of Control, the Committee may take whatever actions it deems necessary or desirable with respect to any of the Options outstanding or Award Shares not yet fully vested or paid for, all of which need not be treated identically, including, without limitation, accelerating (a) the expiration or termination date in the respective Option Documents to a date no earlier than thirty (30) days after notice of such acceleration is given to the Optionees, or (b) the exercisability of the Option. Notwithstanding the foregoing, in the event of a Change of Control, Options granted pursuant to the Plan will become automatically exercisable in full but only with respect to those Optionees who, in the good faith determination of the Board, are likely to have their relationship with Company or any Affiliate or successor of Company terminated (including constructive termination through a significant decrease in authority, responsibility or overall total compensation) as a result of such Change of Control. A "Change of Control" shall be deemed to have occurred upon the earliest to occur of any of the following events, each of which shall be determined independently of the others: (i) any Person (as defined below) becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under the Exchange Act, of 100 % or more (as determined by the Committee) of Company's stock entitled to vote in the election of directors. For purposes of this Plan, the term "Person" is used as such term is used in Sections 13(d) and 14(d) of the Exchange Act. (ii) individuals who are Continuing Directors cease to constitute a majority of the members of the Board ("Continuing Directors" for this purpose being the members of the Board on the date of adoption of this Plan, provided that any person becoming a member of the Board subsequent to such date whose election or nomination for election was supported by two-thirds of the directors who then comprised the Continuing Directors shall be considered to be an Continuing Director); (iii) shareholders of Company adopt a plan of complete or substantial liquidation or an agreement providing for the distribution of all or substantially all of its assets; (iv) Company is party to a merger, consolidation, other form of business combination or a sale of all or substantially all of its assets, unless the business of Company is continued following any such transaction by a resulting entity (which may be, but need not be, Company) and the shareholders of Company immediately prior to such transaction (the "Prior Shareholders") hold, directly or indirectly, at least two-thirds of the voting power of the resulting entity (there being excluded from the voting power held by the Prior Shareholders, but not from the total voting power of the resulting entity, any voting power received by Affiliates of a party to the transaction (other than Company) in their capacities as shareholders of Company) (v) there is a Change of Control of Company of a nature that would be required to be reported in response to item 1(a) of Current Report on Form 8-K or item 6(e) of Schedule 14A of Regulation 14A or any similar item, schedule or form under the Exchange Act, as in effect at the time of the change, whether or not Company is then subject to such reporting requirement; (vi) the Company is a subject of a "Rule 13e-3 transaction" as that term is defined in Exchange Act Rule 13e-3; or 10. Adjustments on Changes in Capitalization. (a) In the event that the outstanding Shares are changed by reason of a reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination or exchange of shares and the like (not including the issuance of Common Stock on the conversion of other securities of Company which are convertible into Common Stock) or dividends payable in Shares, an equitable adjustment may be made by the Committee as it deems appropriate in the aggregate number of shares available under the Plan and in the number of Shares and price per Share subject to outstanding Options. Unless the Committee makes other provisions for the equitable settlement of outstanding Options, if Company shall be reorganized, consolidated, or merged with another corporation, or if all or substantially all of the assets of Company shall be sold or exchanged, an Optionee shall at the time of issuance of the stock under such corporate event be entitled to receive, upon the exercise of his or her Option, the same number and kind of shares of stock or the same amount of property, cash or securities as the Optionee would have been entitled to receive upon the occurrence of any such corporate event as if the Optionee had been, immediately prior to such event, the holder of the number of shares covered by his or her Option. (b) Any adjustment under this Section 10 in the number of Shares subject to Options shall apply proportionately to only the unexercised portion of any Option granted hereunder. If a fraction of a Share would result from any such adjustment, the fraction shall be eliminated, unless the Committee otherwise determines. (c) The Committee shall have authority to determine the adjustments to be made under this Section, and any such determination by the Committee shall be final, binding and conclusive. 11. Stock Appreciation Rights (SARs). (a) In General. Subject to the terms and conditions of the Plan, the Committee may, in its sole and absolute discretion, grant to an Optionee the right (which right shall be referred to as an "SAR") to surrender an Option to Company, in whole or in part, and to receive in exchange therefor payment by Company of an amount equal to the excess of the Fair Market Value of the Shares subject to such Option, or portion thereof, so surrendered (determined in the manner described in section 8(b) as of the date the SARs are exercised) over the exercise price to acquire such Shares. Except as may otherwise be provided in an Option Document, such payment may be made, as determined by the Committee in accordance with Subsection 11(c) below and set forth in the Option Agreement, either in Shares or in cash or in any combination thereof. (b) Grant. Each SAR shall relate to a specific Option granted under the Plan and shall be granted to the Optionee concurrently with the grant of such Option by inclusion of appropriate provisions in the Option Agreement pertaining thereto. The number of SARs granted to an Optionee shall not exceed the number of Shares which such Optionee is entitled to purchase pursuant to the related Option. The number of SARs held by an Optionee shall be reduced by (i) the number of SARs exercised under the provisions of the Option Agreement pertaining to the related Option, and (ii) the number of Shares purchased pursuant to the exercise of the related Option. (c) Payment. The Committee shall have sole discretion to determine whether payment in respect of SARs exercised by any Optionee shall be made in shares of Common Stock, in cash, or in a combination thereof. If payment is made in Common Stock, the number of shares which shall be issued pursuant to the exercise of SARs shall be determined by dividing (i) the total number of SARs being exercised, multiplied by the amount by which the Fair Market Value (as determined under Section 8(b)) of a share of Common Stock on the exercise date exceeds the exercise price for shares covered by the related Option, by (ii) the Fair Market Value of a share of Common Stock on the exercise date of the SARs. No fractional share of Common Stock shall be issued on exercise of an SAR; cash may be paid by Company to the person exercising an SAR in lieu of any such fractional share, if the Committee so determines. If payment on exercise of an SAR is to be made in cash, the person exercising the SAR shall receive, in respect of each SAR to which such exercise relates, an amount of money equal to the difference between the Fair Market Value of a share of Common Stock on the exercise date and the then-applicable exercise price for Shares covered by the related Option. (d) Limitations. SARs shall be exercisable at such times and under such terms and conditions as the Committee, in its sole and absolute discretion, shall determine; provided, however, that an SAR may be exercised only at such times and by such individuals as the related Option may be exercised under the Plan and the Option Agreement. 12. Terms and Conditions of Awards. Awards granted pursuant to the Plan shall be evidenced by written Award Agreements in such form as the Committee shall approve from time to time, which Award Agreements shall comply with and be subject to the following terms and conditions and such other terms and conditions which the Committee shall require from time to time which are not inconsistent with the terms of the Plan. (a) Number of Shares. Each Award Agreement shall state the number of Shares or other units or rights to which it pertains. (b) Purchase Price. Each Award Agreement shall specify the purchase price, if any, which applies to the Award. If the Board specifies a purchase price, the Grantee shall be required to make payment on or before the payment date specified in the Award Agreement. A Grantee shall make payment (i) in cash, (ii) by certified check payable to the order of Company, or (iii) by such other mode of payment as the Committee may approve. (c) Grant. In the case of an Award which provides for a grant of Shares without any payment by the Grantee, the grant shall take place on the date specified in the Award Agreement. In the case of an Award which provides for a payment, the grant shall take place on the date the initial payment is delivered to Company, unless the Committee or the Award Agreement otherwise specifies. Notwithstanding the foregoing, as a precondition to a grant, Company may require an acknowledgment by the Grantee as required with respect to Options under Subsection 8(c). (d) Conditions. The Committee may specify in an Award Agreement any conditions under which the Grantee of that Award shall be required to convey to Company the Shares covered by the Award. Upon the occurrence of any such specified condition, the Grantee shall forthwith surrender and deliver to Company the certificates evidencing such Shares as well as completely executed instruments of conveyance. The Committee, in its discretion, may provide that certificates for Shares transferred pursuant to an Award be held in escrow by Company or its designee until such time as every condition has lapsed and that the Grantee be required, as a condition of the Award, to deliver to such escrow agent or Company officer stock transfer powers covering the Award Shares duly endorsed by the Grantee. Unless otherwise provided in the Award Agreement or determined by the Committee, dividends and other distributions made on Shares held in escrow shall be deposited in escrow, to be distributed to the party becoming entitled to the Shares on which the distribution was made. Stock certificates evidencing Shares subject to conditions shall bear a legend to the effect that the Shares evidenced thereby are subject to repurchase by, or conveyance to, Company in accordance with the terms applicable to such Shares under an Award made pursuant to the Plan, and that the Shares may not be sold or otherwise transferred. (e) Lapse of Conditions. Upon termination or lapse of all forfeiture conditions, Company shall cause certificates without the legend referring to Company's repurchase or acquisition right (but with any other legends that may be appropriate) evidencing the Shares covered by the Award to be issued to the Grantee upon the Grantee's surrender to Company of the legended certificates held by the Grantee. (f) Rights as Shareholder. Upon payment of the purchase price, if any, for Shares covered by an Award and compliance with the acknowledgment requirement of subsection 12(c), the Grantee shall have all of the rights of a shareholder with respect to the Shares covered thereby, including the right to vote the Shares and (subject to the provisions of Subsection 12(d)) receive all dividends and other distributions paid or made with respect thereto, except to the extent otherwise provided by the Committee or in the Award Agreement. 13. Amendment of the Plan. The Board may amend the Plan from time to time in such manner as it may deem advisable. Nevertheless, the Board may not change the class of persons eligible to receive an ISO or increase the maximum number of Shares as to which Options may be granted under the Plan, or to any individual under the Plan in any year, without obtaining approval, within twelve months before or after such action, by the shareholders in the manner required by state law. No amendment to the Plan shall adversely affect any outstanding Option or Award, however, without the consent of the Optionee or Grantee, as the case may be. 14. No Commitment to Retain. The grant of an Option or Award pursuant to the Plan shall not be construed to imply or to constitute evidence of any agreement, express or implied, on the part of Company or any Affiliate to retain the Optionee or Grantee as an employee, director, consultant or advisor of Company or any Affiliate, or in any other capacity. 15. Withholding of Taxes. In connection with any event relating to an Option or Award, Company shall have the right to (a) require the recipient to remit or otherwise make available to Company an amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery or transfer of any certificates for such Shares, or (b) take whatever other action it deems necessary to protect its interests with respect to tax liabilities, including, without limitation, withholding any Shares, funds or other property otherwise due to the Optionee or Grantee. The Company's obligations under the Plan shall be conditioned on the Optionee's or Grantee's compliance, to Company's satisfaction, with any withholding requirement. EX-10.2 7 j9249402ex10-2.txt PRINTCAFE, INC. 2000 STOCK INCENTIVE PLAN EXHIBIT 10.2 PRINTCAFE, INC. 2000 STOCK INCENTIVE PLAN EFFECTIVE AS OF FEBRUARY 10, 2000 TABLE OF CONTENTS
Page ---- SECTION 1. INTRODUCTION...........................................................1 SECTION 2. DEFINITIONS............................................................1 (a) "Affiliate"...........................................................1 (b) "Award"...............................................................1 (c) "Board"...............................................................1 (d) "Change In Control"...................................................1 (e) "Code"................................................................2 (f) "Committee"...........................................................2 (g) "Common Stock"........................................................2 (h) "Company".............................................................2 (i) "Consultant"..........................................................3 (j) "Director"............................................................3 (k) "Disability"..........................................................3 (l) "Employee"............................................................3 (m) "Exchange Act"........................................................3 (n) "Exercise Price"......................................................3 (o) "Fair Market Value"...................................................3 (p) "Grant"...............................................................3 (q) "Incentive Stock Option" or "ISO".....................................4 (r) "Key Employee"........................................................4 (s) "Non-Employee Director"...............................................4 (t) "Nonstatutory Stock Option" or "NSO"..................................4 (u) "Option"..............................................................4 (v) "Optionee"............................................................4 (w) "Parent"..............................................................4 (x) "Participant".........................................................4 (y) "Plan"................................................................4 (z) "Restricted Stock"....................................................4 (aa) "Restricted Stock Agreement"..........................................4 (bb) "SAR Agreement".......................................................4 (cc) "Securities Act"......................................................4 (dd) "Service".............................................................4
-i- (ee) "Share"...............................................................4 (ff) "Stock Appreciation Right" or "SAR"...................................4 (gg) "Stock Option Agreement"..............................................4 (hh) "Stock Unit"..........................................................5 (ii) "Stock Unit Agreement"................................................5 (jj) "Subsidiary"..........................................................5 (kk) "10-Percent Shareholder"..............................................5 SECTION 3. ADMINISTRATION.........................................................5 (a) Committee Composition.................................................5 (b) Authority of the Committee............................................6 (c) Indemnification.......................................................6 SECTION 4. ELIGIBILITY............................................................6 (a) General Rules.........................................................6 (b) Incentive Stock Options...............................................6 (c) Non-Employee Director Options.........................................6 SECTION 5. SHARES SUBJECT TO PLAN.................................................7 (a) Basic Limitation......................................................7 (b) Additional Shares.....................................................7 (c) Dividend Equivalents..................................................7 (d) Limits on Options and SARs............................................7 (e) Limits on Restricted Stock............................................8 SECTION 6. TERMS AND CONDITIONS OF OPTIONS........................................8 (a) Stock Option Agreement................................................8 (b) Number of Shares......................................................8 (c) Exercise Price........................................................8 (d) Exercisability and Term...............................................8 (e) Modifications or Assumption of Options................................8 (f) Transferability of Options............................................9 (g) No Rights as Stockholder..............................................9 (h) Restrictions on Transfer..............................................9 SECTION 7. PAYMENT FOR OPTION SHARES..............................................9 (a) General Rule..........................................................9
-ii- (b) Surrender of Stock....................................................9 (c) Promissory Note.......................................................9 (d) Other Forms of Payment...............................................10 SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS.................................................................10 (a) Time, Amount and Form of Awards......................................10 (b) Agreements...........................................................10 (c) Payment for Restricted Stock or Stock Unit Awards....................10 (d) Form and Time of Settlement of Stock Units...........................10 (e) Vesting Conditions...................................................10 (f) Assignment or Transfer of Restricted Stock or Stock Units............10 (g) Death of Stock Units Recipient.......................................11 (h) Trusts...............................................................11 (i) Voting and Dividend Rights...........................................11 (j) Stock Units Voting and Dividend Rights...............................11 (k) Creditors' Rights....................................................11 SECTION 9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.....................12 (a) SAR Agreement...............................................................12 (b) Number of Shares............................................................12 (c) Exercise Price..............................................................12 (d) Exercisability and Term.....................................................12 (e) Exercise of SARs............................................................12 (f) Modification or Assumption of SARs..........................................12 SECTION 10. PROTECTION AGAINST DILUTION...........................................13 (a) Adjustments..........................................................13 (b) Participant Rights...................................................13 SECTION 11. EFFECT OF A CHANGE IN CONTROL.........................................13 (a) Merger or Reorganization.............................................13 (b) Acceleration.........................................................13 SECTION 12. LIMITATIONS ON RIGHTS.................................................14 (a) Retention Rights.....................................................14 (b) Stockholders' Rights.................................................14
-iii- (c) Regulatory Requirements..............................................14 SECTION 13. WITHHOLDING TAXES.....................................................14 (a) General..............................................................14 (b) Share Withholding....................................................14 SECTION 14. DURATION AND AMENDMENTS...............................................14 (a) Term of the Plan.....................................................14 (b) Right to Amend or Terminate the Plan.................................15 SECTION 15. EXECUTION.............................................................15
-iv- PRINTCAFE, INC. 2000 STOCK INCENTIVE PLAN EFFECTIVE AS OF FEBRUARY 10, 2000 SECTION 1. INTRODUCTION. The Company's Board of Directors adopted the printCafe, Inc. 2000 Stock Incentive Plan on February 10, 2000 (the "Adoption Date"), and the Company's stockholders approved the Plan on [APPROVAL DATE]. The Plan is effective on the Adoption Date. The purpose of the Plan is to promote the long-term success of the Company and the creation of shareholder value by offering Key Employees an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, and to encourage such selected persons to continue to provide services to the Company and to attract new individuals with outstanding qualifications. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Stock, Stock Units, Stock Appreciation Rights and Options (which may constitute Incentive Stock Options or Nonstatutory Stock Options). The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except its choice-of-law provisions). Capitalized terms shall have the meaning provided in Section 2 unless otherwise provided in this Plan or Stock Option Agreement, SAR Agreement, Stock Unit Agreement or Restricted Stock Agreement. SECTION 2. DEFINITIONS. (a) "AFFILIATE" means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity. For purposes of determining an individual's "Service," this definition shall include any entity other than a Subsidiary, if the Company, a Parent and/or one or more Subsidiaries own not less than 50% of such entity. (b) "AWARD" means any award of an Option, SAR, Stock Unit or Restricted Stock under the Plan. (c) "BOARD" means the Board of Directors of the Company, as constituted from time to time. (d) "CHANGE IN CONTROL" except as may otherwise be provided in a Stock Option Agreement, SAR Agreement, Stock Unit Agreement or Restricted Stock Agreement, means the occurrence of any of the following: (i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (ii) The sale, transfer or other disposition of all or substantially all of the Company's assets; (iii) A change in the composition of the Board, as a result of which fewer that one-half of the incumbent directors are directors who either (i) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the "original directors") or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; (iv) Any transaction as a result of which any person becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 20% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this Paragraph (iii), the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude: (A) A trustee or other fiduciary holding securities under an employee benefit plan of the Company or a subsidiary of the Company; (B) A corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company; and (C) The Company; or (v) A complete liquidation or dissolution of the Company. (e) "CODE" means the Internal Revenue Code of 1986, as amended. (f) "COMMITTEE" means a committee consisting of one or more members of the Board that is appointed by the Board (as described in Section 3) to administer the Plan. (g) "COMMON STOCK" means the Company's common stock. (h) "COMPANY" means printCafe, Inc., a Delaware corporation. 2 (i) "CONSULTANT" means an individual who performs bona fide services to the Company, a Parent, a Subsidiary or an Affiliate other than as an Employee or Director or Non-Employee Director. (j) "DIRECTOR" means a member of the Board who is also an Employee. (k) "DISABILITY" means that the Key Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. (l) "EMPLOYEE" means any individual who is a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate. (m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (n) "EXERCISE PRICE" means, in the case of an Option, the amount for which a Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. "Exercise Price," in the case of a SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of a Share in determining the amount payable upon exercise of such SAR. (o) "FAIR MARKET VALUE" means the market price of Shares, determined by the Committee as follows: (i) If the Shares were traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the last trading price reported by the applicable composite transactions report for such date; (ii) If the Shares were traded over-the-counter on the date in question and were classified as a national market issue, then the Fair Market Value shall be equal to the last trading price quoted by the NASDAQ system for such date; (iii) If the Shares were traded over-the-counter on the date in question but were not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the NASDAQ system for such date; and (iv) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in the Wall Street Journal. Such determination shall be conclusive and binding on all persons. (p) "GRANT" means any grant of an Award under the Plan. 3 (q) "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock option described in Code section 422(b). (r) "KEY EMPLOYEE" means an Employee, Director, Non-Employee Director or Consultant who has been selected by the Committee to receive an Award under the Plan. (s) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an Employee. (t) "NONSTATUTORY STOCK OPTION" or "NSO" means a stock option that is not an ISO. (u) "OPTION" means an ISO or NSO granted under the Plan entitling the Optionee to purchase Shares. (v) "OPTIONEE" means an individual, estate or other entity that holds an Option. (w) "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date. (x) "PARTICIPANT" means an individual or estate or other entity that holds an Award. (y) "PLAN" means this printCafe, Inc. 2000 Stock Incentive Plan as it may be amended from time to time. (z) "RESTRICTED STOCK" means a Share awarded under the Plan. (aa) "RESTRICTED STOCK AGREEMENT" means the agreement described in Section 8 evidencing each Award of Restricted Stock. (bb) "SAR AGREEMENT" means the agreement described in Section 9 evidencing each Award of a Stock Appreciation Right. (cc) "SECURITIES ACT" means the Securities Act of 1933, as amended. (dd) "SERVICE" means service as an Employee, Director, Non-Employee Director or Consultant. (ee) "SHARE" means one share of Common Stock. (ff) "STOCK APPRECIATION RIGHT" OR "SAR" means a stock appreciation right awarded under the Plan. (gg) "STOCK OPTION AGREEMENT" means the agreement described in Section 6 evidencing each Grant of an Option. 4 (hh) "STOCK UNIT" means a bookkeeping entry representing the equivalent of a Share, as awarded under the Plan. (ii) "STOCK UNIT AGREEMENT" means the agreement described in Section 8 evidencing each Award of Stock Units. (jj) "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. (kk) "10-PERCENT SHAREHOLDER" means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its subsidiaries. In determining stock ownership, the attribution rules of section 424(d) of the Code shall be applied. SECTION 3. ADMINISTRATION. (a) COMMITTEE COMPOSITION. A Committee appointed by the Board shall administer the Plan. The Board shall designate one of the members of the Committee as chairperson. If no Committee has been approved, the entire Board shall constitute the Committee. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee. With respect to officers or directors subject to Section 16 of the Exchange Act, the Committee shall consist of those individuals who shall satisfy the requirements of Rule 16b-3 (or its successor) under the Exchange Act with respect to Awards granted to persons who are officers or directors of the Company under Section 16 of the Exchange Act. Notwithstanding the previous sentence, failure of the Committee to satisfy the requirements of Rule 16b-3 shall not invalidate any Awards granted by such Committee. The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not qualify under Rule 16b-3, who may administer the Plan with respect to Key Employees who are not considered officers or directors of the Company under Section 16 of the Exchange Act, may grant Awards under the Plan to such Key Employees and may determine all terms of such Awards. Notwithstanding the foregoing, the Board shall constitute the Committee and shall administer the Plan with respect to all Awards granted to Non-Employee Directors. 5 (b) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. Such actions shall include: (i) selecting Key Employees who are to receive Awards under the Plan; (ii) determining the type, number, vesting requirements and other features and conditions of such Awards; (iii) interpreting the Plan; and (iv) making all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines, as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. (c) INDEMNIFICATION. Each member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Stock Option Agreement, SAR Agreement, Stock Unit Agreement or Restricted Stock Agreement, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless. SECTION 4. ELIGIBILITY. (a) GENERAL RULES. Only Employees, Directors, Non-Employee Directors and Consultants shall be eligible for designation as Key Employees by the Committee. (b) INCENTIVE STOCK OPTIONS. Only Key Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Employee who is a 10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(5) of the Code are satisfied. (c) NON-EMPLOYEE DIRECTOR OPTIONS. Non-Employee Directors shall also be eligible to receive Options as described in this Section 4(c) from and after the date the Board has determined to implement this provision. 6 (i) Each eligible Non-Employee Director shall automatically be granted an NSO to purchase 15,000 Shares (subject to adjustment under Section 9) as a result of his or her initial election or appointment as a Non-Employee Director. Upon the conclusion of each regular annual meeting of the Company's stockholders following his or her initial appointment, each eligible Non-Employee Director who will continue serving as a member of the Board thereafter shall receive an NSO to purchase 3,750 Shares (subject to adjustment under Section 9). All NSOs granted pursuant to this Section 4 shall vest and become exercisable one year from the date of grant, provided the individual is serving as a director of the Company as of the vesting date. (ii) All NSOs granted to Non-Employee Director under this Section 4(c) shall become exercisable in full in the event of Change in Control with respect to the Company. (iii) The Exercise Price under all NSOs granted to a Non-Employee Director under this Section 4(c) shall be equal to one hundred percent (100%) of the Fair Market Value of a Share of Common Stock on the date of grant, payable in one of the forms described in Section 7. (iv) All NSOs granted to a Non-Employee Director under this Section 4(c) shall terminate on the earlier of: (1) The 10th anniversary of the date of grant; or (2) The date ninety (90) days after the termination of such Non-Employee Director's service for any reason. SECTION 5. SHARES SUBJECT TO PLAN. (a) BASIC LIMITATION. The stock issuable under the Plan shall be authorized but unissued Shares or treasury Shares. The aggregate number of Shares reserved for Awards under the Plan shall not exceed 10,000,000. (b) ADDITIONAL SHARES. If Awards are forfeited or terminate for any other reason before being exercised, then the Shares underlying such Awards shall again become available for Awards under the Plan. If SARs are exercised, then only the number of Shares (if any) actually issued in settlement of such SARs shall reduce the number available under Section 5(a) and the balance shall again become available for Awards under the Plan. (c) DIVIDEND EQUIVALENTS. Any dividend equivalents distributed under the Plan shall not be applied against the number of Shares available for Awards whether or not such dividend equivalents are converted into Stock Units. (d) LIMITS ON OPTIONS AND SARS. No Key Employee shall receive Options to purchase Shares and/or SARs during any fiscal year covering in excess of 1,250,000 Shares. 7 (e) LIMITS ON RESTRICTED STOCK AND STOCK UNITS. No Key Employee shall receive Award(s) of Restricted Stock and/or Stock Units during any fiscal year covering in excess of 125,000 Shares. SECTION 6. TERMS AND CONDITIONS OF OPTIONS. (a) STOCK OPTION AGREEMENT. Each Grant under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. A Stock Option Agreement may provide that new Options will be granted automatically to the Optionee when he or she exercises the prior Options. The Stock Option Agreement shall also specify whether the Option is an ISO or an NSO. (b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 9. (c) EXERCISE PRICE. An Option's Exercise Price shall be established by the Committee and set forth in a Stock Option Agreement. To the extent required by applicable law the Exercise Price of an ISO shall not be less than 100% of the Fair Market Value (110% for 10-Percent Shareholders) of a Share on the date of Grant. In the case of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding. (d) EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed ten (10) years from the date of Grant. An ISO that is granted to a 10-Percent Shareholder shall have a maximum term of five (5) years. No Option can be exercised after the expiration date provided in the applicable Stock Option Agreement. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. A Stock Option Agreement may permit an Optionee to exercise an Option before it is vested, subject to the Company's right of repurchase over any Shares acquired under the unvested portion of the Option (an "early exercise"), which right of repurchase shall lapse at the same rate the Option would have vested had there been no early exercise. In no event shall the Company be required to issue fractional Shares upon the exercise of an Option. (e) MODIFICATIONS OR ASSUMPTION OF OPTIONS. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another 8 issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. (f) TRANSFERABILITY OF OPTIONS. Except as otherwise provided in the applicable Stock Option Agreement and then only to the extent permitted by applicable law, no Option shall be transferable by the Optionee other than by will or by the laws of descent and distribution. Except as otherwise provided in the applicable Stock Option Agreement, an Option may be exercised during the lifetime of the Optionee only or by the guardian or legal representative of the Optionee. No Option or interest therein may be assigned, pledged or hypothecated by the Optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. (g) NO RIGHTS AS STOCKHOLDER. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Common Stock covered by an Option until such person becomes entitled to receive such Common Stock by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option. (h) RESTRICTIONS ON TRANSFER. Any Shares issued upon exercise of an Option shall be subject to such rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall apply in addition to any restrictions that may apply to holders of Shares generally and shall also comply to the extent necessary with applicable law. SECTION 7. PAYMENT FOR OPTION SHARES. (a) GENERAL RULE. The entire Exercise Price of Shares issued upon exercise of Options shall be payable in cash at the time when such Shares are purchased, except as follows: (i) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Section 7. (ii) In the case of an NSO granted under the Plan, the Committee may in its discretion, at any time accept payment in any form(s) described in this Section 7. (b) SURRENDER OF STOCK. To the extent that this Section 7(b) is applicable, payment for all or any part of the Exercise Price may be made with Shares which have already been owned by the Optionee for such duration as shall be specified by the Committee. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. (c) PROMISSORY NOTE. To the extent that this Section 7(c) is applicable, payment for all or any part of the Exercise Price may be made with a full-recourse promissory note. 9 (d) OTHER FORMS OF PAYMENT. To the extent that this Section 7(d) is applicable, payment may be made in any other form that is consistent with applicable laws, regulations and rules. SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS. (a) TIME, AMOUNT AND FORM OF AWARDS. Awards under this Section 8 may be granted in the form of Restricted Stock in the form of Stock Units, or in any combination of both. Restricted Stock or Stock Units may also be awarded in combination with NSOs or SARs, and such an Award may provide that the Restricted Stock or Stock Units will be forfeited in the event that the related NSOs or SARs are exercised. (b) AGREEMENTS. Each Award of Restricted Stock or Stock Units under the Plan shall be evidenced by a Restricted Stock Agreement or Stock Unit Agreement between the Participant and the Company. Such Awards shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in the applicable Agreement. The provisions of the various Agreements entered into under the Plan need not be identical. (c) PAYMENT FOR RESTRICTED STOCK OR STOCK UNIT AWARDS. Restricted Stock or Stock Units may be issued with or without cash consideration under the Plan. (d) FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested Stock Units may be made in the form of (i) cash, (ii) Shares or (iii) any combination of both. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 10. (e) VESTING CONDITIONS. Each Award of Restricted Stock or Stock Units shall become vested, in full or in installments, upon satisfaction of the conditions specified in the applicable Agreement. An Agreement may provide for accelerated vesting in the event of the Participant's death, Disability or retirement or other events. (f) ASSIGNMENT OR TRANSFER OF RESTRICTED STOCK OR STOCK UNITS. Except as provided in Section 13, or in a Restricted Stock Agreement or Stock Unit Agreement, or as required by applicable law, a Restricted Stock or Stock Unit Award granted under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor's process, whether voluntarily, involuntarily or by operation of 10 law. Any act in violation of this Section 8(f) shall be void. However, this Section 8(f) shall not preclude a Participant from designating a beneficiary who will receive any outstanding Restricted Stock or Stock Unit Awards in the event of the Participant's death, nor shall it preclude a transfer of Restricted Stock or Stock Unit Awards by will or by the laws of descent and distribution. (g) DEATH OF STOCK UNITS RECIPIENT. Any Stock Units Award that becomes payable after the Award recipient's death shall be distributed to the recipient's beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the recipient's death. If no beneficiary was designated or if no designated beneficiary survives the recipient, then any Stock Units Award that becomes payable after the recipient's death shall be distributed to the recipient's estate. (h) TRUSTS. Neither this Section 8 nor any other provision of the Plan shall preclude a Participant from transferring or assigning Restricted Stock to (a) the trustee of a trust that is revocable by such Participant alone, both at the time of the transfer or assignment and at all times thereafter prior to such Participant's death, or (b) the trustee of any other trust to the extent approved in advance by the Committee in writing. A transfer or assignment of Restricted Stock from such trustee to any person other than such Participant shall be permitted only to the extent approved in advance by the Committee in writing, and Restricted Stock held by such trustee shall be subject to all of the conditions and restrictions set forth in the Plan and in the applicable Restricted Stock Agreement, as if such trustee were a party to such Agreement. (i) VOTING AND DIVIDEND RIGHTS. The holders of Restricted Stock awarded under the Plan shall have the same voting, dividend and other rights as the Company's other stockholders. A Restricted Stock Agreement, however, may require that the holders of Restricted Stock invest any cash dividends received in additional Restricted Stock. Such additional Restricted Stock shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid. Such additional Restricted Stock shall not reduce the number of Shares available under Section 5. (j) STOCK UNITS VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee's discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions as the Stock Units to which they attach. (k) CREDITORS' RIGHTS. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured 11 obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement. SECTION 9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. (a) SAR AGREEMENT. Each Award of a SAR under the Plan shall be evidenced by a SAR Agreement between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical. SARs may be granted in consideration of a reduction in the Optionee's other compensation. (b) NUMBER OF SHARES. Each SAR Agreement shall specify the number of Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Section 10. (c) EXERCISE PRICE. Each SAR Agreement shall specify the Exercise Price. A SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding. (d) EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR. A SAR Agreement may provide for accelerated exercisability in the event of the Optionee's death, Disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's Service. SARs may also be awarded in combination with Options, Restricted Stock or Stock Units, and such an Award may provide that the SARs will not be exercisable unless the related Options, Restricted Stock or Stock Units are forfeited. A SAR may be included in an ISO only at the time of Grant but may be included in an NSO at the time of Grant or at any subsequent time, but not later than six months before the expiration of such NSO. A SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control. (e) EXERCISE OF SARS. If, on the date when a SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with respect to such portion. Upon exercise of a SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (i) Shares, (ii) cash or (iii) a combination of Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price. (f) MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) 12 in return for the grant of new SARs for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of a SAR shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such SAR. SECTION 10. PROTECTION AGAINST DILUTION. (a) ADJUSTMENTS. In the event of a subdivision of the outstanding Shares, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, reorganization, merger, liquidation, spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its reasonable discretion, deems appropriate in order to prevent the dilution or enlargement of rights hereunder in one or more of: (i) the number of Shares available for future Awards and the per person Share limits under Section 5; (ii) the number of Shares covered by each outstanding Award; or (iii) the Exercise Price under each outstanding SAR or Option. (b) PARTICIPANT RIGHTS. Except as provided in this Section 10, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. SECTION 11. EFFECT OF A CHANGE IN CONTROL. (a) MERGER OR REORGANIZATION. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for their cancellation with or without consideration. (b) ACCELERATION. The Committee may determine, at the time of granting an Award or thereafter, that such Award shall become fully vested as to all Shares subject to such Award in the event that a Change in Control occurs with respect to the Company. 13 SECTION 12. LIMITATIONS ON RIGHTS. (a) RETENTION RIGHTS. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an employee, consultant or director of the Company, a Parent, a Subsidiary or an Affiliate. The Company and its Parents and Subsidiaries and Affiliates reserve the right to terminate the Service of any person at any time, and for any reason, subject to applicable laws, the Company's Certificate of Incorporation and Bylaws and a written employment agreement (if any). (b) STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Shares covered by his or her Award prior to the issuance of a stock certificate for such Shares. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Section 10. (c) REGULATORY REQUIREMENTS. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. SECTION 13. WITHHOLDING TAXES. (a) GENERAL. A Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with his or her Award. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied. (b) SHARE WITHHOLDING. If a public market for the Company's Shares exists, the Committee may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously acquired. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the Securities and Exchange Commission. SECTION 14. DURATION AND AMENDMENTS. (a) TERM OF THE PLAN. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board, subject to the approval of the Company's stockholders. No Options or SARs shall be exercisable until such stockholder approval is obtained. In the event that the stockholders fail to approve the Plan within twelve (12) months after its 14 adoption by the Board, any Awards made shall be null and void and no additional Awards shall be made. To the extent required by applicable law, the Plan shall terminate on the date that is ten (10) years after its adoption by the Board and may be terminated on any earlier date pursuant to Section 14(b). (b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend or terminate the Plan at any time and for any reason. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan. No Awards shall be granted under the Plan after the Plan's termination. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by applicable laws, regulations or rules. SECTION 15. EXECUTION. To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to execute this Plan on behalf of the Company. PRINTCAFE, INC. By /s/ Marc D. Olin ------------------------- Title President 15 EX-10.3 8 j9249402ex10-3.txt 2002 KEY EXECUTIVE STOCK INCENTIVE PLAN Exhibit 10.3 PRINTCAFE SOFTWARE, INC. 2002 EMPLOYEE STOCK PURCHASE PLAN PRINTCAFE SOFTWARE, INC. 2002 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the Printcafe Software, Inc. 2002 Employee Stock Purchase Plan: I. PURPOSE AND HISTORY 1.1 The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the Company's intention that the Plan qualify as an "Employee Stock Purchase Plan" under Code Section 423. Accordingly, the provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that Code section and any regulations or rulings thereunder. II. DEFINITIONS The following words and phrases, when used in this Plan, unless their context clearly indicates otherwise, shall have the following meanings: 2.1 "ADMINISTRATOR" means any individual(s), committee or entity appointed by the Board, which such authority and power as the Board may determine, to administer the terms of the Plan. The Administrator may, in turn, delegate all or a portion of its authority to one or more individuals to perform administrative functions under the Plan. If the Board does not appoint an Administrator, then references to "Administrator" in this Plan shall be deemed references to the Board. 2.2 "BOARD" means the Company's Board of Directors. 2.3 "BUSINESS DAY" means a day on which national securities exchanges and the Nasdaq System are open for trading. 2.4 "CHANGE IN CONTROL" means the occurrence of any of the following events: (i) a dissolution or liquidation of the Company; (ii) any sale or transfer of all or substantially all of the total assets of the Company; (iii) any merger, consolidation or other business reorganization in which the holders of the Company's outstanding voting securities immediately prior to such transaction do not hold, immediately following such transaction, securities representing fifty percent (50%) or more of the combined voting power of the outstanding securities of the surviving entity; or (iv) the acquisition by any person (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) (other than the Company, or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act) or employee benefit plan of the Company), of beneficial ownership (within the meaning of Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company. Notwithstanding anything in the preceding sentence, the acquisition by Creo SRL or its affiliates of beneficial ownership of securities representing less than one hundred percent (100%) of the total combined voting power of the outstanding securities of the Company shall not be deemed a Change in Control. 2.5 "CODE" means the Internal Revenue Code of 1986, as amended. 2.6 "COMMON STOCK" means the Company's common stock, par value $0.0001 per share. 2.7 "COMPANY" means Printcafe Software, Inc., a Delaware corporation. 2.8 "COMPENSATION" means all cash compensation paid to an Employee by the Company and includes commissions, bonuses, overtime, incentive compensation, incentive payments and any other forms of cash compensation as determined by the Administrator. 2.9 "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator; provided, that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) transfers between locations of the Company or between the Company and its Designated Subsidiaries. 2.10 "CONTRIBUTIONS" means all amounts credited to the account of a participant pursuant to the Plan. 2.11 "DESIGNATED SUBSIDIARIES" means the Subsidiaries that have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan (as set forth on Appendix A); provided, however, that the Board shall only have the discretion to designate a Subsidiary if the issuance of options to such Subsidiary's Employees under the Plan would not cause the Company to incur adverse accounting charges or cause the Plan not to qualify under Code Section 423. 2.12 "EMPLOYEE" means any person, including an Officer, who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. 2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 2.14 "FAIR MARKET VALUE" of stock (including Common Stock) on a particular date means (i) if the principal securities market on which the stock is traded is a national securities exchange or The Nasdaq National Market ("NNM"), except as otherwise provided in Section 2 11.1, the closing price of the stock on such date on such exchange or NNM, as the case may be, or if no sale of the stock shall have occurred on such date, on the next preceding date on which there was a reported sale; (ii) if the stock is not traded on a national securities exchange or NNM, except as otherwise provided in Section 11.1, the closing price on such date as reported by The Nasdaq SmallCap Market, or if no sale of the stock shall have occurred on such date, on the next preceding date on which there was a reported sale; (iii) if the principal securities market on which the stock is traded is not a national securities exchange, NNM or The Nasdaq SmallCap Market, the average of the bid and asked prices reported by the National Quotation Bureau, Inc.; or (iv) if the price of the stock is not so reported, the fair market value of the stock as determined in good faith by the Board. 2.15 "OFFERING DATE" means the first Business Day of each Offering Period of the Plan. 2.16 "OFFERING PERIOD" means a period of twenty-four (24) months commencing on May 1 and November 1 of each year, except for the first Offering Period as set forth in Section 4.1. 2.17 "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. 2.18 "PLAN" means the Printcafe Software, Inc. Employee Stock Purchase Plan. 2.19 "PURCHASE DATE" means the last Business Day of each Purchase Period of the Plan. 2.20 "PURCHASE PERIOD" means a period of six (6) months within an Offering Period, except for the first Purchase Period as set forth in Section 4.2. 2.21 "PURCHASE PRICE" means with respect to a Purchase Period an amount equal to eighty-five percent (85%) of the Fair Market Value of a Share on the Offering Date or on the Purchase Date, whichever is lower; provided, however, that in the event (i) there is any increase in the number of Shares available for issuance under the Plan (including without limitation an automatic increase pursuant to Section 13.1 below or as a result of a stockholder-approved amendment to the Plan), (ii) all or a portion of such additional Shares are to be issued with respect to one or more Offering Periods that are underway at the time of such increase ("Additional Shares"), and (iii) the Fair Market Value of a Share on the date of such increase (the "Approval Date Fair Market Value") is higher than the Fair Market Value on the Offering Date for any such Offering Period, then in such instance the Purchase Price with respect to Additional Shares shall be eighty-five percent (85%) of the Approval Date Fair Market Value or the Fair Market Value of a Share on the Purchase Date, whichever is lower. 2.22 "SHARE" means a share of Common Stock, as adjusted in accordance with Article 19 of the Plan. 2.23 "SUBSIDIARY" means a corporation, domestic or foreign, of which not less than fifty percent (50%) of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3 III. ELIGIBILITY 3.1 ELIGIBLE EMPLOYEES. Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5.1 and the limitations imposed by Code Section 423(b); provided, however, that eligible Employees may not participate in more than one Offering Period at a time. 3.2 EXCLUDED EMPLOYEES. Notwithstanding any Plan provisions to the contrary, no Employee shall be granted an option under the Plan if: (i) immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Code Section 424(d)) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary corporation (as defined in Code Section 424(f)); or (ii) such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Code Section 423) of the Company and its Subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of the Fair Market Value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. IV. OFFERING PERIODS AND PURCHASE PERIODS 4.1 OFFERING PERIODS. The Plan shall be implemented by a series of Offering Periods of twenty-four (24) months' duration, with new Offering Periods commencing on or about November 1 and May 1 of each year (or at such other time or times as may be determined by the Board). The first Offering Period shall commence on the effective date of the Registration Statement on Form S-1 for the initial public offering of the Company's Common Stock (the "IPO Date") and continue until April 30, 2004. The Board shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected. 4.2 PURCHASE PERIODS. Each Offering Period (other than the first) shall consist of four (4) consecutive Purchase Periods of six (6) months' duration. The first Offering Period shall consist of four (4) consecutive Purchase Periods; the first Purchase Period shall commence on the IPO Date and shall end on October 31, 2002, and the next three (3) Purchase Periods shall be of six (6) months' duration, with the fourth Purchase Period ending on April 30, 2004. The last day of each Purchase Period (or, if such day is not a Business Day, the immediately preceding Business Day) shall be the Purchase Date for such Purchase Period. A Purchase Period commencing on November 1 shall end on the next April 30. A Purchase Period commencing on May 1 shall end on the next October 31. The Board shall have the power to change the duration and/or frequency of Purchase Periods with respect to future purchases without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Purchase Period to be affected. 4 V. PARTICIPATION 5.1 EMPLOYEE PARTICIPATION. An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided by the Company and filing it with the Administrator prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Administrator for all eligible Employees with respect to a given Offering Period. The subscription agreement shall set forth the percentage of a participant's Compensation (subject to Section 6.1 below) to be paid as Contributions under the Plan. 5.2 PAYROLL DEDUCTIONS. Payroll deductions shall commence as of the first payroll following the Offering Date (or as soon as administratively practicable thereafter) and shall end on the last payroll paid on or prior to the last Purchase Date of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10. VI. METHOD OF PAYMENT OF CONTRIBUTIONS 6.1 AMOUNT OF PAYROLL DEDUCTIONS. A participant shall elect to have payroll deductions made on each pay date during the Offering Period in an amount not less than one percent (1%) and not more than fifteen percent (15%) (or such lesser or greater percentage as the Board may establish from time to time before an Offering Date) of such participant's Compensation during the Offering Period (with such deductions to be made ratably on each applicable pay date during the Offering Period, except as otherwise permitted by the Administrator in its discretion). All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account. 6.2 CHANGE AND DISCONTINUATION OF PAYROLL DEDUCTION ELECTION. A participant may discontinue his or her participation in the Plan as provided in Article 10, or, on one occasion only during an Offering Period may increase and on one occasion only during such Offering Period may decrease the rate of his or her Contributions with respect to the remainder of such Offering Period by completing and filing a new subscription agreement with the Administrator. Any such change in the payroll deduction rate shall be effective as soon as administratively practicable after the Administrator receives the new subscription agreement from the participant. 6.3 LIMIT ON PAYROLL DEDUCTIONS. Notwithstanding the foregoing, to the extent necessary to comply with Code Section 423(b)(8) and Section 3.2 herein, a participant's payroll deductions may be decreased during any Offering Period scheduled to end during the current calendar year to zero percent (0%) at such time that the aggregate of all payroll deductions accumulated with respect to such Offering Period and any other Offering Period ending within the same calendar year equal $21,250. Payroll deductions shall resume at the elected rate set forth in such participant's subscription agreement at the beginning of the first Offering Period that is scheduled to end in the following calendar year, unless terminated by the participant as provided in Article 10. 5 VII. GRANT OF OPTION 7.1 GRANT OF OPTION. On each Offering Date, each eligible Employee participating in such Offering Period shall be granted an option to purchase a number of Shares as determined by dividing such Employee's Contributions accumulated prior to each Purchase Date during the Offering Period and retained in the participant's account as of the Purchase Date by the applicable Purchase Price. No participant shall be permitted to purchase more than 250,000 Shares under the Plan; provided, however, that the Board may impose a lower limit on the number of Shares a participant may purchase under the Plan at any time; provided, further, that such purchase shall be subject to the limitations set forth in Section 3.2 and Article 13. VIII. EXERCISE OF OPTION 8.1 EXERCISE OF OPTION. Unless a participant withdraws from the Plan as provided in Article 10, his or her option for the purchase of Shares will be exercised automatically on each Purchase Date of an Offering Period, and the maximum number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account. No fractional Shares shall be issued under the Plan. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant's option to purchase Shares hereunder is exercisable only by him or her. IX. DELIVERY 9.1 DELIVERY OF SHARES. As soon as administratively practicable after each Purchase Date of each Offering Period, the Administrator shall arrange the delivery to each participant, as appropriate, of a certificate representing the Shares purchased upon exercise of his or her option. As an alternative, the Administrator may make arrangements with a brokerage firm to establish a brokerage account for each participant, to which Shares purchased for the participant upon exercise of his or her option shall be credited and held for the participant. Any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full Share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Article 10 below. Any other amounts left over in a participant's account after a Purchase Date shall be returned to the participant. X. WITHDRAWAL AND TERMINATION OF EMPLOYMENT 10.1 VOLUNTARY WITHDRAWAL OF PARTICIPATION. A participant may withdraw all Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Administrator (partial withdrawals are not permitted). All of the participant's Contributions credited to his or her account will be paid to him or her as soon as administratively practicable after receipt of his or her withdrawal notice and his or her option for the current period will be automatically terminated. In addition, no further Contributions for the purchase of Shares will be made during the Offering Period on the participant's behalf. 10.2 WITHDRAWAL UPON TERMINATION OF EMPLOYMENT. Upon termination of the participant's Continuous Status as an Employee prior to the Purchase Date of an Offering Period 6 for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Article 14, and his or her option will terminate automatically. 10.3 INVOLUNTARY WITHDRAWAL OF PARTICIPATION. In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week and more than five (5) months in a calendar year during an Offering Period in which the Employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option will be terminated. 10.4 EFFECT OF WITHDRAWAL. A participant's withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in a succeeding Offering Period or in any similar plan which may hereafter be adopted by the Company. XI. AUTOMATIC WITHDRAWAL 11.1 AUTOMATIC WITHDRAWAL. If the Fair Market Value of the Shares on any Purchase Date of an Offering Period is less than the Fair Market Value of the Shares on the Offering Date for such Offering Period, then every participant shall automatically: (i) be withdrawn from such Offering Period at the close of such Purchase Date and after the acquisition of Shares for such Purchase Period; and (ii) be enrolled in the Offering Period commencing on the first Business Day subsequent to such Purchase Period. For purposes of determining the Purchase Price for such new Offering Period, Fair Market Value under Section 2.14(i) and (ii) shall be determined using the opening price of the stock on the Offering Date, rather than the closing price (if applicable). Participants shall automatically be withdrawn as of October 31, 2002 from the Offering Period beginning on the IPO Date and re-enrolled in the Offering Period beginning on November 1, 2002 if the Fair Market Value of the Shares on the Offering Date of the first Offering Period is greater than the Fair Market Value of the Shares on October 31, 2002, unless a participant notifies the Administrator prior to October 31, 2002 that he or she does not wish to be withdrawn and re-enrolled. XII. INTEREST 12.1 INTEREST ACCRUAL. No interest shall accrue on the Contributions of a Plan participant. XIII. SHARES 13.1 SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in Section 19, the maximum number of Shares that initially shall be made available for sale under the Plan shall be 250,000 Shares. In addition, on the first day of each of the Company's fiscal years, the aggregate number of Shares reserved for issuance under the Plan shall be increased automatically by the number of Shares purchased under the Plan in the preceding fiscal year; provided, that the aggregate number of Shares reserved under the Plan shall not exceed 750,000 Shares. If the Board determines that, on a given Purchase Date, the number of Shares with respect to which options are to be exercised may exceed: (i) the number of Shares that were available for sale under the Plan on the Offering Date of the applicable Offering Period; or (ii) the number of 7 Shares available for sale under the Plan on such Purchase Date, the Board may in its sole discretion provide: (x) that the Company shall make a pro rata allocation of the Shares available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Shares on such Purchase Date, and continue all Offering Periods then in effect; or (y) that the Company shall make a pro rata allocation of the Shares available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and terminate any or all Offering Periods and Purchase Periods then in effect pursuant to Section 20 below. Notwithstanding any authorization of additional Shares for issuance under the Plan by the Company's stockholders subsequent to such Offering Date, the Company may make a pro rata allocation of the Shares available on the Offering Date of any applicable Offering Period pursuant to the preceding sentence. 13.2 VOTING OF SHARES. The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised. 13.3 REGISTRATION OF SHARES. Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse (or, where applicable, in the name of a broker or other nominee or custodian for the benefit of the participant or the participant and his or her spouse). XIV. ADMINISTRATION 14.1 PLAN ADMINISTRATION. The Board shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. In its sole discretion, the Board may appoint an Administrator and delegate all or a portion of its authority to such Administrator to administer the Plan. XV. DESIGNATION OF BENEFICIARY 15.1 BENEFICIARY DESIGNATION. A participant may file a written beneficiary designation with the Administrator designating the beneficiary who is to receive any Shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of a Purchase Period but prior to delivery to him or her of such Shares and cash. In addition, a participant may file a beneficiary designation with the Administrator designating the beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Purchase Date of an Offering Period. 15.2 CHANGE OF BENEFICIARY DESIGNATION. Such beneficiary designation may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a valid designated beneficiary who is living at the time of such participant's death, the Administrator shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been 8 appointed (to the knowledge of the Administrator), the Administrator, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Administrator, then to such other person as the Administrator may designate. XVI. TRANSFERABILITY 16.1 TRANSFER OF PLAN BENEFITS. Neither Contributions credited to a participant's account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Article 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as a voluntary election to withdraw funds in accordance with Article 10. XVII. USE OF CONTRIBUTIONS 17.1 USE OF CONTRIBUTIONS. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions from other Company assets. XVIII. REPORTING OF ACCOUNTS 18.1 REPORTING OF ACCOUNTS. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any. XIX. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CHANGE IN CONTROL 19.1 ADJUSTMENT. Subject to any required action by the Company's stockholders, the number of Shares covered by each option under the Plan that has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the maximum number of Shares which may be purchased by a participant, the number of Shares set forth in Section 13.1 above, and the price per Share covered by each option under the Plan that has not yet been exercised, shall be appropriately adjusted to reflect any stock dividend, stock split, combination or exchange of shares or other change in capitalization with a similar substantive effect upon the Plan or the awards granted under the Plan. The Board shall have the power and sole discretion to determine the nature and amount of the adjustment to be made in each case. The adjustment so made shall be final and binding on all participants. 19.2 CHANGE IN CONTROL. Upon a Change in Control, each outstanding option shall be assumed by the "Acquiring Corporation" (as defined below) or parent thereof or replaced with a comparable option or right to purchase shares of the capital stock, or equity equivalent instrument, of the Acquiring Corporation or parent thereof, or other comparable rights (such assumed and comparable options and rights, together, the "Replacement Options"); provided, 9 however, that if the Acquiring Corporation or parent thereof does not agree to grant Replacement Options, then each Purchase Period and Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as of which date any Purchase Period and Offering Period then in progress will terminate. The term "Acquiring Corporation" means the surviving, continuing, successor or purchasing corporation, as the case may be. The New Purchase Date shall be on or before the date of consummation of the Change in Control and the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Article 10. For purposes of this Article 19, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Change in Control, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the Change in Control if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Article 19); provided, however, that if the consideration received in the transaction is not solely common stock of the Acquiring Corporation, the Board may, with the consent of the Acquiring Corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the Acquiring Corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction. Notwithstanding any other provision of this Section, the Board may determine, in its discretion, to terminate any Offering Period and Purchase Period in progress immediately prior to the effective date of a Change of Control and to return all unused Contributions to Participants. 19.3 LIQUIDATION AND DISSOLUTION. In the event of a dissolution or liquidation of the Company, any Purchase Period and Offering Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. XX. AMENDMENT OR TERMINATION 20.1 AUTHORITY TO AMEND OR TERMINATE PLAN. The Board may at any time and for any reason terminate or amend the Plan; provided, that no amendment to the Plan shall be deemed effective if and to the extent it would cause the Plan to no longer meet the applicable requirements of Code Section 423; provided further, that to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or with Code Section 423 (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required. In the event that the Plan is to be terminated while an Offering Period is in progress, the Board may determine that such Offering Period shall be shortened and a New Purchase Date set, as of which date the Offering Period then in progress will terminate. In such event, the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Article 10. Alternatively, the Board may determine, in its discretion, to 10 terminate any Offering Period and Purchase Period in progress at the time of the Plan's termination and to return all unused Contributions to Participants. 20.2 CHANGES IN PLAN ADMINISTRATION. Without the need for Plan amendment, the Administrator shall be entitled in its discretion to limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Administrator, in its sole discretion, determines to be advisable. XXI. NOTICES 21.1 NOTICES. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. XXII. CONDITIONS UPON SHARE ISSUANCE 22.1 CONDITIONS UPON SHARE ISSUANCE. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. XXIII. MISCELLANEOUS 23.1 TERM OF PLAN AND EFFECTIVE DATE. The Plan shall become effective upon the IPO Date. It shall continue in effect for a term of twenty (20) years unless sooner terminated under Article 20. 23.2 ADDITIONAL RESTRICTIONS. The terms and conditions of options granted hereunder to, and the purchase of Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the Shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 11 23.3 WITHHOLDING. The Company shall have the right to deduct from all amounts paid to a participant in cash as salary, bonus or other compensation any taxes required by law to be withheld in respect of awards granted under the Plan. In the Administrator's discretion, a participant may be permitted to elect to have withheld from the Shares otherwise issuable to the participant, or to tender to the Company, the number of Shares whose Fair Market Value equals the minimum amount required to be withheld. 23.4 CONSTRUCTION OF THE PLAN. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely by the Board. Any determination by the Board shall be final and binding on all participants. The Plan shall be governed in accordance with the laws of the State of Delaware, without regard to the conflict of law provisions of such laws. 23.5 NO RIGHT TO OPTION; NO RIGHT TO EMPLOYMENT. No person shall have any claim of right to be granted an option under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the Company's employ or any of its subsidiaries or as giving any consultant, advisor or director any right to continue to serve in such capacity. 23.6 AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Income recognized by a participant pursuant to the provisions of the Plan shall not be included in the determination of benefits under any "employee benefit plan" (as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974) or such other benefit plan, policy or arrangement applicable to the participant that are maintained by the Company or any of its subsidiaries, except as may be provided under the terms of such plans or determined by resolution of the Board. 23.7 NO STRICT CONSTRUCTION. No rule of strict construction shall be implied against the Company, the Board, or any other person in the interpretation of any of the terms of the Plan, any award granted under the Plan or any rule or procedure established by the Board. 23.8 CAPTIONS. All Section headings used in the Plan are for convenience only, do not constitute a part of the Plan, and shall not be deemed to limit, characterize or affect in any way any provisions of the Plan, and all provisions of the Plan shall be construed as if no captions have been used in the Plan. 23.9 SEVERABILITY. Whenever possible, each provision in the Plan and every option at any time granted under the Plan shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Plan or any option at any time granted under the Plan shall be held to be prohibited by or invalid under applicable law, then such provision shall be deemed amended to accomplish the objectives of the provision as originally written to the fullest extent permitted by law, and all other provisions of the Plan and every other option at any time granted under the Plan shall remain in full force and effect. 23.10 LEGENDS. All certificates for Shares delivered under the Plan shall be subject to such transfer and other restrictions as the Board may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or quotation system upon which the Common Stock is then listed or quoted and any applicable 12 federal or state securities law, and the Board may cause a legend or legends to be put on any such certificates to make appropriate references to such restrictions. 13 APPENDIX A DESIGNATED SUBSIDIARIES PARTICIPATING UNDER THE PLAN 1. printCafe Systems, Inc. 2. M Data, Inc. 3. Programmed Solutions, Inc. 4. Logic Associates, Inc. 5. A.H.P. Systems, Inc. 6. printCafe Europe Ltd. PRINTCAFE SOFTWARE, INC. 2002 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT New Election ______ Change of Election ______ 1. I, ________________________, hereby elect to participate in the Printcafe Software, Inc. 2002 Employee Stock Purchase Plan (the "Plan") for the Offering Period from __________________, ____ to _______________, ____, and subscribe to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Plan. 2. I elect to have Contributions in the amount of ____% of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount must not be less than 1% and not more than 15% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted). 3. I hereby authorize payroll deductions during the Offering Period at a rate consistent with the election stated in Item 2 of this Subscription Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. I understand that all payments made by me shall be accumulated for the purchase of Shares at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, Shares will be purchased for me automatically on the Purchase Date of each Offering Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose. 4. I understand that I may discontinue my participation in accordance with the Plan's terms at any time prior to a Purchase Date. I also understand that I can increase or decrease the rate of my Contributions on one occasion only with respect to any increase and one occasion only with respect to any decrease during any Offering Period by completing and filing a new Subscription Agreement, such Subscription Agreement to take effect as soon as administratively practicable after the date it is filed with the Administrator. Further, I may change the rate of deductions for future Offering Periods by filing a new Subscription Agreement, and any such change will be effective as of the beginning of the next Offering Period. In addition, I acknowledge that, unless I discontinue my participation in the Plan, my election will continue to be effective for each successive Offering Period. 5. I have received a copy of the complete "Printcafe Software, Inc. 2002 Employee Stock Purchase Plan" and a prospectus describing the Plan's terms. I understand that my participation in the Plan is in all respects subject to the terms of the Plan. 6. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only): 7. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due to me under the Plan: NAME: (Please print) _____________________________________________ (First) (Middle) (Last) (Relationship) _____________________________________________ (Address) _____________________________________________ (Address) _____________________________________________ 8. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or within 1 year after the Purchase Date, I will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Purchase Date over the price which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Purchase Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY SUCH DISPOSITION, AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to the sale or early disposition of Common Stock by me. 9. If I dispose of such shares at any time after expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the shares on the Offering Date or the Purchase Date, whichever is lower. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I UNDERSTAND THAT THIS TAX SUMMARY IS ONLY A SUMMARY AND IS SUBJECT TO CHANGE. I further understand that I should consult a tax advisor concerning the tax implications of the purchase and sale of stock under the Plan. 2 10. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan. SIGNATURE OF EMPLOYEE: ______________________________________ SOCIAL SECURITY # : _____________________________ DATE: ___________________________ 3 PRINTCAFE SOFTWARE, INC. 2002 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL I, __________________________, hereby elect to withdraw my participation in the Printcafe Software, Inc. 2002 Employee Stock Purchase Plan for the Offering Period that began on ____________, _____. This withdrawal covers all Contributions currently credited to my account and is effective on the date designated below. I understand that all Contributions credited to my account will be paid to me as soon as administratively practicable following receipt by the Administrator of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the Offering Period. I further understand and agree that I shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Dated: ____________ __________________________________ Signature of Employee __________________________________ Social Security Number EX-10.4 9 j9249402ex10-4.txt 2002 STOCK INCENTIVE PLAN Exhibit 10.4 PRINTCAFE, INC. 2002 KEY EXECUTIVE STOCK INCENTIVE PLAN EFFECTIVE AS OF February 5, 2002 TABLE OF CONTENTS
PAGE SECTION 1. INTRODUCTION................................................................................1 SECTION 2. DEFINITIONS.................................................................................1 (a) "Affiliate"...........................................................................1 (b) "Award"...............................................................................1 (c) "Board"...............................................................................1 (d) "Change In Control"...................................................................1 (e) "Code"................................................................................2 (f) "Committee"...........................................................................2 (g) "Company".............................................................................2 (h) "Disability"..........................................................................2 (i) "Employee"............................................................................2 (j) "Exchange Act"........................................................................2 (k) "Exercise Price"......................................................................2 (l) "Fair Market Value"...................................................................2 (m) "Grant"..............................................................................2 (n) "Incentive Stock Option" or "ISO".....................................................2 (o) "Key Executive".......................................................................3 (p) "Non-Employee Director"...............................................................3 (q) "Nonstatutory Stock Option" or "NSO"..................................................3 (r) "Option"..............................................................................3 (s) "Optionee"............................................................................3 (t) "Parent"..............................................................................3 (u) "Plan"................................................................................3 (v) "Preferred Stock".....................................................................3 (w) "Securities Act"......................................................................3 (x) "Service".............................................................................3 (y) "Share"...............................................................................3 (z) "Stock Option Agreement"..............................................................3 (aa) "Subsidiary"..........................................................................3 (bb) "10-Percent Shareholder"..............................................................3
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PAGE SECTION 3. ADMINISTRATION..............................................................................4 (a) Committee Composition.................................................................4 (b) Authority of the Committee............................................................4 (c) Indemnification.......................................................................4 SECTION 4. ELIGIBILITY.................................................................................5 (a) General Rules.........................................................................5 (b) Incentive Stock Options; Nonstatutory Stock Options...................................5 SECTION 5. SHARES SUBJECT TO PLAN......................................................................5 (a) Basic Limitation......................................................................5 (b) Additional Shares.....................................................................5 (c) Limits on Options.....................................................................5 SECTION 6. TERMS AND CONDITIONS OF OPTIONS.............................................................5 (a) Stock Option Agreement................................................................5 (b) Number of Shares......................................................................5 (c) Exercise Price........................................................................5 (d) Exercisability and Term...............................................................5 (e) Modifications or Assumption of Options................................................6 (f) Transferability of Options............................................................6 (g) No Rights as Stockholder..............................................................6 (h) Restrictions on Transfer..............................................................6 SECTION 7. PAYMENT FOR OPTION SHARES...................................................................6 (a) General Rule..........................................................................6 (b) Surrender of Stock....................................................................7 (c) Promissory Note.......................................................................7 (d) Other Forms of Payment................................................................7 SECTION 8. PROTECTION AGAINST DILUTION.................................................................7 (a) Conversion of Shares..................................................................7 (b) Adjustments...........................................................................7 (c) Optionee Rights.......................................................................8 SECTION 9. EFFECT OF A CHANGE IN CONTROL...............................................................8 (a) Merger or Reorganization..............................................................8 (b) Acceleration..........................................................................8
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PAGE SECTION 10. LIMITATIONS ON RIGHTS.......................................................................8 (a) Retention Rights......................................................................8 (b) Stockholders' Rights..................................................................8 (c) Regulatory Requirements...............................................................8 SECTION 11. WITHHOLDING TAXES...........................................................................9 (a) General...............................................................................9 (b) Share Withholding.....................................................................9 SECTION 12. DURATION AND AMENDMENTS.....................................................................9 (a) Term of the Plan......................................................................9 (b) Right to Amend or Terminate the Plan..................................................9 SECTION 13. EXECUTION..................................................................................10
-iii- PRINTCAFE, INC. 2002 KEY EXECUTIVE STOCK INCENTIVE PLAN EFFECTIVE AS OF February 5, 2002 SECTION 1. INTRODUCTION. The Company's Board of Directors adopted the printCafe, Inc. 2002 Key Executive Stock Incentive Plan on February 5, 2002 (the "Adoption Date"). The Plan is effective on the Adoption Date. The purpose of the Plan is to promote the long-term success of the Company and the creation of shareholder value by offering Key Executives an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, and to encourage such selected persons to continue to provide services to the Company and to attract new individuals with outstanding qualifications. The Plan seeks to achieve this purpose by providing for Awards in the form of Options. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except its choice-of-law provisions). Capitalized terms shall have the meaning provided in Section 2 unless otherwise provided in this Plan or in any Stock Option Agreement. SECTION 2. DEFINITIONS. (a) "AFFILIATE" means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity. For purposes of determining an individual's "Service," this definition shall include any entity other than a Subsidiary, if the Company, a Parent and/or one or more Subsidiaries own not less than 50% of such entity. (b) "AWARD" means any award of an Option under the Plan. (c) "BOARD" means the Board of Directors of the Company, as constituted from time to time. (d) "CHANGE IN CONTROL" except as may otherwise be provided in a Stock Option Agreement, means the occurrence of any of the following: (i) a dissolution or liquidation of the Company; (ii) any sale or transfer of all or substantially all of the total assets of the Company; (iii) any merger, consolidation or other business reorganization in which the holders of the Company's outstanding voting securities immediately prior to such transaction do not hold, immediately following such transaction, securities representing fifty percent (50%) or more of the combined voting power of the outstanding securities of the surviving entity; or (iv) the acquisition by any person (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) (other than the Company, or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act) or employee benefit plan of the Company), of beneficial ownership (within the meaning of Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company. Notwithstanding anything in the preceding sentence, the acquisition by Creo SRL or its affiliates of beneficial ownership of securities representing less than one hundred percent (100%) of the total combined voting power of the outstanding securities of the Company shall not be deemed a Change of Control. (e) "CODE" means the Internal Revenue Code of 1986, as amended. (f) "COMMITTEE" means the Compensation Committee of the Board. (g) "COMPANY" means printCafe, Inc., a Delaware corporation. (h) "DISABILITY" means that the Key Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. (i) "EMPLOYEE" means any individual who is a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate. (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (k) "EXERCISE PRICE" means the amount for which a Share may be purchased upon exercise of an Option, as specified in the applicable Stock Option Agreement. (l) "FAIR MARKET VALUE" means the market price of Shares, determined by the Committee in good faith on such basis as it deems appropriate. (m) "GRANT" means any grant of an Award under the Plan. (n) "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock option described in Code section 422(b). 2 (o) "KEY EXECUTIVE" means an Employee who is a member of executive management, or a Non-Employee Director, who has been selected by the Committee to receive an Award under the Plan. (p) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an Employee. (q) "NONSTATUTORY STOCK OPTION" or "NSO" means a stock option that is not an ISO. (r) "OPTION" means an ISO or NSO granted under the Plan entitling the Optionee to purchase Shares. (s) "OPTIONEE" means an individual, estate or other entity that holds an Option. (t) "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date. (u) "PLAN" means this printCafe, Inc. 2002 Key Executive Stock Incentive Plan as it may be amended from time to time. (v) "PREFERRED STOCK" means Series E Preferred Stock of the Company. (w) "SECURITIES ACT" means the Securities Act of 1933, as amended. (x) "SERVICE" means service as an Employee or Non-Employee Director. (y) "SHARE" means one share of Preferred Stock. (z) "STOCK OPTION AGREEMENT" means the agreement described in Section 6 evidencing each Grant of an Option. (aa) "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. (bb) "10-PERCENT SHAREHOLDER" means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its subsidiaries. In determining stock ownership, the attribution rules of section 424(d) of the Code shall be applied. 3 SECTION 3. ADMINISTRATION. (a) COMMITTEE COMPOSITION. The Committee has been appointed by the Board to administer the Plan. However, the Board may at any time terminate such appointment and reassume all powers and authority previously delegated to the Committee (in which event, references to the Committee hereinafter shall be deemed references to the Board). With respect to officers or directors subject to Section 16 of the Exchange Act, the Committee shall consist of those individuals who shall satisfy the requirements of Rule 16b-3 (or its successor) under the Exchange Act with respect to Awards granted to persons who are officers or directors of the Company under Section 16 of the Exchange Act. Notwithstanding the previous sentence, failure of the Committee to satisfy the requirements of Rule 16b-3 shall not invalidate any Awards granted by such Committee. (b) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. Such actions shall include: (i) selecting Key Executives who are to receive Awards under the Plan; (ii) determining the number, vesting requirements and other features and conditions of such Awards; (iii) interpreting the Plan; and (iv) making all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. (c) INDEMNIFICATION. Each member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Stock Option Agreement, and (ii) any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless. 4 SECTION 4. ELIGIBILITY. (a) GENERAL RULES. Only Employees and Non-Employee Directors shall be eligible for designation as Key Executives by the Committee. (b) INCENTIVE STOCK OPTIONS; NONSTATUTORY STOCK OPTIONS. Key Executives who are Employees shall be eligible for the grant of ISOs or NSOs. However, a Key Executive who is a 10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(5) of the Code are satisfied. Key Executives who are Non-Employee Directors shall be eligible for the grant of NSOs. SECTION 5. SHARES SUBJECT TO PLAN. (a) BASIC LIMITATION. The stock issuable under the Plan shall be authorized but unissued Shares or treasury Shares. The aggregate number of Shares reserved for Awards under the Plan shall not exceed 2,833,333. (b) ADDITIONAL SHARES. If Awards are forfeited or terminate for any other reason before being exercised, then the Shares underlying such Awards shall again become available for Awards under the Plan. (c) LIMITS ON OPTIONS. No Key Executive shall receive Options to purchase Shares during any fiscal year covering in excess of 1,250,000 Shares. SECTION 6. TERMS AND CONDITIONS OF OPTIONS. (a) STOCK OPTION AGREEMENT. Each Grant under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. The Stock Option Agreement shall also specify whether the Option is an ISO or an NSO. (b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 8. (c) EXERCISE PRICE. An Option's Exercise Price shall be established by the Committee and set forth in a Stock Option Agreement. To the extent required by applicable law the Exercise Price of an ISO shall not be less than 100% of the Fair Market Value (110% for 10-Percent Shareholders) of a Share on the date of Grant. (d) EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO 5 shall in no event exceed ten (10) years from the date of Grant. An ISO that is granted to a 10-Percent Shareholder shall have a maximum term of five (5) years. No Option can be exercised after the expiration date provided in the applicable Stock Option Agreement. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. A Stock Option Agreement may permit an Optionee to exercise an Option before it is vested, subject to the Company's right of repurchase over any Shares acquired under the unvested portion of the Option (an "early exercise"), which right of repurchase shall lapse at the same rate the Option would have vested had there been no early exercise. In no event shall the Company be required to issue fractional Shares upon the exercise of an Option. (e) MODIFICATIONS OR ASSUMPTION OF OPTIONS. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. (f) TRANSFERABILITY OF OPTIONS. Except as otherwise provided in the applicable Stock Option Agreement and then only to the extent permitted by applicable law, no Option shall be transferable by the Optionee other than by will or by the laws of descent and distribution. Except as otherwise provided in the applicable Stock Option Agreement, an Option may be exercised during the lifetime of the Optionee only or by the guardian or legal representative of the Optionee. No Option or interest therein may be assigned, pledged or hypothecated by the Optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. (g) NO RIGHTS AS STOCKHOLDER. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Common Stock covered by an Option until such person becomes entitled to receive such Common Stock by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option. (h) RESTRICTIONS ON TRANSFER. Any Shares issued upon exercise of an Option shall be subject to such rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall apply in addition to any restrictions that may apply to holders of Shares generally and shall also comply to the extent necessary with applicable law. SECTION 7. PAYMENT FOR OPTION SHARES. (a) GENERAL RULE. The entire Exercise Price of Shares issued upon exercise of Options shall be payable in cash at the time when such Shares are purchased, except as follows: 6 (i) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Section 7. (ii) In the case of an NSO granted under the Plan, the Committee may, in its discretion, at any time accept payment in any form(s) described in this Section 7. (b) SURRENDER OF STOCK. To the extent that this Section 7(b) is applicable, payment for all or any part of the Exercise Price may be made with Shares which have already been owned by the Optionee for such duration as shall be specified by the Committee. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. (c) PROMISSORY NOTE. To the extent that this Section 7(c) is applicable, payment for all or any part of the Exercise Price may be made with a full-recourse promissory note. (d) OTHER FORMS OF PAYMENT. To the extent that this Section 7(d) is applicable, payment may be made in any other form that is consistent with applicable laws, regulations and rules. SECTION 8. PROTECTION AGAINST DILUTION. (a) CONVERSION OF SHARES. In the event the then-outstanding Shares are converted into shares of common stock of the Company ("Common Shares") in accordance with the provisions of the Certificate of Incorporation, each Option shall then and thereafter be exercisable for a number of Common Shares equal to (i) the number of Common Shares into which each outstanding Share was converted in such conversion times (ii) the number of Shares originally subject to such Option. The Exercise Price shall also be adjusted as appropriate. (b) ADJUSTMENTS. In the event of a subdivision of the outstanding Shares, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, reorganization, merger, liquidation, spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its reasonable discretion, deems appropriate in order to prevent the dilution or enlargement of rights hereunder in one or more of: (i) the number of Shares available for future Awards and the per person Share limits under Section 5; (ii) the number of Shares covered by each outstanding Award; or (iii) the Exercise Price under each outstanding Option. 7 (c) OPTIONEE RIGHTS. Except as provided in this Section 8, an Optionee shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. SECTION 9. EFFECT OF A CHANGE IN CONTROL. (a) MERGER OR REORGANIZATION. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for their cancellation with or without consideration. However, unless otherwise specified in the agreement of merger or reorganization, or unless otherwise determined by the Committee, any Awards which are not assumed or continued, or which are not exercised (if vested) on or before the effective date of any Change of Control, will terminate effective upon the Change of Control or at such other time as the Committee deems appropriate. (b) ACCELERATION. The Committee may determine, at the time of granting an Award or thereafter, that such Award shall become vested as to all or any designated portion of the Shares subject to such Award in the event that a Change in Control occurs with respect to the Company. SECTION 10. LIMITATIONS ON RIGHTS. (a) RETENTION RIGHTS. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an Employee or Non-Employee Director of the Company, a Parent, a Subsidiary or an Affiliate. The Company and its Parents and Subsidiaries and Affiliates reserve the right to terminate the Service of any person at any time, and for any reason, subject to applicable laws, the Company's Certificate of Incorporation and Bylaws and a written employment or services agreement (if any). (b) STOCKHOLDERS' RIGHTS. An Optionee shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Shares covered by his or her Award prior to the issuance of a stock certificate for such Shares. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Section 8. (c) REGULATORY REQUIREMENTS. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Shares pursuant to any Award prior to the satisfaction of all legal requirements relating 8 to the issuance of such Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. SECTION 11. WITHHOLDING TAXES. (a) GENERAL. An Optionee shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with his or her Award. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied. (b) SHARE WITHHOLDING. If a public market for the Company's Shares exists, the Committee may permit an Optionee to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her (but not in excess of the minimum withholding amount required by law) or by surrendering all or a portion of any Shares that he or she previously acquired. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the Securities and Exchange Commission. SECTION 12. DURATION AND AMENDMENTS. (a) TERM OF THE PLAN. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board; provided, that the adoption of the Plan shall be subject to approval by the Company's stockholders within 12 months of the date of adoption to the extent required by applicable laws, regulations or rules; provided, further, that if and to the extent such approval is sought solely to satisfy the applicable requirements of Code Section 422(b)(1), then no Award of NSOs shall be deemed to be conditioned on receipt of such approval. To the extent required by applicable law, the Plan shall terminate on the date that is ten (10) years after its adoption by the Board and may be terminated on any earlier date pursuant to Section 12(b). (b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend or terminate the Plan at any time and for any reason. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan. No Awards shall be granted under the Plan after the Plan's termination. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by applicable laws, regulations or rules; provided, that if and to the extent such approval is sought solely to satisfy the applicable requirements of Code Section 422(b)(1), then no Award of NSOs shall be deemed to be conditioned on receipt of such approval. 9 SECTION 13. EXECUTION. To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to execute this Plan on behalf of the Company. PRINTCAFE, INC. By /s/ Marc D. Olin ----------------------------------------- Title President and Chief Executive Officer ------------------------------------- 10 EX-10.5 10 j9249402ex10-5.txt 2002 EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.5 PRINTCAFE SOFTWARE, INC. 2002 STOCK INCENTIVE PLAN EFFECTIVE AS OF MARCH 5, 2002
TABLE OF CONTENTS PAGE SECTION 1. INTRODUCTION.................................................................1 SECTION 2. DEFINITIONS..................................................................1 (a) "Affiliate"..................................................................1 (b) "Award"......................................................................1 (c) "Board"......................................................................1 (d) "Change In Control"..........................................................1 (e) "Code".......................................................................2 (f) "Committee"..................................................................2 (g) "Common Stock"...............................................................2 (h) "Company"....................................................................2 (i) "Consultant".................................................................3 (j) "Director"...................................................................3 (k) "Disability".................................................................3 (l) "Employee"...................................................................3 (m) "Exchange Act"...............................................................3 (n) "Exercise Price".............................................................3 (o) "Fair Market Value"..........................................................3 (p) "Grant"......................................................................3 (q) "Incentive Stock Option" or "ISO"............................................4 (r) "Key Employee"...............................................................4 (s) "Non-Employee Director"......................................................4 (t) "Nonstatutory Stock Option" or "NSO".........................................4 (u) "Option".....................................................................4 (v) "Optionee"...................................................................4 (w) "Parent".....................................................................4 (x) "Participant"................................................................4 (y) "Plan".......................................................................4 (z) "Restricted Stock"...........................................................4 (aa) "Restricted Stock Agreement".................................................4 (bb) "SAR Agreement"..............................................................4 (cc) "Securities Act".............................................................4 (dd) "Service"....................................................................4
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PAGE (ee) "Share"......................................................................4 (ff) "Stock Appreciation Right" or "SAR"..........................................4 (gg) "Stock Option Agreement".....................................................4 (hh) "Stock Unit".................................................................5 (ii) "Stock Unit Agreement".......................................................5 (jj) "Subsidiary".................................................................5 (kk) "10-Percent Shareholder".....................................................5 SECTION 3. ADMINISTRATION...............................................................5 (a) Committee Composition........................................................5 (b) Authority of the Committee...................................................6 (c) Indemnification..............................................................6 SECTION 4. ELIGIBILIY...................................................................6 (a) General Rules................................................................6 (b) Incentive Stock Options......................................................6 (c) Non-Employee Director Options................................................6 SECTION 5. SHARES SUBJECT TO PLAN.......................................................7 (a) Basic Limitation.............................................................7 (b) Additional Shares............................................................7 (c) Dividend Equivalents.........................................................7 (d) Limits on Options and SARs...................................................7 (e) Limits on Restricted Stock...................................................8 SECTION 6. TERMS AND CONDITIONS OF OPTIONS..............................................8 (a) Stock Option Agreement.......................................................8 (b) Number of Shares.............................................................8 (c) Exercise Price...............................................................8 (d) Exercisability and Term......................................................8 (e) Modifications or Assumption of Options.......................................8 (f) Transferability of Options...................................................9 (g) No Rights as Stockholder.....................................................9 (h) Restrictions on Transfer.....................................................9 SECTION 7. PAYMENT FOR OPTION SHARES....................................................9 (a) General Rule.................................................................9
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PAGE (b) Surrender of Stock...........................................................9 (c) Promissory Note..............................................................9 (d) Other Forms of Payment......................................................10 SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS.........10 (a) Time, Amount and Form of Awards.............................................10 (b) Agreements..................................................................10 (c) Payment for Restricted Stock or Stock Unit Awards...........................10 (d) Form and Time of Settlement of Stock Units..................................10 (e) Vesting Conditions..........................................................10 (f) Assignment or Transfer of Restricted Stock or Stock Units...................10 (g) Death of Stock Units Recipient..............................................11 (h) Trusts......................................................................11 (i) Voting and Dividend Rights..................................................11 (j) Stock Units Voting and Dividend Rights......................................11 (k) Creditors' Rights...........................................................11 SECTION 9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS...........................12 (a)SAR Agreement.....................................................................12 (b)Number of Shares..................................................................12 (c)Exercise Price....................................................................12 (d)Exercisability and Term...........................................................12 (e)Exercise of SARs..................................................................12 (f)Modification or Assumption of SARs................................................12 SECTION 10. PROTECTION AGAINST DILUTION...............................................13 (a) Adjustments..............................................................13 (b) Participant Rights.......................................................13 SECTION 11. EFFECT OF A CHANGE IN CONTROL.............................................13 (a) Merger or Reorganization.................................................13 (b) Acceleration.............................................................13 SECTION 12. LIMITATIONS ON RIGHTS.....................................................14 (a) Retention Rights.........................................................14 (b) Stockholders' Rights.....................................................14
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PAGE (c) Regulatory Requirements..................................................14 SECTION 13. WITHHOLDING TAXES........................................................14 (a) General..................................................................14 (b) Share Withholding........................................................14 SECTION 14. DURATION AND AMENDMENTS..................................................14 (a) Term of the Plan.........................................................14 (b) Right to Amend or Terminate the Plan.....................................15 SECTION 15. EXECUTION................................................................15
-iv- PRINTCAFE SOFTWARE, INC. 2002 STOCK INCENTIVE PLAN EFFECTIVE AS OF MARCH 5, 2002 SECTION 1. INTRODUCTION. The Company's Board of Directors adopted the Printcafe Software, Inc. 2002 Stock Incentive Plan on March 5, 2002 (the "Adoption Date"). The Plan is effective on the Adoption Date. The purpose of the Plan is to promote the long-term success of the Company and the creation of shareholder value by offering Key Employees an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, and to encourage such selected persons to continue to provide services to the Company and to attract new individuals with outstanding qualifications. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Stock, Stock Units, Stock Appreciation Rights and Options (which may constitute Incentive Stock Options or Nonstatutory Stock Options). The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except its choice-of-law provisions). Capitalized terms shall have the meaning provided in Section 2 unless otherwise provided in this Plan or Stock Option Agreement, SAR Agreement, Stock Unit Agreement or Restricted Stock Agreement. SECTION 2. DEFINITIONS. (a) "AFFILIATE" means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity. For purposes of determining an individual's "Service," this definition shall include any entity other than a Subsidiary, if the Company, a Parent and/or one or more Subsidiaries own not less than 50% of such entity. (b) "AWARD" means any award of an Option, SAR, Stock Unit or Restricted Stock under the Plan. (c) "BOARD" means the Board of Directors of the Company, as constituted from time to time. (d) "CHANGE IN CONTROL" except as may otherwise be provided in a Stock Option Agreement, SAR Agreement, Stock Unit Agreement or Restricted Stock Agreement, means the occurrence of any of the following: (i) a dissolution or liquidation of the Company; (ii) any sale or transfer of all or substantially all of the total assets of the Company; (iii) any merger, consolidation or other business reorganization in which the holders of the Company's outstanding voting securities immediately prior to such transaction do not hold, immediately following such transaction, securities representing fifty percent (50%) or more of the combined voting power of the outstanding securities of the surviving entity; or (iv) the acquisition by any person (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) (other than the Company, or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act) or employee benefit plan of the Company), of beneficial ownership (within the meaning of Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company. Notwithstanding anything in the preceding sentence, the acquisition by Creo SRL or its affiliates of beneficial ownership of securities representing less than one hundred percent (100%) of the total combined voting power of the outstanding securities of the Company shall not be deemed a Change of Control. (e) "CODE" means the Internal Revenue Code of 1986, as amended. (f) "COMMITTEE" means the Compensation Committee of the Board. (g) "COMMON STOCK" means the Company's common stock, par value $0.0001 per share. (h) "COMPANY" means Printcafe Software, Inc., a Delaware corporation. (i) "CONSULTANT" means an individual who performs bona fide services to the Company, a Parent, a Subsidiary or an Affiliate other than as an Employee or Non-Employee Director; provided, that any such individual who receives an Award under the Plan must render bona fide services that are not in connection with the offer or sale of securities in a capital-raising transaction. (j) "DISABILITY" means that the Key Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. (k) "EMPLOYEE" means any individual who is a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 2 (m) "EXERCISE PRICE" means, in the case of an Option, the amount for which a Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. "Exercise Price," in the case of a SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of a Share in determining the amount payable upon exercise of such SAR. (n) "FAIR MARKET VALUE" means the market price of Shares, determined by the Committee as follows: (i) If the Shares were traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the last trading price reported by the applicable composite transactions report for such date; (ii) If the Shares were traded over-the-counter on the date in question and were classified as a national market issue, then the Fair Market Value shall be equal to the last trading price quoted by the NASDAQ system for such date; (iii) If the Shares were traded over-the-counter on the date in question but were not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the NASDAQ system for such date; and (iv) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in the WALL STREET JOURNAL. Such determination shall be conclusive and binding on all persons. (o) "GRANT" means any grant of an Award under the Plan. (p) "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock option described in Code section 422(b). (q) "KEY EMPLOYEE" means an Employee, Non-Employee Director or Consultant who has been selected by the Committee to receive an Award under the Plan. (r) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an Employee. (s) "NONSTATUTORY STOCK OPTION" or "NSO" means a stock option that is not an ISO. (t) "OPTION" means an ISO or NSO granted under the Plan entitling the Optionee to purchase Shares. (u) "OPTIONEE" means an individual, estate or other entity that holds an Option. 3 (v) "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date. (w) "PARTICIPANT" means an individual or estate or other entity that holds an Award. (x) "PLAN" means this Printcafe Software, Inc. 2002 Stock Incentive Plan as it may be amended from time to time. (y) "RESTRICTED STOCK" means a Share awarded under the Plan. (z) "RESTRICTED STOCK AGREEMENT" means the agreement described in Section 8 evidencing each Award of Restricted Stock. (aa) "SAR AGREEMENT" means the agreement described in Section 9 evidencing each Award of a Stock Appreciation Right. (bb) "SECURITIES ACT" means the Securities Act of 1933, as amended. (cc) "SERVICE" means service as an Employee, Non-Employee Director or Consultant. (dd) "SHARE" means one share of Common Stock. (ee) "STOCK APPRECIATION RIGHT" OR "SAR" means a stock appreciation right awarded under the Plan. (ff) "STOCK OPTION AGREEMENT" means the agreement described in Section 6 evidencing each Grant of an Option. (gg) "STOCK UNIT" means a bookkeeping entry representing the equivalent of a Share, as awarded under the Plan. (hh) "STOCK UNIT AGREEMENT" means the agreement described in Section 8 evidencing each Award of Stock Units. (ii) "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. (jj) "10-PERCENT SHAREHOLDER" means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the 4 Company, its Parent or any of its subsidiaries. In determining stock ownership, the attribution rules of section 424(d) of the Code shall be applied. SECTION 3. ADMINISTRATION. (a) COMMITTEE COMPOSITION. The Committee has been appointed by the Board to administer the Plan. However, the Board may at any time terminate such appointment and reassume all powers and authority previously delegated to the Committee (in which event, references to the Committee hereinafter shall be deemed references to the Board). With respect to officers or directors subject to Section 16 of the Exchange Act, the Committee shall consist of those individuals who shall satisfy the requirements of Rule 16b-3 (or its successor) under the Exchange Act with respect to Awards granted to persons who are officers or directors of the Company under Section 16 of the Exchange Act. Notwithstanding the previous sentence, failure of the Committee to satisfy the requirements of Rule 16b-3 shall not invalidate any Awards granted by such Committee. (b) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. Such actions shall include: (i) selecting Key Employees who are to receive Awards under the Plan; (ii) determining the type, number, vesting requirements and other features and conditions of such Awards; (iii) interpreting the Plan; and (iv) making all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. (c) INDEMNIFICATION. Each member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Stock Option Agreement, SAR Agreement, Stock Unit Agreement or Restricted Stock Agreement, and (ii) from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any power that the Company may have to indemnify them or hold them harmless. 5 SECTION 4. ELIGIBILITY. (a) GENERAL RULES. Only Employees, Non-Employee Directors and Consultants shall be eligible for designation as Key Employees by the Committee. (b) INCENTIVE STOCK OPTIONS. Only Key Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Employee who is a 10-Percent Shareholder shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(5) of the Code are satisfied. SECTION 5. SHARES SUBJECT TO PLAN. (a) BASIC LIMITATION. The stock issuable under the Plan shall be authorized but unissued Shares or treasury Shares. The aggregate number of Shares reserved for Awards under the Plan shall equal 1,700,000. (b) ADDITIONAL SHARES. If Awards are forfeited or terminate for any other reason (under this Plan or under the Old Plan) before being exercised, then the Shares underlying such Awards shall again become available for Awards under the Plan. If SARs are exercised, then only the number of Shares (if any) actually issued in settlement of such SARs shall reduce the number available under Section 5(a) and the balance shall again become available for Awards under the Plan. (c) DIVIDEND EQUIVALENTS. Any dividend equivalents distributed under the Plan shall not be applied against the number of Shares available for Awards whether or not such dividend equivalents are converted into Stock Units. (d) LIMITS ON OPTIONS AND SARS. No Key Employee shall receive Options to purchase Shares and/or SARs during any fiscal year covering in excess of 1,250,000 Shares. (e) LIMITS ON RESTRICTED STOCK AND STOCK UNITS. No Key Employee shall receive Award(s) of Restricted Stock and/or Stock Units during any fiscal year covering in excess of 125,000 Shares (other than, in the case of Restricted Stock, upon early exercise of Options as set forth in Section 6(d)). SECTION 6. TERMS AND CONDITIONS OF OPTIONS. (a) STOCK OPTION AGREEMENT. Each Grant under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. A Stock Option Agreement may provide that new Options will be granted automatically to the Optionee when he or she exercises the prior Options. The Stock Option Agreement shall also specify whether the Option is an ISO or an NSO. 6 (b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 9. (c) EXERCISE PRICE. An Option's Exercise Price shall be established by the Committee and set forth in a Stock Option Agreement. To the extent required by applicable law the Exercise Price of an ISO shall not be less than 100% of the Fair Market Value (110% for 10-Percent Shareholders) of a Share on the date of Grant. (d) EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed ten (10) years from the date of Grant. An ISO that is granted to a 10-Percent Shareholder shall have a maximum term of five (5) years. No Option can be exercised after the expiration date provided in the applicable Stock Option Agreement. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. A Stock Option Agreement may permit an Optionee to exercise an Option before it is vested, subject to the Company's right of repurchase over any Shares acquired under the unvested portion of the Option (an "early exercise"), which right of repurchase shall lapse at the same rate the Option would have vested had there been no early exercise. In no event shall the Company be required to issue fractional Shares upon the exercise of an Option. (e) MODIFICATIONS OR ASSUMPTION OF OPTIONS. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. (f) TRANSFERABILITY OF OPTIONS. Except as otherwise provided in the applicable Stock Option Agreement and then only to the extent permitted by applicable law, no Option shall be transferable by the Optionee other than by will or by the laws of descent and distribution. Except as otherwise provided if the applicable Stock Option Agreement, an Option may be exercised during the lifetime of the Optionee only or by the guardian or legal representative of the Optionee. No Option or interest therein may be assigned, pledged or hypothecated by the Optionee during his lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. (g) NO RIGHTS AS STOCKHOLDER. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Common Stock covered by an Option until such person becomes entitled to receive such Common Stock by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option. 7 (h) RESTRICTIONS ON TRANSFER. Any Shares issued upon exercise of an Option shall be subject to such rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall apply in addition to any restrictions that may apply to holders of Shares generally and shall also comply to the extent necessary with applicable law. SECTION 7. PAYMENT FOR OPTION SHARES. (a) GENERAL RULE. The entire Exercise Price of Shares issued upon exercise of Options shall be payable in cash at the time when such Shares are purchased, except as follows: (i) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Section 7. (ii) In the case of an NSO granted under the Plan, the Committee may in its discretion, at any time accept payment in any form(s) described in this Section 7. (b) SURRENDER OF STOCK. To the extent that this Section 7(b) is applicable, payment for all or any part of the Exercise Price may be made with Shares which have already been owned by the Optionee for such duration (no shorter than six (6) months) as shall be specified by the Committee. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. (c) PROMISSORY NOTE. To the extent that this Section 7(c) is applicable, payment for all or any part of the Exercise Price may be made with a full-recourse promissory note in a form and with such terms and conditions as may be specified by the Committee in its discretion. (d) OTHER FORMS OF PAYMENT. To the extent that this Section 7(d) is applicable, payment may be made in any other form that is consistent with applicable laws, regulations and rules. SECTION 8. TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK AND STOCK UNITS. (a) TIME, AMOUNT AND FORM OF AWARDS. Awards under this Section 8 may be granted in the form of Restricted Stock, in the form of Stock Units, or in any combination of both. Restricted Stock or Stock Units may also be awarded in combination with NSOs or SARs, and such an Award may provide that the Restricted Stock or Stock Units will be forfeited in the event that the related NSOs or SARs are exercised. (b) AGREEMENTS. Each Award of Restricted Stock or Stock Units under the Plan shall be evidenced by a Restricted Stock Agreement or Stock Unit Agreement between the Participant and the Company. Such Awards shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in the applicable Agreement. The provisions of the various Agreements entered into under the Plan need not be identical. 8 (c) PAYMENT FOR RESTRICTED STOCK OR STOCK UNIT AWARDS. Restricted Stock or Stock Units may be issued with or without cash consideration under the Plan. (d) FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested Stock Units may be made in the form of (i) cash, (ii) Shares or (iii) any combination of both. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 10. (e) VESTING CONDITIONS. Each Award of Restricted Stock or Stock Units shall become vested, in full or in installments, upon satisfaction of the conditions specified in the applicable Agreement. An Agreement may provide for accelerated vesting in the event of the Participant's death, Disability or retirement or other events. (f) ASSIGNMENT OR TRANSFER OF RESTRICTED STOCK OR STOCK UNITS. Except as provided in Section 13, or in a Restricted Stock Agreement or Stock Unit Agreement, or as required by applicable law, a Restricted Stock or Stock Unit Award granted under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor's process, whether voluntarily, involuntarily or by operation of law. Any act in violation of this Section 8(f) shall be void. However, this Section 8(f) shall not preclude a Participant from designating a beneficiary who will receive any outstanding Restricted Stock or Stock Unit Awards in the event of the Participant's death, nor shall it preclude a transfer of Restricted Stock or Stock Unit Awards by will or by the laws of descent and distribution. (g) DEATH OF STOCK UNITS RECIPIENT. Any Stock Units Award that becomes payable after the Award recipient's death shall be distributed to the recipient's beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the recipient's death. If no beneficiary was designated or if no designated beneficiary survives the recipient, then any Stock Units Award that becomes payable after the recipient's death shall be distributed to the recipient's estate. 9 (h) TRUSTS. Neither this Section 8 nor any other provision of the Plan shall preclude a Participant from transferring or assigning Restricted Stock to (a) the trustee of a trust that is revocable by such Participant alone, both at the time of the transfer or assignment and at all times thereafter prior to such Participant's death, or (b) the trustee of any other trust to the extent approved in advance by the Committee in writing. A transfer or assignment of Restricted Stock from such trustee to any person other than such Participant shall be permitted only to the extent approved in advance by the Committee in writing, and Restricted Stock held by such trustee shall be subject to all of the conditions and restrictions set forth in the Plan and in the applicable Restricted Stock Agreement, as if such trustee were a party to such Agreement. (i) VOTING AND DIVIDEND RIGHTS. The holders of Restricted Stock awarded under the Plan shall have the same voting, dividend and other rights as the Company's other stockholders. A Restricted Stock Agreement, however, may require that the holders of Restricted Stock invest any cash dividends received in additional Restricted Stock. Such additional Restricted Stock shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid. Such additional Restricted Stock shall not reduce the number of Shares available under Section 5. (j) STOCK UNITS VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee's discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions as the Stock Units to which they attach. (k) CREDITORS' RIGHTS. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement. SECTION 9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. (a) SAR AGREEMENT. Each Award of a SAR under the Plan shall be evidenced by a SAR Agreement between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical. SARs may be granted in consideration of a reduction in the Optionee's other compensation. (b) NUMBER OF SHARES. Each SAR Agreement shall specify the number of Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Section 10. 10 (c) EXERCISE PRICE. Each SAR Agreement shall specify the Exercise Price. A SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding. (d) EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR. A SAR Agreement may provide for accelerated exercisability in the event of the Optionee's death, Disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's Service. SARs may also be awarded in combination with Options, Restricted Stock or Stock Units, and such an Award may provide that the SARs will not be exercisable unless the related Options, Restricted Stock or Stock Units are forfeited. A SAR may be included in an ISO only at the time of Grant but may be included in an NSO at the time of Grant or at any subsequent time, but not later than six months before the expiration of such NSO. A SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control. (e) EXERCISE OF SARS. If, on the date when a SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with respect to such portion. Upon exercise of a SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (i) Shares, (ii) cash or (iii) a combination of Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price. (f) MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of a SAR shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such SAR. SECTION 10. PROTECTION AGAINST DILUTION. (a) ADJUSTMENTS. In the event of a subdivision of the outstanding Shares, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Shares (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, reorganization, merger, liquidation, spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its reasonable discretion, deems appropriate in order to prevent the dilution or enlargement of rights hereunder in one or more of: 11 (i) the number of Shares available for future Awards and the per person Share limits under Section 5; (ii) the number of Shares covered by each outstanding Award; or (iii) the Exercise Price under each outstanding SAR or Option. (b) PARTICIPANT RIGHTS. Except as provided in this Section 10, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. SECITON 11. EFFECT OF A CHANGE IN CONTROL. (a) MERGER OR REORGANIZATION. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for their cancellation with or without consideration. However, unless otherwise specified in the agreement of merger or reorganization, or unless otherwise determined by the Committee, any Awards which are not assumed or continued, or which are not exercised (if vested) on or before the effective date of any Change of Control, will terminate effective upon the Change of Control or at such other time as the Committee deems appropriate. (b) ACCELERATION. The Committee may determine, at the time of granting an Award or thereafter, that such Award shall become fully vested as to all or any designated portion of the Shares subject to such Award in the event that a Change in Control occurs with respect to the Company. SECTION 12. LIMITATIONS ON RIGHTS. (a) RETENTION RIGHTS. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an Employee, Consultant or Non-Employee Director of the Company, a Parent, a Subsidiary or an Affiliate. The Company and its Parents and Subsidiaries and Affiliates reserve the right to terminate the Service of any person at any time, and for any reason, subject to applicable laws, the Company's Certificate of Incorporation and Bylaws and a written employment or services agreement (if any). (b) STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Shares covered by his or her Award prior to the issuance of a stock certificate for such Shares. No adjustment shall be made for 12 cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Section 10. (c) REGULATORY REQUIREMENTS. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. SECTION 13. WITHHOLDING TAXES. (a) GENERAL. A Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with his or her Award. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied. (b) SHARE WITHHOLDING. If a public market for the Company's Shares exists, the Committee may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares that otherwise would be issued to him or her (but not in excess of the minimum withholding amount required by law) or by surrendering all or a portion of any Shares that he or she previously acquired. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the Securities and Exchange Commission. SECTION 14. DURATION AND AMENDMENTS. (a) TERM OF THE PLAN. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board; provided, that the adoption of the Plan shall be subject to approval by the Company's stockholders within 12 months of the date of adoption to the extent required by applicable laws, regulations or rules; provided, further, that if and to the extent such approval is sought solely to satisfy the applicable requirements of Code Section 422(b)(1), then no Award of NSOs, Restricted Stock, Stock Units or SARs shall be deemed to be conditioned on receipt of such approval. To the extent required by applicable law, the Plan shall terminate on the date that is ten (10) years after its adoption by the Board and may be terminated on any earlier date pursuant to Section 14(b). (b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend or terminate the Plan at any time and for any reason. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan. No Awards shall be granted under the Plan after the Plan's termination. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by 13 applicable laws, regulations or rules; provided, that if and to the extent such approval is sought solely to satisfy the applicable requirements of Code Section 422(b)(1), then no Award of NSOs, Restricted Stock, Stock Units or SARs shall be deemed to be conditioned on receipt of such approval. SECTION 15. EXECUTION. To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to execute this Plan on behalf of the Company. PRINTCAFE SOFTWARE, INC. By /s/ Marc D. Olin ------------------------------------------ Title President and Chief Executive Officer ------------------------------------------ 14 EX-10.6 11 j9249402ex10-6.txt EMPLOYMENT AGREEMENT (MARC OLIN) Exhibit 10.6 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 2002, by and between printCafe, Inc., a Delaware corporation (the "Company"), and Marc Olin (the "Employee"). WHEREAS, the Employee is employed by the Employer as President, Chairman and Chief Executive Officer; and WHEREAS, the terms and conditions of Employee's employment are currently set forth in that certain Employment Agreement between the Employee and Employer dated as of March 10, 2000, and as the same may have been amended from time to time thereafter (the "Predecessor Agreement"); and WHEREAS, the Company and the Employee have agreed upon revised terms and conditions for the Employee's continued employment with the Company, which revised terms and conditions are set forth in this Agreement and are intended to supersede and replace the Predecessor Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein and for other good and valuable consideration, the parties agree as follows: 1. TERM. This Agreement shall commence on the date of this Agreement and shall continue for a term of one (1) year, unless otherwise terminated earlier in accordance with the terms hereof (the "Initial Term"). The Initial Term shall automatically renew for additional one (1) year periods unless terminated by either party upon giving sixty (60) days written notice prior to the expiration of the Term or any automatic renewal thereof, or unless otherwise terminated earlier in accordance with the terms hereof (the Initial Term and all subsequent renewals thereof are referred to herein as the "Term"). It is understood and agreed that Employee's employment with the Company will terminate at the end of the Term, and that Employee shall not thereafter continue to be employed by the Company as an at-will employee or in any other capacity, and that upon such termination, except as otherwise determined by the board of directors of the Company (the "Board"), any and all other assignments and appointments by Employee related to his employment shall also terminate (including, without limitation, any position on the Board or any assignment as a fiduciary of any Company employee benefit plan). 2. POSITIONS AND DUTIES. During the Term, the Employee will be employed as President and Chief Executive Officer of the Company and shall be responsible for all matters and responsibilities incidental to these positions. The Employee shall have the authority, power and responsibility to perform, and shall perform, all duties in connection with these positions consistent with the directives of the Board. To the extent necessary to meet the Company's business goals, the Board shall have the discretion to modify the Employee's duties or assign new duties to the Employee or to modify the Employee's reporting relationships; provided, that said modifications are consistent with those duties typically performed by an executive officer of the Company. The Employee further agrees to devote his full business time, attention and efforts to the performance of his duties hereunder, provided that the Employee may serve on corporate, civic or charitable boards or committees, deliver lectures, fulfill speaking engagements, teach at educational institutions or manage personal investments if such activities do not individually or in the aggregate significantly interfere with the performance of his duties under this Agreement. 3. SALARY. The Employee's salary shall be at an annual rate of $227,000 (the "Base Salary"), payable in accordance with the Company's customary payroll practices. The Employee's Base Salary may be adjusted from time to time by the Board in its sole discretion. 4. STOCK OPTIONS. (a) Upon the execution of this Agreement, the Company shall grant to the Employee options (the "Options") to purchase 629,630 shares of the Company's Series E Preferred Stock ("Shares") at an exercise price of $1.14 per share. Subject to (b) below, the Options shall vest over a period of four (4) years (the "Vesting Term"), with six-forty-eighths (6/48ths) of the Options vesting on June 30, 2002 and one-forty-eighth (1/48th) vesting on the last day of each of the succeeding forty-two calendar months respectively, and any Options that are not otherwise vested upon the Employee's termination of employment for any reason shall expire. The Options shall otherwise be subject to the terms of the Company's 2002 Key Executive Stock Incentive Plan and the instrument providing for the grant of such options to the Employee. (b) In the event of any Change of Control (as hereinafter defined), the Employee shall be treated, for purposes of determining the number of Options which are vested as of the effective date of such Change of Control, as if the Employee had been employed for six (6) months following such Change of Control. "Change of Control" shall mean (1) a dissolution or liquidation of the Company; (2) any sale or transfer of all or substantially all of the total assets of the Company; (3) any merger, consolidation or other business reorganization in which the holders of the Company's outstanding voting securities immediately prior to such transaction do not hold, immediately following such transaction, securities representing fifty percent (50%) or more of the combined voting power of the outstanding securities of the surviving entity; or (4) the acquisition by any person (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other than the Company, or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act of 1933, as amended) or employee benefit plan of the Company), of beneficial ownership (within the meaning of Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing fifty percent (50%) or more of the combined voting power of the then- outstanding securities of the Company. Notwithstanding anything in the preceding sentence, the acquisition by Creo SRL or its affiliates of beneficial ownership of securities representing less than one hundred percent (100%) of the total combined voting power of the outstanding securities of the Company shall not be deemed a Change of Control. 5. BENEFITS AND EXPENSES. (a) During the Term, the Company will provide benefits (including, without limitation, fringe benefits and vacation allowances) to the Employee no less favorable than those benefits made available to similarly situated employees of the Company. (b) During the Term, the Employee shall be reimbursed for all reasonable and necessary expenses incurred in connection with the business of the Company, upon the submission of appropriate documentation therefor. Such reimbursement shall be payable in accordance with the Company's policies and procedures. 6. CONFIDENTIALITY; NONSOLICITATION; NONCOMPETITION. The Employee agrees to execute in favor of the Company and to be bound by the terms of the Confidential Information, Noncompetition and Invention Assignment Agreement attached as Appendix A hereto and made a part hereof (the "Confidentiality Agreement"). 7. CONTINUATION, DEATH, DISABILITY AND TERMINATION. (a) In the event of the death of the Employee during the Term, this Agreement and the Employee's employment shall terminate as of the date of death and the Employee's estate shall be entitled to receive all Base Salary accrued, but unpaid, through the date of death. (b) In the event of a Disability (as hereinafter defined) of the Employee during the Term, this Agreement and the Employee's employment shall terminate as of the date of notice from the Company to the Employee terminating his employment due to the Disability. In addition to any benefits to which the Employee shall become entitled under the Company's benefit plans, the Employee shall be entitled to receive his Base Salary accrued, but unpaid, through the date of termination, and in addition shall be entitled to continue to receive his Base Salary for one year following the date of termination, reduced by the amount of any disability benefits received under a plan maintained by or contributed to by the Company. For purposes of this Agreement, "Disability" shall mean the Employee's inability, because of physical or mental illness or incapacity or otherwise, to perform his duties under this Agreement (i) for a period of 90 days or more in any period of 360 days or (ii) for any period of sixty (60) consecutive days, in each case as reasonably determined by the Board. (c) The Company may terminate this Agreement and the Employee's employment hereunder at any time for "Cause", which shall mean the Employee's (i) conviction of a felony or of a misdemeanor involving fraud, dishonesty or moral turpitude, or (ii) willful or intentional material breach of this Agreement or the Confidentiality Agreement that results in financial detriment that is material to the Company and its affiliates taken as a whole, provided that for purposes of clause (ii), "Cause" shall not include bad judgment, negligence or any act or omission that the Employee believed in good faith to have been in or not opposed to the interest of the Company. In the event the Agreement is terminated by the Company for Cause, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. (d) The Company may terminate this Agreement and the Employee's employment, without "Cause", at any time upon thirty (30) days' prior written notice to the Employee. The Company may also terminate this Agreement and the Employee's employment without "Cause" by giving notice of non-renewal in accordance with Section 1 (in which case this Agreement and the Employee's employment shall terminate at the end of the then-applicable Term). In the event of termination of the Agreement by the Company without Cause or due to the Company giving notice to the Employee of non-renewal, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. In addition, upon the Employee's execution of a general release of claims in favor of the Company, the Employee shall be entitled to continue to receive Employee's Base Salary for one year following such termination, as well as continuation for one year of health, life, disability and other welfare benefits on terms and conditions comparable to those applicable to active Company employees. The general release referred to in the preceding sentence shall not extend to any claims that the Employee may have under any indemnification agreement between the Employee and the Company. (e) The Employee shall have the right to terminate this Agreement and his employment at any time upon thirty (30) days' prior written notice to the Employee. The Employee shall also have the right to terminate this Agreement and his employment by giving notice of non-renewal in accordance with Section 1 (in which case this Agreement and the Employee's employment shall terminate at the end of the then-applicable Term). In the event the Agreement is terminated by the Employee, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. In addition, if the Agreement is terminated by the Employee for "Good Reason," then, upon the Employee's execution of a general release of claims in favor of the Company, the Employee shall be entitled to continue to receive Employee's Base Salary for one year following such termination as well as continuation for one year of health, life, disability and other welfare benefits on terms and conditions comparable to those applicable to active Company employees. The general release referred to in the preceding sentence shall not extend to any claims that the Employee may have under the indemnification provisions of this Agreement. "Good Reason" shall mean termination of the Agreement and his employment by the Employee within sixty (60) days after the occurrence of any of the following events: (i) a material breach of this Agreement by the Company, including, without limitation, the assignment to the Employee of duties inconsistent with his position and duties set forth in this Agreement; (ii) a material reduction in the Employee's title, status, authority or responsibility at the Company; (iii) a reduction in Base Salary; (iv) relocation of the Employee's principal place of employment with the Company more than thirty (30) miles from the previous location; or (v) the Employee's involuntary removal from the Board (other than in connection with a termination for Cause). The Company acknowledges that any change in organizational structure which results in Employee's no longer reporting directly to the Board would be deemed a material reduction in the Employee's title, status, authority or responsibility at the Company as defined in (ii) above. 8. WITHHOLDING TAXES. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. 9. CERTAIN REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants to the Company that the Employee is not under any contractual commitment prohibiting or limiting the Employee's employment by the Company or inconsistent with the Employee's obligations set forth in this Agreement. 10. NOTICES For the purpose of this Agreement, any notice or demand hereunder to or upon any party hereto required or permitted to be given or made shall be deemed to have been duly given or made: if delivered personally, upon receipt; if telecopied, when telecopied with confirmation of receipt, provided that a written copy thereof is sent on the same day by postage paid first-class mail; if sent by overnight delivery service, the next business day following timely deposit with such overnight delivery service; and if sent by certified or registered mail, three business days after timely deposit (postage prepaid) with the U.S. mail service, to such party at the following address: In the case of the Employee, to him at: ___________________________ ___________________________ Fax: (____) _______________ or to the last known address of the Employee contained in the personnel records of the Company. In the case of the Company, to it at: printCafe, Inc. Forty 24th Street Pittsburgh, PA 15222 Attn: General Counsel Fax: (412)456-1151 or such other address as either party hereto may at any time, or from time to time, direct by notice given to the other party in accordance with this Section. 11.SEVERABILITY; ASSIGNMENT. (a) If any portion of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, such portion shall be deemed deleted as though it had never been included herein, but the remainder of this Agreement shall remain in full force and effect. (b) This Agreement shall not be assignable by the Employee without the consent of the Company except pursuant to the laws of descent and distribution and then only for purposes of enforcing the Employee's rights under Section 7 and shall be assignable by the Company only with the consent of the Employee; PROVIDED, HOWEVER, that the Company may assign its rights and obligations under this Agreement without consent of the Employee in the event that the Company shall effect a reorganization or consolidate or merge with, sell all or substantially all of its equity or assets to, or enter into any other transaction with, any other entity. 12. COOPERATION WITH REGARD TO LITIGATION; WAIVER OF TRIAL BY JURY. (a) The Employee agrees to cooperate with the Company during the Term and thereafter by making himself reasonably available to testify on behalf of the Company or its affiliates, in any action, suit or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company or any of its affiliates in any such action, suit, or proceeding by providing information and meeting and consulting with its counsel and representatives. The Employee shall be fully reimbursed for any out-of-pocket expenses reasonably incurred by the Employee in the course of such cooperation. (b) Each of the parties to this Agreement irrevocably and unconditionally waives the right to a trial by jury in any action, suit or proceeding. 13. NO WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. 14. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and permitted assigns. This Agreement shall also inure to the benefit of and be binding upon the Employee, his executors, administrators and heirs. The Company shall make its best effort to cause any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the extent the Company would be required to perform if no such succession had taken place. 15. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with, the laws of the Commonwealth of Pennsylvania without regard to conflict or choice of law provisions that would defer to the substantive laws of another jurisdiction. 16. ATTORNEYS' FEES. In the event of litigation to enforce or interpret this Agreement, all litigation expenses, including by way of illustration, but not limitation, all reasonable attorneys' fees and paralegal fees, costs and expenses through all trials, appeals and proceedings, mediation, arbitration, or any proceedings pursuant to the bankruptcy laws of the United States, shall be paid to the prevailing party by the non-prevailing party; provided, that in no event shall either party be liable for greater than $30,000 in litigation expenses incurred by the other party unless it is determined that the breaching party willfully breached this Agreement. 17. NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement, whether express or implied, is intended, or shall be deemed, to create or confer any right, interest or remedy for the benefit of any person other than as otherwise provided in this Agreement. 18. ENTIRE AGREEMENT. Except for the Confidentiality Agreement, any indemnification agreement between the Company and the Employee, and any option grant agreement, this Agreement supersedes all prior employment or other agreements, negotiations and understandings of any kind between the parties with respect to the subject matter hereof (including, without limitation, the Predecessor Agreement) and contains all of the agreements and understandings between the parties hereto with respect to the subject matter hereof. Any representation, premise or condition, whether written or oral, not specifically incorporated herein, shall have no binding effect upon the parties. 19. HEADINGS. The headings contained in this Agreement are included for convenience and reference purposes only and shall be given no effect in the construction or interpretation of this Agreement. 20. AMENDMENTS. No modification, termination or waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom the same is sought to be enforced. 21. COUNTERPARTS. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. EMPLOYEE /s/ Marc Olin ------------------------------------- Marc Olin PRINTCAFE, INC. By: /s/ Joseph Whang ---------------------------------- Name: Joseph Whang -------------------------------- Title: Chief Financial Officer ------------------------------- APPENDIX A PRINTCAFE, INC. CONFIDENTIAL INFORMATION, NONCOMPETITION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my employment being continued by printCafe, Inc., a Delaware corporation, or any of its current or future parent, subsidiaries, affiliates, successors or assigns (collectively, the "COMPANY"), and in consideration of the Company's entering into an employment agreement with me effective January 1, 2002 ("EMPLOYMENT AGREEMENT") and my receipt of the compensation and benefits contemplated thereunder, I hereby agree to the following: 1. EMPLOYMENT RELATIONSHIP. I understand and acknowledge that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of, or the duration of my employment relationship with, the Company under the Employment Agreement or under applicable law. Any employment relationship between the Company and me shall be referred to herein as the "RELATIONSHIP." 2. CONFIDENTIAL INFORMATION. (a) COMPANY INFORMATION. I agree at all times during the term of my Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without written authorization of the Board of Directors of the Company, any Confidential Information of the Company which I obtain or create. I further agree not to make copies of such Confidential Information except as authorized by the Company. I understand that "CONFIDENTIAL INFORMATION" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment or created by me during the period of the Relationship, whether or not during working hours. I understand that "CONFIDENTIAL INFORMATION" includes, but is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Confidential Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) FORMER EMPLOYER INFORMATION. I represent that my performance of all terms of this Agreement as an employee of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or trust prior or subsequent to the commencement of my Relationship with the Company, and I will not disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party. (c) THIRD PARTY INFORMATION. I recognize that the Company has received and in the future will receive confidential or proprietary information from third parties subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party. 3. INVENTIONS. (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as EXHIBIT X, a list describing with particularity all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to the commencement of the Relationship (collectively referred to as "PRIOR INVENTIONS"), which belong solely to me or belong to me jointly with another, which relate in any way to any of the Company's proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If, in the course of my Relationship with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time in which I am employed by the Company (collectively referred to as "INVENTIONS"), except as provided in Section 4(e) below. I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company are "WORKS MADE FOR HIRE" (to the greatest extent permitted by applicable law) and are compensated by my salary, unless regulated otherwise by the mandatory law of the state of California. (c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my Relationship with the Company. The records may be in the form of notes, sketches, 2 drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company's place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company's business. (d) PATENT AND COPYRIGHT RIGHTS. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company shall deem necessary in order to apply for, obtain, maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company. (e) STATUTORY NOTIFICATION. I am hereby notified that this Agreement does not apply to any Inventions for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on my own time, and (1) which does not relate (a) directly to the business of the Company or (b) to the Company's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by me for the Company. 4. RETURNING COMPANY DOCUMENTS. I agree that, at the time of termination of my Relationship with the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. I further agree that to any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or 3 without notice. In the event of the termination of the Relationship, I agree to sign and deliver the "TERMINATION CERTIFICATION" attached hereto as EXHIBIT Y. 5. NOTIFICATION TO NEW EMPLOYER. In the event that I leave the employ of the Company, I hereby consent to notification by the Company to my new employer about my rights and obligations under this Agreement. 6. SOLICITATION OF EMPLOYEES, CONSULTANTS AND OTHER PARTIES. I agree that during the term of my Relationship with the Company, and for a period of twenty-four (24) months immediately following the termination of my Relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months following termination of my Relationship with the Company for any reason other than a termination of my Relationship by the Company without Cause (as hereinafter defined), I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company. For the purposes of this Agreement, "Cause" shall have the same meaning as set forth in the Employment Agreement. 7. NONCOMPETITION. I agree that during the term of my Relationship with the Company, and for a period of (i) twelve (12) months immediately following the termination of my Relationship with the Company in the event that my Relationship is terminated (a) by the Company without Cause, (b) by the Company pursuant to written notice of non-renewal in accordance with Section 1 of the Employment Agreement, (c) by me due to Good Reason (as defined in the Employment Agreement), or (d) by the Company pursuant to written notice due to a Disability (as defined in the Employment Agreement), or (ii) twenty-four (24) months immediately following the termination of my Relationship with the Company in the event that my Relationship is terminated (x) by the Company for Cause, (y) voluntarily by me upon written notice to the Company, or (z) voluntarily by me by giving notice of non-renewal in accordance with Section 1 of the Employment Agreement, I shall not, either directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, lender, consultant, agent, independent contractor, stockholder or otherwise, and I shall not permit any company or business organization directly or indirectly controlled by me or any of my affiliates to, during the applicable period, engage in any Competing Business in any place where the Company conducts business or has conducted business (or has at any time actively explored conducting business) during the twenty-four (24) months preceding my termination of my Relationship with the Company. The passive ownership by me or my affiliates of not more than three percent (3%) of the shares of capital stock of any corporation having a class of equity securities actively traded on a national securities exchange or in the over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this paragraph. "Competing Business" shall mean any business involving the provision and development of infrastructure software and Internet-based products for the printing industry. 4 8. REPRESENTATIONS AND COVENANTS. (a) FACILITATION OF AGREEMENT. I agree to execute promptly any proper oath or verify any proper document required to carry out the terms of this Agreement upon the Company's written request to do so. (b) CONFLICTS. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of my Relationship with the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with any of the provisions of this Agreement. (c) VOLUNTARY EXECUTION. I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions. (d) REASONABLENESS OF COVENANTS. I acknowledge that the provisions of this agreement are reasonable and necessary for the protection of the Company and are an essential inducement to the Company's entering into the Employment Agreement and continuing the Relationship. Accordingly, I agree to be bound by the provisions of this Agreement to the maximum extent permitted by law, it being the intent and spirit of the parties that such provisions shall be fully enforceable. However, I agree that, if any of the provisions hereof shall for any reason be held to be excessively broad as to duration, geographical scope, property or subject matter, such provision shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable law as it shall herein pertain. (e) REMEDIES. I acknowledge that the services to be rendered by me as part of the Relationship are of a unique nature and that it would be difficult or impossible to replace such services or to ascertain appropriate monetary damages for any violation of this Agreement and that by reason thereof I agree and consent that if I violate the provisions of this Agreement, the Company, in addition to any other rights and remedies available under this Agreement or otherwise, shall be entitled to an injunction to be issued or specific performance to be required restricting me from committing or continuing any such violation. 9. GENERAL PROVISIONS. (a) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania, without giving effect to the principles of conflict of laws. (b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement. 5 (c) SEVERABILITY. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect. (d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. (e) SURVIVAL. The provisions of this Agreement shall survive the termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignee. (f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. [Signature Page Follows] 6 The parties have executed this Agreement on the respective dates set forth below: COMPANY: EMPLOYEE: PRINTCAFE, INC. /s/ Joseph Whang /s/ Marc D. Olin - ----------------- ----------------- Signature Signature By: Joseph Whang Marc D. Olin ------------- ---------------- Printed Name Title: Chief Financial Officer ----------------------- Date: February 6, 2002 Date: February 6, 2002 ---------------- ---------------- Address: 40 24th Street, 5th Floor Address: ------------------------- -------------------- Pittsburgh, PA 15222 ------------------------- -------------------- 7 EXHIBIT X --------- LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4 Identifying Number Title Date or Brief Description ----- ---- -------------------- ___ No inventions or improvements ___ Additional Sheets Attached Signature of Employee:____________________________________________ Print Name of Employee:___________________________________________ Date:_____________________________________________________________ EXHIBIT Y --------- TERMINATION CERTIFICATION This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to printCafe, Inc., its subsidiaries, affiliates, successors or assigns (together the "COMPANY"). I further certify that I have complied with all the terms of the Company's Confidential Information, Noncompetition and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement. I further agree that, in compliance with the Confidential Information, Noncompetition and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees. I further agree that for twenty-four (24) months from the date of this Certificate, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months from the date of this Certificate, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date hereof; provided, however, that the foregoing restrictions shall not be applicable in the event that I have been terminated by the Company without Cause. For the purposes of this Certificate , "Cause" shall have the meaning set forth in my Employment Agreement. Finally, I agree that for a period of twenty-four (24) months from the date of this Certificate (twelve (12) months if my employment is being terminated by the Company without "Cause" or through non-renewal of my Employment Agreement or by me for "Good Reason", all as defined in my Employment Agreement) I shall not, either directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, lender, consultant, agent, independent contractor, stockholder or otherwise, and I shall not permit any company or business organization directly or indirectly controlled by me or any of my affiliates to, engage in any Competing Business in any place where the Company conducts business or has conducted business (or has at any time actively explored conducting business) during the twenty-four (24) months preceding the date of this Certificate. The passive ownership by me or my affiliates of not more than three percent (3%) of the shares of capital stock of any corporation having a class of equity securities actively traded on a national securities exchange or in the over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this paragraph. "Competing Business" shall mean any business involving the provision and development of infrastructure software and Internet-based products for the printing industry. Date: ------------------------ ---------------------------------------- (Employee's Signature) ---------------------------------------- (Type/Print Employee's Name) EX-10.7 12 j9249402ex10-7.txt EMPLOYMENT AGREEMENT (JOSEPH WHANG) Exhibit 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 2002, by and between printCafe, Inc., a Delaware corporation (the "Company"), and Joseph Whang (the "Employee"). WHEREAS, the Employee is employed by the Employer as Chief Financial Officer and Chief Operating Officer; and WHEREAS, the terms and conditions of Employee's employment are currently set forth in that certain Employment Agreement between the Employee and the Company, dated as of March 10, 2000, and as the same may have been amended from time to time thereafter (the "Predecessor Agreement"); and WHEREAS, the Company and the Employee have agreed upon revised terms and conditions for the Employee's continued employment with the Company, which revised terms and conditions are set forth in this Agreement and are intended to supersede and replace the Predecessor Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein and for other good and valuable consideration, the parties agree as follows: 1. TERM. This Agreement shall commence on the date of this Agreement and shall continue for a term of one (1) year, unless otherwise terminated earlier in accordance with the terms hereof (the "Term"). The Term shall automatically renew for additional one (1) year periods unless terminated by either party upon giving sixty (60) days written notice prior to the expiration of the Term or any automatic renewal thereof, or unless otherwise terminated earlier in accordance with the terms hereof. It is understood and agreed that Employee's employment with the Company will terminate at the end of the Term, and that Employee shall not thereafter continue to be employed by the Company as an at-will employee or in any other capacity, and that upon such termination, except as otherwise determined by the board of directors of the Company (the "Board"), any and all other assignments and appointments by Employee related to his employment shall also terminate (including, without limitation, any position on the Board or any assignment as a fiduciary of any Company employee benefit plan). 2. POSITIONS AND DUTIES. During the Term, the Employee will be employed as Chief Financial Officer and Chief Operating Officer of the Company and shall be responsible for all matters and responsibilities incidental to these positions. The Employee shall report to the Company's Chief Executive Officer ("CEO"). The Employee shall have the authority, power and responsibility to perform, and shall perform, all duties in connection with these positions consistent with the directives of the the CEO and the Board. To the extent necessary to meet the Company's business goals, the CEO or the Board shall have the discretion to modify the Employee's duties or assign new duties to the Employee or to modify the Employee's reporting relationships; provided, that said modifications are consistent with those duties typically performed by an executive officer of the Company. The Employee further agrees to devote his full business time, attention and efforts to the performance of his duties hereunder, provided that the Employee may serve on corporate, civic or charitable boards or committees, deliver lectures, fulfill speaking engagements, teach at educational institutions or manage personal investments if such activities do not individually or in the aggregate significantly interfere with the performance of his duties under this Agreement. 3. SALARY. The Employee's salary shall be at an annual rate of $190,000 (the "Base Salary"), payable in accordance with the Company's customary payroll practices. The Employee's Base Salary may be adjusted from time to time by the Board in its sole discretion. 4. STOCK OPTIONS. (a) Upon the execution of this Agreement, the Company shall grant to the Employee options (the "Options") to purchase 510,000 shares of the Company's Series E Preferred Stock ("Shares") at an exercise price of $1.14 per share. Subject to (b) below, the Options shall vest over a period of four (4) years (the "Vesting Term"), with six-forty-eighths (6/48ths) of the Options vesting on June 30, 2002 and one-forty-eighth (1/48th) vesting on the last day of each of the succeeding forty-two calendar months respectively, and any Options that are not otherwise vested upon the Employee's termination of employment for any reason shall expire. The Options shall otherwise be subject to the terms of the Company's 2002 Key Executive Stock Incentive Plan and the instrument providing for the grant of such options to the Employee. (b) In the event of any Change of Control (as hereinafter defined), the Employee shall be treated, for purposes of determining the number of Options which are vested as of the effective date of such Change of Control, as if the Employee had been employed for six (6) months following such Change of Control. "Change of Control" shall mean (1) a dissolution or liquidation of the Company; (2) any sale or transfer of all or substantially all of the total assets of the Company; (3) any merger, consolidation or other business reorganization in which the holders of the Company's outstanding voting securities immediately prior to such transaction do not hold, immediately following such transaction, securities representing fifty percent (50%) or more of the combined voting power of the outstanding securities of the surviving entity; or (4) the acquisition by any person (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other than the Company, or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act of 1933, as amended) or employee benefit plan of the Company), of beneficial ownership (within the meaning of Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company. Notwithstanding anything in the preceding sentence, the acquisition by Creo SRL or its affiliates of beneficial ownership of securities representing less than one hundred percent (100%) of the total combined voting power of the outstanding securities of the Company shall not be deemed a Change of Control. 5. BENEFITS AND EXPENSES. (a) During the Term, the Company will provide benefits (including, without limitation, fringe benefits and vacation allowances) to the Employee no less favorable than those benefits made available to similarly situated employees of the Company. (b) During the Term, the Employee shall be reimbursed for all reasonable and necessary expenses incurred in connection with the business of the Company, upon the submission of appropriate documentation therefor. Such reimbursement shall be payable in accordance with the Company's policies and procedures. (c) In the event that the Employee is relocated from the Cleveland area to the Pittsburgh area, the Employee will be entitled to his actual moving expenses, including packing, moving and insuring all household goods and personal effects. Such expenses will be paid by the Company directly to the moving company. The Company reserves the right to determine the reasonability of said expenses in good faith. The Company will also pay the Employee's reasonable hotel charges, meals, incidental en-route expenses (with reconciliation of supporting documentation for tax records) and $0.325 per mile for the transport of Employee's personal vehicles. (d) If the Employee voluntarily leaves the Company (other than for Good Reason) within the first twelve months following the Employee's move, all expenses paid or reimbursed by the Company pursuant to paragraph (b) will be prorated so that the Company will be entitled to recoup a portion of such moving expenses, in an amount determined by multiplying the total of such expenses by a fraction, the numerator of which shall be the total number of months the Employee remains employed with the Company following the move, and the denominator of which shall be twelve (12). Any such amount which the Company is entitled to recoup shall be deducted from the Employee's final pay check. (e) The Company shall pay the difference between the total price (i.e., the original sales price plus the price paid for any subsequent improvements, in conformance with IRS rules) paid by the Employee for his current home and the final net sales price (i.e., the gross sales price less deductions, including fix up expenses and commissions paid to any real estate brokerage), up to a maximum of Fifty Thousand Dollars ($50,000). Any monies payable as a result of the Employee's home sale are payable within twelve (12) months of the actual move. 6. CONFIDENTIALITY; NONSOLICITATION; NONCOMPETITION. The Employee agrees to execute in favor of the Company and to be bound by the terms of the Confidential Information, Noncompetition and Invention Assignment Agreement attached as Appendix A hereto and made a part hereof (the "Confidentiality Agreement"). 7. CONTINUATION, DEATH, DISABILITY AND TERMINATION. (a) In the event of the death of the Employee during the Term, this Agreement and the Employee's employment shall terminate as of the date of death and the Employee's estate shall be entitled to receive all Base Salary accrued, but unpaid, through the date of death. (b) In the event of a Disability (as hereinafter defined) of the Employee during the Term, this Agreement and the Employee's employment shall terminate as of the date of notice from the Company to the Employee terminating his employment due to the Disability. In addition to any benefits to which the Employee shall become entitled under the Company's benefit plans, the Employee shall be entitled to receive his Base Salary accrued, but unpaid, through the date of termination, and in addition shall be entitled to continue to receive his Base Salary for one year following the date of termination, reduced by the amount of any disability benefits received under a plan maintained by or contributed to by the Company. For purposes of this Agreement, "Disability" shall mean the Employee's inability, because of physical or mental illness or incapacity or otherwise, to perform his duties under this Agreement (i) for a period of 90 days or more in any period of 360 days or (ii) for any period of sixty (60) consecutive days, in each case as reasonably determined by the Board. (c) The Company may terminate this Agreement and the Employee's employment hereunder at any time for "Cause", which shall mean the Employee's (i) conviction of a felony or of a misdemeanor involving fraud, dishonesty or moral turpitude, or (ii) willful or intentional material breach of this Agreement or the Confidentiality Agreement that results in financial detriment that is material to the Company and its affiliates taken as a whole, provided that for purposes of clause (ii), "Cause" shall not include bad judgment, negligence or any act or omission that the Employee believed in good faith to have been in or not opposed to the interest of the Company. In the event the Agreement is terminated by the Company for Cause, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. (d) The Company may terminate this Agreement and the Employee's employment, without "Cause", at any time upon thirty (30) days' prior written notice to the Employee. The Company may also terminate this Agreement and the Employee's employment without "Cause" by giving notice of non-renewal in accordance with Section 1 (in which case this Agreement and the Employee's employment shall terminate at the end of the then-applicable Term). In the event of such termination of the Agreement, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. In addition, upon the Employee's execution of a general release of claims in favor of the Company, the Employee shall be entitled to continue to receive Employee's Base Salary for one year following such termination, as well as continuation for one year of health, life, disability and other welfare benefits on terms and conditions comparable to those applicable to active Company employees. The general release referred to in the preceding sentence shall not extend to any claims that the Employee may have under any indemnification agreement between the Employee and the Company. (e) The Employee shall have the right to terminate this Agreement and his employment at any time upon thirty (30) days' prior written notice to the Employee. The Employee shall also have the right to terminate this Agreement and his employment by giving notice of non-renewal in accordance with Section 1 (in which case this Agreement and the Employee's employment shall terminate at the end of the then-applicable Term). In the event the Agreement is terminated by the Employee, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. In addition, if the Agreement is terminated by the Employee for "Good Reason," then, upon the Employee's execution of a general release of claims in favor of the Company, the Employee shall be entitled to continue to receive Employee's Base Salary for one year following such termination as well as continuation for one year of health, life, disability and other welfare benefits on terms and conditions comparable to those applicable to active Company employees. The general release referred to in the preceding sentence shall not extend to any claims that the Employee may have under the indemnification provisions of this Agreement. "Good Reason" shall mean termination of the Agreement and his employment by the Employee within sixty (60) days after the occurrence of any of the following events: (i) a material breach of this Agreement by the Company, including, without limitation, the assignment to the Employee of duties inconsistent with his position and duties set forth in this Agreement; (ii) a material reduction in the Employee's title, status, authority or responsibility at the Company; (iii) a reduction in Base Salary; or (iv) relocation of the Employee's principal place of employment with the Company more than thirty (30) miles from the previous location (other than a relocation from the Cleveland area to the Pittsburgh area for which expense reimbursements are payable under Section 5 hereof). The Company acknowledges that any change in organizational structure which results in Employee's no longer reporting directly to the CEO would be deemed a material reduction in the Employee's title, status, authority or responsibility at the Company as defined in (ii) above. 8. WITHHOLDING TAXES. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. 9. CERTAIN REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants to the Company that the Employee is not under any contractual commitment prohibiting or limiting the Employee's employment by the Company or inconsistent with the Employee's obligations set forth in this Agreement. 10. NOTICES. For the purpose of this Agreement, any notice or demand hereunder to or upon any party hereto required or permitted to be given or made shall be deemed to have been duly given or made: if delivered personally, upon receipt; if telecopied, when telecopied with confirmation of receipt, provided that a written copy thereof is sent on the same day by postage paid first-class mail; if sent by overnight delivery service, the next business day following timely deposit with such overnight delivery service; and if sent by certified or registered mail, three business days after timely deposit (postage prepaid) with the U.S. mail service, to such party at the following address: In the case of the Employee, to him at: _____________________________ _____________________________ or to the last known address of the Employee contained in the personnel records of the Company. In the case of the Company, to it at: printCafe, Inc. Forty 24th Street Pittsburgh, PA 15222 Attn: General Counsel Fax: (412) 456-1151 or such other address as either party hereto may at any time, or from time to time, direct by notice given to the other party in accordance with this Section. 11. SEVERABILITY; ASSIGNMENT. (a) If any portion of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, such portion shall be deemed deleted as though it had never been included herein, but the remainder of this Agreement shall remain in full force and effect. (b) This Agreement shall not be assignable by the Employee without the consent of the Company except pursuant to the laws of descent and distribution and then only for purposes of enforcing the Employee's rights under Section 7 and shall be assignable by the Company only with the consent of the Employee; PROVIDED, HOWEVER, that the Company may assign its rights and obligations under this Agreement without consent of the Employee in the event that the Company shall effect a reorganization or consolidate or merge with, sell all or substantially all of its equity or assets to, or enter into any other transaction with, any other entity. 12. COOPERATION WITH REGARD TO LITIGATION; WAIVER OF TRIAL BY JURY. (a) The Employee agrees to cooperate with the Company during the Term and thereafter by making himself reasonably available to testify on behalf of the Company or its affiliates, in any action, suit or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company or any of its affiliates in any such action, suit, or proceeding by providing information and meeting and consulting with its counsel and representatives. The Employee shall be fully reimbursed for any out-of-pocket expenses reasonably incurred by the Employee in the course of such cooperation. (b) Each of the parties to this Agreement irrevocably and unconditionally waives the right to a trial by jury in any action, suit or proceeding. 13. NO WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. 14. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and permitted assigns. This Agreement shall also inure to the benefit of and be binding upon the Employee, his executors, administrators and heirs. The Company shall make its best effort to cause any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the extent the Company would be required to perform if no such succession had taken place. 15. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with, the laws of the Commonwealth of Pennsylvania without regard to conflict or choice of law provisions that would defer to the substantive laws of another jurisdiction. 16. ATTORNEYS' FEES. In the event of litigation to enforce or interpret this Agreement, all litigation expenses, including by way of illustration, but not limitation, all reasonable attorneys' fees and paralegal fees, costs and expenses through all trials, appeals and proceedings, mediation, arbitration, or any proceedings pursuant to the bankruptcy laws of the United States, shall be paid to the prevailing party by the non-prevailing party; provided, that in no event shall either party be liable for greater than $30,000 in litigation expenses incurred by the other party unless it is determined that the breaching party willfully breached this Agreement. 17. NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement, whether express or implied, is intended, or shall be deemed, to create or confer any right, interest or remedy for the benefit of any person other than as otherwise provided in this Agreement. 18. ENTIRE AGREEMENT. Except for the Confidentiality Agreement, any indemnification agreement between the Company and the Employee, and any option grant agreement, this Agreement supersedes all prior employment or other agreements, negotiations and understandings of any kind between the parties with respect to the subject matter hereof (including, without limitation, the Predecessor Agreement) and contains all of the agreement and understandings between the parties hereto with respect to the subject matter hereof. Any representation, premise or condition, whether written or oral, not specifically incorporated herein, shall have no binding effect upon the parties. 19. HEADINGS. The headings contained in this Agreement are included for convenience and reference purposes only and shall be given no effect in the construction or interpretation of this Agreement. 20. AMENDMENTS. No modification, termination or waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom the same is sought to be enforced. 21. COUNTERPARTS. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. EMPLOYEE /s/ Joseph Whang --------------------------------- Joseph Whang PRINTCAFE, INC. By: /s/ Marc D. Olin ------------------------------ Name: Marc D. Olin ---------------------------- Title: President and C.E.O. --------------------------- APPENDIX A PRINTCAFE, INC. CONFIDENTIAL INFORMATION, NONCOMPETITION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my employment being continued by printCafe, Inc., a Delaware corporation, or any of its current or future parent, subsidiaries, affiliates, successors or assigns (collectively, the "COMPANY"), and in consideration of the Company's entering into an employment agreement with me effective January 1, 2002 ("EMPLOYMENT AGREEMENT") and my receipt of the compensation and benefits contemplated thereunder, I hereby agree to the following: 1. EMPLOYMENT RELATIONSHIP. I understand and acknowledge that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of, or the duration of my employment relationship with, the Company under the Employment Agreement or under applicable law. Any employment relationship between the Company and me shall be referred to herein as the "RELATIONSHIP." 2. CONFIDENTIAL INFORMATION. (a) COMPANY INFORMATION. I agree at all times during the term of my Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without written authorization of the Board of Directors of the Company, any Confidential Information of the Company which I obtain or create. I further agree not to make copies of such Confidential Information except as authorized by the Company. I understand that "CONFIDENTIAL INFORMATION" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment or created by me during the period of the Relationship, whether or not during working hours. I understand that "CONFIDENTIAL INFORMATION" includes, but is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Confidential Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) FORMER EMPLOYER INFORMATION. I represent that my performance of all terms of this Agreement as an employee of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or trust prior or subsequent to the commencement of my Relationship with the Company, and I will not disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party. (c) THIRD PARTY INFORMATION. I recognize that the Company has received and in the future will receive confidential or proprietary information from third parties subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party. 3. INVENTIONS. (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as EXHIBIT X, a list describing with particularity all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to the commencement of the Relationship (collectively referred to as "PRIOR INVENTIONS"), which belong solely to me or belong to me jointly with another, which relate in any way to any of the Company's proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If, in the course of my Relationship with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time in which I am employed by the Company (collectively referred to as "INVENTIONS"), except as provided in Section 4(e) below. I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company are "WORKS MADE FOR HIRE" (to the greatest extent permitted by applicable law) and are compensated by my salary, unless regulated otherwise by the mandatory law of the state of California. (c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my Relationship with the Company. The records may be in the form of notes, sketches, 2 drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company's place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company's business. (d) PATENT AND COPYRIGHT RIGHTS. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company shall deem necessary in order to apply for, obtain, maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company. (e) STATUTORY NOTIFICATION. I am hereby notified that this Agreement does not apply to any Inventions for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on my own time, and (1) which does not relate (a) directly to the business of the Company or (b) to the Company's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by me for the Company. 4. RETURNING COMPANY DOCUMENTS. I agree that, at the time of termination of my Relationship with the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. I further agree that to any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or 3 without notice. In the event of the termination of the Relationship, I agree to sign and deliver the "TERMINATION CERTIFICATION" attached hereto as EXHIBIT Y. 5. NOTIFICATION TO NEW EMPLOYER. In the event that I leave the employ of the Company, I hereby consent to notification by the Company to my new employer about my rights and obligations under this Agreement. 6. SOLICITATION OF EMPLOYEES, CONSULTANTS AND OTHER PARTIES. I agree that during the term of my Relationship with the Company, and for a period of twenty-four (24) months immediately following the termination of my Relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months following termination of my Relationship with the Company for any reason other than a termination of my Relationship by the Company without Cause (as hereinafter defined), I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company. For the purposes of this Agreement, "Cause" shall have the same meaning as set forth in the Employment Agreement. 7. NONCOMPETITION. I agree that during the term of my Relationship with the Company, and for a period of (i) twelve (12) months immediately following the termination of my Relationship with the Company in the event that my Relationship is terminated (a) by the Company without Cause, (b) by the Company pursuant to written notice of non-renewal in accordance with Section 1 of the Employment Agreement, (c) by me due to Good Reason (as defined in the Employment Agreement), or (d) by the Company pursuant to written notice due to a Disability (as defined in the Employment Agreement), or (ii) twenty-four (24) months immediately following the termination of my Relationship with the Company in the event that my Relationship is terminated (x) by the Company for Cause, (y) voluntarily by me upon written notice to the Company, or (z) voluntarily by me by giving notice of non-renewal in accordance with Section 1 of the Employment Agreement, I shall not, either directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, lender, consultant, agent, independent contractor, stockholder or otherwise, and I shall not permit any company or business organization directly or indirectly controlled by me or any of my affiliates to, during the applicable period, engage in any Competing Business in any place where the Company conducts business or has conducted business (or has at any time actively explored conducting business) during the twenty-four (24) months preceding my termination of my Relationship with the Company. The passive ownership by me or my affiliates of not more than three percent (3%) of the shares of capital stock of any corporation having a class of equity securities actively traded on a national securities exchange or in the over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this paragraph. "Competing Business" shall mean any business involving the provision and development of infrastructure software and Internet-based products for the printing industry. 4 8. REPRESENTATIONS AND COVENANTS. (a) FACILITATION OF AGREEMENT. I agree to execute promptly any proper oath or verify any proper document required to carry out the terms of this Agreement upon the Company's written request to do so. (b) CONFLICTS. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of my Relationship with the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with any of the provisions of this Agreement. (c) VOLUNTARY EXECUTION. I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions. (d) REASONABLENESS OF COVENANTS. I acknowledge that the provisions of this agreement are reasonable and necessary for the protection of the Company and are an essential inducement to the Company's entering into the Employment Agreement and continuing the Relationship. Accordingly, I agree to be bound by the provisions of this Agreement to the maximum extent permitted by law, it being the intent and spirit of the parties that such provisions shall be fully enforceable. However, I agree that, if any of the provisions hereof shall for any reason be held to be excessively broad as to duration, geographical scope, property or subject matter, such provision shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable law as it shall herein pertain. (e) REMEDIES. I acknowledge that the services to be rendered by me as part of the Relationship are of a unique nature and that it would be difficult or impossible to replace such services or to ascertain appropriate monetary damages for any violation of this Agreement and that by reason thereof I agree and consent that if I violate the provisions of this Agreement, the Company, in addition to any other rights and remedies available under this Agreement or otherwise, shall be entitled to an injunction to be issued or specific performance to be required restricting me from committing or continuing any such violation. 9. GENERAL PROVISIONS. (a) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania, without giving effect to the principles of conflict of laws. (b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement. 5 (c) SEVERABILITY. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect. (d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. (e) SURVIVAL. The provisions of this Agreement shall survive the termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignee. (f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. [Signature Page Follows] 6 The parties have executed this Agreement on the respective dates set forth below: COMPANY: EMPLOYEE: PRINTCAFE, INC. /s/ Marc D. Olin /s/ Joseph Whang - ---------------- ---------------- Signature Signature By: Marc D. Olin Joseph Whang ------------------------- -------------------------------------------- Printed Name Title: President and CEO ------------------------- Date: February 6, 2002 Date: February 6, 2002 ------------------------- ------------------------------------- Address: 40 24th Street, 5th Floor Address: ------------------------- ------------------------------------ Pittsburgh, PA 15222 ------------------------- ------------------------------------ 7 EXHIBIT X --------- LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4 Identifying Number Title Date or Brief Description ----- ---- -------------------- ___ No inventions or improvements ___ Additional Sheets Attached Signature of Employee:____________________________________________ Print Name of Employee:___________________________________________ Date:_____________________________________________________________ EXHIBIT Y --------- TERMINATION CERTIFICATION This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to printCafe, Inc., its subsidiaries, affiliates, successors or assigns (together the "COMPANY"). I further certify that I have complied with all the terms of the Company's Confidential Information, Noncompetition and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement. I further agree that, in compliance with the Confidential Information, Noncompetition and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees. I further agree that for twenty-four (24) months from the date of this Certificate, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months from the date of this Certificate, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date hereof; provided, however, that the foregoing restrictions shall not be applicable in the event that I have been terminated by the Company without Cause. For the purposes of this Certificate , "Cause" shall have the meaning set forth in my Employment Agreement. Finally, I agree that for a period of twenty-four (24) months from the date of this Certificate (twelve (12) months if my employment is being terminated by the Company without "Cause" or through non-renewal of my Employment Agreement or by me for "Good Reason", all as defined in my Employment Agreement) I shall not, either directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, lender, consultant, agent, independent contractor, stockholder or otherwise, and I shall not permit any company or business organization directly or indirectly controlled by me or any of my affiliates to, engage in any Competing Business in any place where the Company conducts business or has conducted business (or has at any time actively explored conducting business) during the twenty-four (24) months preceding the date of this Certificate. The passive ownership by me or my affiliates of not more than three percent (3%) of the shares of capital stock of any corporation having a class of equity securities actively traded on a national securities exchange or in the over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this paragraph. "Competing Business" shall mean any business involving the provision and development of infrastructure software and Internet-based products for the printing industry. Date: ------------------------ ---------------------------------------- (Employee's Signature) ---------------------------------------- (Type/Print Employee's Name) EX-10.8 13 j9249402ex10-8.txt EMPLOYMENT AGREEMENT (RONALD HYLAND) Exhibit 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 2002, by and between printCafe, Inc., a Delaware corporation (the "Company"), and Ronald Hyland (the "Employee"). WHEREAS, the Employee is employed by the Employer as Vice President and Chief Technology Officer; and WHEREAS, the terms and conditions of Employee's employment are currently set forth in that certain Employment Agreement between the Employee and Employer, dated as of March 10, 2000, and as the same may have been amended from time to time thereafter (the "Predecessor Agreement"); and WHEREAS, the Company and the Employee have agreed upon revised terms and conditions for the Employee's continued employment with the Company, which revised terms and conditions are set forth in this Agreement and are intended to supersede and replace the Predecessor Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein and for other good and valuable consideration, the parties agree as follows: 1. TERM. This Agreement shall commence on the date of this Agreement and shall continue for a term of one (1) year, unless otherwise terminated earlier in accordance with the terms hereof (the "Term"). The Term shall automatically renew for additional one (1) year periods unless terminated by either party upon giving sixty (60) days written notice prior to the expiration of the Term or any automatic renewal thereof, or unless otherwise terminated earlier in accordance with the terms hereof. It is understood and agreed that Employee's employment with the Company will terminate at the end of the Term, and that Employee shall not thereafter continue to be employed by the Company as an at-will employee or in any other capacity, and that upon such termination, except as otherwise determined by the board of directors of the Company (the "Board"), any and all other assignments and appointments by Employee related to his employment shall also terminate (including, without limitation, any position on the Board or any assignment as a fiduciary of any Company employee benefit plan). 2. POSITIONS AND DUTIES. During the Term, the Employee will be employed as Senior Vice President and Chief Technology Officer of the Company and shall be responsible for all matters and responsibilities incidental to these positions. The Employee shall report to the Company's Chief Executive Officer ("CEO"). The Employee shall have the authority, power and responsibility to perform, and shall perform, all duties in connection with these positions consistent with the directives of the the CEO and the Board. To the extent necessary to meet the Company's business goals, the CEO or the Board shall have the discretion to modify the Employee's duties or assign new duties to the Employee or to modify the Employee's reporting relationships; provided, that said modifications are consistent with those duties typically performed by an executive officer of the Company. The Employee further agrees to devote his full business time, attention and efforts to the performance of his duties hereunder, provided that the Employee may serve on corporate, civic or charitable boards or committees, deliver lectures, fulfill speaking engagements, teach at educational institutions or manage personal investments if such activities do not individually or in the aggregate significantly interfere with the performance of his duties under this Agreement. 3. SALARY. The Employee's salary shall be at an annual rate of $175,000 (the "Base Salary"), payable in accordance with the Company's customary payroll practices. The Employee's Base Salary may be adjusted from time to time by the Board in its sole discretion. 4. STOCK OPTIONS. (a) Upon the execution of this Agreement, the Company shall grant to the Employee options (the "Options") to purchase 170,000 shares of the Company's Series E Preferred Stock ("Shares") at an exercise price of $1.14 per share. Subject to (b) below, the Options shall vest over a period of four (4) years (the "Vesting Term"), with six-forty-eighths (6/48ths) of the Options vesting on June 30, 2002 and one forty-eighth (1/48th) vesting on the last day of each of the succeeding forty-two calendar months respectively, and any Options that are not otherwise vested upon the Employee's termination of employment for any reason shall expire. The Options shall otherwise be subject to the terms of the Company's 2002 Key Executive Stock Incentive Plan and the instrument providing for the grant of such options to the Employee. (b) In the event of any Change of Control (as hereinafter defined), the Employee shall be treated, for purposes of determining the number of Options which are vested as of the effective date of such Change of Control, as if the Employee had been employed for six (6) months following such Change of Control. "Change of Control" shall mean (1) a dissolution or liquidation of the Company; (2) any sale or transfer of all or substantially all of the total assets of the Company; (3) any merger, consolidation or other business reorganization in which the holders of the Company's outstanding voting securities immediately prior to such transaction do not hold, immediately following such transaction, securities representing fifty percent (50%) or more of the combined voting power of the outstanding securities of the surviving entity; or (4) the acquisition by any person (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (other than the Company, or any subsidiary, affiliate (within the meaning of Rule 144 under the Securities Act of 1933, as amended) or employee benefit plan of the Company), of beneficial ownership (within the meaning of Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company. Notwithstanding anything in the preceding sentence, the acquisition by Creo SRL or its affiliates of beneficial ownership of securities representing less than one hundred percent (100%) of the total combined voting power of the outstanding securities of the Company shall not be deemed a Change of Control. 5. BENEFITS AND EXPENSES. (a) During the Term, the Company will provide benefits (including, without limitation, fringe benefits and vacation allowances) to the Employee no less favorable than those benefits made available to similarly situated employees of the Company. (b) During the Term, the Employee shall be reimbursed for all reasonable and necessary expenses incurred in connection with the business of the Company, upon the submission of appropriate documentation therefor. Such reimbursement shall be payable in accordance with the Company's policies and procedures. 6. CONFIDENTIALITY; NONSOLICITATION; NONCOMPETITION. The Employee agrees to execute in favor of the Company and to be bound by the terms of the Confidential Information, Noncompetition and Invention Assignment Agreement attached as Appendix A hereto and made a part hereof (the "Confidentiality Agreement"). 7. CONTINUATION, DEATH, DISABILITY AND TERMINATION. (a) In the event of the death of the Employee during the Term, this Agreement and the Employee's employment shall terminate as of the date of death and the Employee's estate shall be entitled to receive all Base Salary accrued, but unpaid, through the date of death. (b) In the event of a Disability (as hereinafter defined) of the Employee during the Term, this Agreement and the Employee's employment shall terminate as of the date of notice from the Company to the Employee terminating his employment due to the Disability. In addition to any benefits to which the Employee shall become entitled under the Company's benefit plans, the Employee shall be entitled to receive his Base Salary accrued, but unpaid, through the date of termination, and in addition shall be entitled to continue to receive his Base Salary for one year following the date of termination, reduced by the amount of any disability benefits received under a plan maintained by or contributed to by the Company. For purposes of this Agreement, "Disability" shall mean the Employee's inability, because of physical or mental illness or incapacity or otherwise, to perform his duties under this Agreement (i) for a period of 90 days or more in any period of 360 days or (ii) for any period of sixty (60) consecutive days, in each case as reasonably determined by the Board. (c) The Company may terminate this Agreement and the Employee's employment hereunder at any time for "Cause", which shall mean the Employee's (i) conviction of a felony or of a misdemeanor involving fraud, dishonesty or moral turpitude, or (ii) willful or intentional material breach of this Agreement or the Confidentiality Agreement that results in financial detriment that is material to the Company and its affiliates taken as a whole, provided that for purposes of clause (ii), "Cause" shall not include bad judgment, negligence or any act or omission that the Employee believed in good faith to have been in or not opposed to the interest of the Company. In the event the Agreement is terminated by the Company for Cause, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. (d) The Company may terminate this Agreement and the Employee's employment, without "Cause", at any time upon thirty (30) days' prior written notice to the Employee. The Company may also terminate this Agreement and the Employee's employment without "Cause" by giving notice of non-renewal in accordance with Section 1 (in which case this Agreement and the Employee's employment shall terminate at the end of the then-applicable Term). In the event of termination of the Agreement by the Company without Cause or due to the Company giving notice to the Employee of non-renewal, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. In addition, upon the Employee's execution of a general release of claims in favor of the Company, the Employee shall be entitled to continue to receive Employee's Base Salary for one year following such termination, as well as continuation for one year of health, life, disability and other welfare benefits on terms and conditions comparable to those applicable to active Company employees. The general release referred to in the preceding sentence shall not extend to any claims that the Employee may have under any indemnification agreement between the Employee and the Company. (e) The Employee shall have the right to terminate this Agreement and his employment at any time upon thirty (30) days' prior written notice to the Employee. The Employee shall also have the right to terminate this Agreement and his employment by giving notice of non-renewal in accordance with Section 1 (in which case this Agreement and the Employee's employment shall terminate at the end of the then-applicable Term). In the event the Agreement is terminated by the Employee, the Employee shall be entitled to receive all Base Salary accrued, but unpaid, through the date of termination. In addition, if the Agreement is terminated by the Employee for "Good Reason," then, upon the Employee's execution of a general release of claims in favor of the Company, the Employee shall be entitled to continue to receive Employee's Base Salary for one year following such termination as well as continuation for one year of health, life, disability and other welfare benefits on terms and conditions comparable to those applicable to active Company employees. The general release referred to in the preceding sentence shall not extend to any claims that the Employee may have under the indemnification provisions of this Agreement. "Good Reason" shall mean termination of the Agreement and his employment by the Employee within sixty (60) days after the occurrence of any of the following events: (i) a material breach of this Agreement by the Company, including, without limitation, the assignment to the Employee of duties inconsistent with his position and duties set forth in this Agreement; (ii) a material reduction in the Employee's title, status, authority or responsibility at the Company; (iii) a reduction in Base Salary; or (iv) relocation of the Employee's principal place of employment with the Company more than thirty (30) miles from the previous location. 8. WITHHOLDING TAXES. The Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. 9. CERTAIN REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants to the Company that the Employee is not under any contractual commitment prohibiting or limiting the Employee's employment by the Company or inconsistent with the Employee's obligations set forth in this Agreement. 10. NOTICES. For the purpose of this Agreement, any notice or demand hereunder to or upon any party hereto required or permitted to be given or made shall be deemed to have been duly given or made: if delivered personally, upon receipt; if telecopied, when telecopied with confirmation of receipt, provided that a written copy thereof is sent on the same day by postage paid first-class mail; if sent by overnight delivery service, the next business day following timely deposit with such overnight delivery service; and if sent by certified or registered mail, three business days after timely deposit (postage prepaid) with the U.S. mail service, to such party at the following address: In the case of the Employee, to him at: --------------------------------------- --------------------------------------- --------------------------------------- or to the last known address of the Employee contained in the personnel records of the Company. In the case of the Company, to it at: printCafe, Inc. Forty 24th Street Pittsburgh, PA 15222 Attn: General Counsel Fax: (412) 456-1151 or such other address as either party hereto may at any time, or from time to time, direct by notice given to the other party in accordance with this Section. 11. SEVERABILITY; ASSIGNMENT. (a) If any portion of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, such portion shall be deemed deleted as though it had never been included herein, but the remainder of this Agreement shall remain in full force and effect. (b) This Agreement shall not be assignable by the Employee without the consent of the Company except pursuant to the laws of descent and distribution and then only for purposes of enforcing the Employee's rights under Section 7 and shall be assignable by the Company only with the consent of the Employee; PROVIDED, HOWEVER, that the Company may assign its rights and obligations under this Agreement without consent of the Employee in the event that the Company shall effect a reorganization or consolidate or merge with, sell all or substantially all of its equity or assets to, or enter into any other transaction with, any other entity. 12. COOPERATION WITH REGARD TO LITIGATION; WAIVER OF TRIAL BY JURY. (a) The Employee agrees to cooperate with the Company during the Term and thereafter by making himself reasonably available to testify on behalf of the Company or its affiliates, in any action, suit or proceeding, whether civil, criminal, administrative, or investigative, and to assist the Company or any of its affiliates in any such action, suit, or proceeding by providing information and meeting and consulting with its counsel and representatives. The Employee shall be fully reimbursed for any out-of-pocket expenses reasonably incurred by the Employee in the course of such cooperation. (b) Each of the parties to this Agreement irrevocably and unconditionally waives the right to a trial by jury in any action, suit or proceeding. 13. NO WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. 14. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and permitted assigns. This Agreement shall also inure to the benefit of and be binding upon the Employee, his executors, administrators and heirs. The Company shall make its best effort to cause any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the extent the Company would be required to perform if no such succession had taken place. 15. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with, the laws of the Commonwealth of Pennsylvania without regard to conflict or choice of law provisions that would defer to the substantive laws of another jurisdiction. 16. ATTORNEYS' FEES. In the event of litigation to enforce or interpret this Agreement, all litigation expenses, including by way of illustration, but not limitation, all reasonable attorneys' fees and paralegal fees, costs and expenses through all trials, appeals and proceedings, mediation, arbitration, or any proceedings pursuant to the bankruptcy laws of the United States, shall be paid to the prevailing party by the non-prevailing party; provided, that in no event shall either party be liable for greater than $30,000 in litigation expenses incurred by the other party unless it is determined that the breaching party willfully breached this Agreement. 17. NO THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement, whether express or implied, is intended, or shall be deemed, to create or confer any right, interest or remedy for the benefit of any person other than as otherwise provided in this Agreement. 18. ENTIRE AGREEMENT. Except for the Confidentiality Agreement, any indemnification agreement between the Company and the Employee, and any option grant agreement, this Agreement supersedes all prior employment or other agreements, negotiations and understandings of any kind between the parties with respect to the subject matter hereof (including, without limitation, the Predecessor Agreement) and contains all of the agreement and understandings between the parties hereto with respect to the subject matter hereof. Any representation, premise or condition, whether written or oral, not specifically incorporated herein, shall have no binding effect upon the parties. 19. HEADINGS. The headings contained in this Agreement are included for convenience and reference purposes only and shall be given no effect in the construction or interpretation of this Agreement. 20. AMENDMENTS. No modification, termination or waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party against whom the same is sought to be enforced. 21. COUNTERPARTS. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. EMPLOYEE /s/ Ronald Hyland --------------------------------------- Ronald Hyland PRINTCAFE, INC. By: /s/ Marc D. Olin ------------------------------------ Name: Marc D. Olin ---------------------------------- Title: President and C.E.O. --------------------------------- APPENDIX A PRINTCAFE, INC. CONFIDENTIAL INFORMATION, NONCOMPETITION AND INVENTION ASSIGNMENT AGREEMENT As a condition of my employment being continued by printCafe, Inc., a Delaware corporation, or any of its current or future parent, subsidiaries, affiliates, successors or assigns (collectively, the "COMPANY"), and in consideration of the Company's entering into an employment agreement with me effective January 1, 2002 ("EMPLOYMENT AGREEMENT") and my receipt of the compensation and benefits contemplated thereunder, I hereby agree to the following: 1. EMPLOYMENT RELATIONSHIP. I understand and acknowledge that this Agreement does not alter, amend or expand upon any rights I may have to continue in the employ of, or the duration of my employment relationship with, the Company under the Employment Agreement or under applicable law. Any employment relationship between the Company and me shall be referred to herein as the "RELATIONSHIP." 2. CONFIDENTIAL INFORMATION. (a) COMPANY INFORMATION. I agree at all times during the term of my Relationship with the Company and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm, corporation or other entity without written authorization of the Board of Directors of the Company, any Confidential Information of the Company which I obtain or create. I further agree not to make copies of such Confidential Information except as authorized by the Company. I understand that "CONFIDENTIAL INFORMATION" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, suppliers, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), prices and costs, markets, software, developments, inventions, laboratory notebooks, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, licenses, finances, budgets or other business information disclosed to me by the Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment or created by me during the period of the Relationship, whether or not during working hours. I understand that "CONFIDENTIAL INFORMATION" includes, but is not limited to, information pertaining to any aspects of the Company's business which is either information not known by actual or potential competitors of the Company or is proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. I further understand that Confidential Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) FORMER EMPLOYER INFORMATION. I represent that my performance of all terms of this Agreement as an employee of the Company has not breached and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or trust prior or subsequent to the commencement of my Relationship with the Company, and I will not disclose to the Company, or induce the Company to use, any inventions, confidential or proprietary information or material belonging to any previous employer or any other party. (c) THIRD PARTY INFORMATION. I recognize that the Company has received and in the future will receive confidential or proprietary information from third parties subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party. 3. INVENTIONS. (a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as EXHIBIT X, a list describing with particularity all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to the commencement of the Relationship (collectively referred to as "PRIOR INVENTIONS"), which belong solely to me or belong to me jointly with another, which relate in any way to any of the Company's proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, I represent that there are no such Prior Inventions. If, in the course of my Relationship with the Company, I incorporate into a Company product, process or machine a Prior Invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, use, sell and otherwise distribute such Prior Invention as part of or in connection with such product, process or machine. (b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time in which I am employed by the Company (collectively referred to as "INVENTIONS"), except as provided in Section 4(e) below. I further acknowledge that all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets which are made by me (solely or jointly with others) within the scope of and during the period of my Relationship with the Company are "WORKS MADE FOR HIRE" (to the greatest extent permitted by applicable law) and are compensated by my salary, unless regulated otherwise by the mandatory law of the state of California. (c) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my Relationship with the Company. The records may be in the form of notes, sketches, 2 drawings, flow charts, electronic data or recordings, laboratory notebooks, and any other format. The records will be available to and remain the sole property of the Company at all times. I agree not to remove such records from the Company's place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company's business. (d) PATENT AND COPYRIGHT RIGHTS. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, trademarks, mask work rights, moral rights, or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company shall deem necessary in order to apply for, obtain, maintain and transfer such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement until the expiration of the last such intellectual property right to expire in any country of the world. If the Company is unable because of my mental or physical incapacity or unavailability or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent or copyright registrations thereon with the same legal force and effect as if originally executed by me. I hereby waive and irrevocably quitclaim to the Company any and all claims, of any nature whatsoever, which I now or hereafter have for infringement of any and all proprietary rights assigned to the Company. (e) STATUTORY NOTIFICATION. I am hereby notified that this Agreement does not apply to any Inventions for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on my own time, and (1) which does not relate (a) directly to the business of the Company or (b) to the Company's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by me for the Company. 4. RETURNING COMPANY DOCUMENTS. I agree that, at the time of termination of my Relationship with the Company, I will deliver to the Company (and will not keep in my possession, recreate or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, materials, flow charts, equipment, other documents or property, or reproductions of any aforementioned items developed by me pursuant to the Relationship or otherwise belonging to the Company, its successors or assigns. I further agree that to any property situated on the Company's premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or 3 without notice. In the event of the termination of the Relationship, I agree to sign and deliver the "TERMINATION CERTIFICATION" attached hereto as EXHIBIT Y. 5. NOTIFICATION TO NEW EMPLOYER. In the event that I leave the employ of the Company, I hereby consent to notification by the Company to my new employer about my rights and obligations under this Agreement. 6. SOLICITATION OF EMPLOYEES, CONSULTANTS AND OTHER PARTIES. I agree that during the term of my Relationship with the Company, and for a period of twenty-four (24) months immediately following the termination of my Relationship with the Company for any reason, whether with or without cause, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months following termination of my Relationship with the Company for any reason other than a termination of my Relationship by the Company without Cause (as hereinafter defined), I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my Relationship with the Company. For the purposes of this Agreement, "Cause" shall have the same meaning as set forth in the Employment Agreement. 7. NONCOMPETITION. I agree that during the term of my Relationship with the Company, and for a period of (i) twelve (12) months immediately following the termination of my Relationship with the Company in the event that my Relationship is terminated (a) by the Company without Cause, (b) by the Company pursuant to written notice of non-renewal in accordance with Section 1 of the Employment Agreement, (c) by me due to Good Reason (as defined in the Employment Agreement), or (d) by the Company pursuant to written notice due to a Disability (as defined in the Employment Agreement), or (ii) twenty-four (24) months immediately following the termination of my Relationship with the Company in the event that my Relationship is terminated (x) by the Company for Cause, (y) voluntarily by me upon written notice to the Company, or (z) voluntarily by me by giving notice of non-renewal in accordance with Section 1 of the Employment Agreement, I shall not, either directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, lender, consultant, agent, independent contractor, stockholder or otherwise, and I shall not permit any company or business organization directly or indirectly controlled by me or any of my affiliates to, during the applicable period, engage in any Competing Business in any place where the Company conducts business or has conducted business (or has at any time actively explored conducting business) during the twenty-four (24) months preceding my termination of my Relationship with the Company. The passive ownership by me or my affiliates of not more than three percent (3%) of the shares of capital stock of any corporation having a class of equity securities actively traded on a national securities exchange or in the over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this paragraph. "Competing Business" shall mean any business involving the provision and development of infrastructure software and Internet-based products for the printing industry. 4 8. REPRESENTATIONS AND COVENANTS. (a) FACILITATION OF AGREEMENT. I agree to execute promptly any proper oath or verify any proper document required to carry out the terms of this Agreement upon the Company's written request to do so. (b) CONFLICTS. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to commencement of my Relationship with the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict with any of the provisions of this Agreement. (c) VOLUNTARY EXECUTION. I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions. (d) REASONABLENESS OF COVENANTS. I acknowledge that the provisions of this agreement are reasonable and necessary for the protection of the Company and are an essential inducement to the Company's entering into the Employment Agreement and continuing the Relationship. Accordingly, I agree to be bound by the provisions of this Agreement to the maximum extent permitted by law, it being the intent and spirit of the parties that such provisions shall be fully enforceable. However, I agree that, if any of the provisions hereof shall for any reason be held to be excessively broad as to duration, geographical scope, property or subject matter, such provision shall be construed by limiting and reducing it so as to be enforceable to the extent compatible with the applicable law as it shall herein pertain. (e) REMEDIES. I acknowledge that the services to be rendered by me as part of the Relationship are of a unique nature and that it would be difficult or impossible to replace such services or to ascertain appropriate monetary damages for any violation of this Agreement and that by reason thereof I agree and consent that if I violate the provisions of this Agreement, the Company, in addition to any other rights and remedies available under this Agreement or otherwise, shall be entitled to an injunction to be issued or specific performance to be required restricting me from committing or continuing any such violation. 9. GENERAL PROVISIONS. (a) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania, without giving effect to the principles of conflict of laws. (b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement. 5 (c) SEVERABILITY. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect. (d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. (e) SURVIVAL. The provisions of this Agreement shall survive the termination of the Relationship and the assignment of this Agreement by the Company to any successor in interest or other assignee. (f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF. [Signature Page Follows] 6 The parties have executed this Agreement on the respective dates set forth below: COMPANY: EMPLOYEE: PRINTCAFE, INC. /s/ Marc D. Olin /s/ Ronald F. Hyland Sr. - --------------------------------- -------------------------------------------- Signature Signature By: Marc D. Olin Ronald F. Hyland Sr. ----------------------------- -------------------------------------------- Printed Name Title: President and CEO ------------------------- Date: February 8, 2002 Date: 2/8/2002 ------------------------- ------------------------------------- Address: 40 24th Street, 5th Floor Address: ------------------------- ----------------------------------- Pittsburgh, PA 15222 ------------------------- ----------------------------------- 7 EXHIBIT X --------- LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP EXCLUDED FROM SECTION 4 Identifying Number Title Date or Brief Description ----- ---- -------------------- X No inventions or improvements ___ Additional Sheets Attached Signature of Employee: /s/ Ronald F. Hyland Sr. ------------------------ Print Name of Employee: Ronald F. Hyland Sr. -------------------- Date: 2/8/2002 -------- EXHIBIT Y --------- TERMINATION CERTIFICATION This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to printCafe, Inc., its subsidiaries, affiliates, successors or assigns (together the "COMPANY"). I further certify that I have complied with all the terms of the Company's Confidential Information, Noncompetition and Invention Assignment Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement. I further agree that, in compliance with the Confidential Information, Noncompetition and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees. I further agree that for twenty-four (24) months from the date of this Certificate, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company's employees or consultants to terminate their relationship with the Company, or take away such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity. Further, for a period of twenty-four (24) months from the date of this Certificate, I shall not solicit any licensor to or customer of the Company or licensee of the Company's products, in each case, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date hereof; provided, however, that the foregoing restrictions shall not be applicable in the event that I have been terminated by the Company without Cause. For the purposes of this Certificate , "Cause" shall have the meaning set forth in my Employment Agreement. Finally, I agree that for a period of twenty-four (24) months from the date of this Certificate (twelve (12) months if my employment is being terminated by the Company without "Cause" or through non-renewal of my Employment Agreement or by me for "Good Reason", all as defined in my Employment Agreement) I shall not, either directly or indirectly, alone or as a partner, joint venturer, officer, director, employee, lender, consultant, agent, independent contractor, stockholder or otherwise, and I shall not permit any company or business organization directly or indirectly controlled by me or any of my affiliates to, engage in any Competing Business in any place where the Company conducts business or has conducted business (or has at any time actively explored conducting business) during the twenty-four (24) months preceding the date of this Certificate. The passive ownership by me or my affiliates of not more than three percent (3%) of the shares of capital stock of any corporation having a class of equity securities actively traded on a national securities exchange or in the over-the-counter market shall not be deemed, in and of itself, to violate the prohibitions of this paragraph. "Competing Business" shall mean any business involving the provision and development of infrastructure software and Internet-based products for the printing industry. Date: ------------------------ ---------------------------------------- (Employee's Signature) ---------------------------------------- (Type/Print Employee's Name) EX-10.9 14 j9249402ex10-9.txt AMENDED & RESTATED STRATEGIC ALLIANCE AGREEMENT Exhibit 10.9 AMENDED AND RESTATED STRATEGIC ALLIANCE AGREEMENT THIS AMENDED AND RESTATED STRATEGIC ALLIANCE AGREEMENT (this "Agreement") is made as of December 31, 2001 by and between Creo Products Inc., a federally incorporated Canadian corporation ("Creo"), and printCafe, Inc. ("printCafe"), a Delaware corporation. RECITALS WHEREAS, Creo is a leading developer, manufacturer, distributor and service organization of hardware and software digital solutions; WHEREAS, printCafe is a leading supplier of end-to-end Graphic Arts supply chain management software and services to print buyers, printers and suppliers to printers worldwide and has developed a eCommerce service for the purposes of entering the emerging business-to-business eCommerce marketplace for the commercial printing, and related industries; WHEREAS, Creo and printCafe consider it to be in their respective best interests to form a strategic alliance such that each party hereto may benefit from the other parties products, services and resources as set forth in this Agreement; WHEREAS, it is the intention of Creo and printCafe to work together in a spirit of cooperation and good faith in order to assist each of the parties hereto to develop a successful and profitable business in a competitive market place; and WHEREAS, Creo and printCafe wish to set forth the terms and conditions of such a strategic alliance and have entered into this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises set forth above and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. AMENDMENTS OF PRIOR ALLIANCE AGREEMENT. Effective and contingent upon execution of this Agreement by printCafe and Creo, the Strategic Alliance Agreement made as of July 13, 2000 between Creo and printCafe (formerly, Prograph Systems, Inc.) is hereby amended and restated in its entirety to read as set forth in this Agreement, and printCafe and Creo hereby agree to be bound by the provisions hereof as the sole agreement of printCafe and Creo with respect to the provisions set forth herein. 2. CONTRIBUTION OF INTELLECTUAL PROPERTY. Creo hereby grants to printCafe an unlimited, exclusive, perpetual, royalty-free, worldwide license (including right of sublicense) to use, reproduce, make, have made, sell, modify and create derivative works from all of the Intellectual Property with respect to the items set forth in Schedule "A" of this Agreement (the "Contributed IP"). The Contributed IP is licensed to printCafe without warranties, express or implied, of merchantability or fitness for a particular purpose or otherwise. Creo may, from time to time, acquire Intellectual Property for the provision of eCommerce Services (the "eCommerce IP"). Creo shall grant a perpetual, non-exclusive, worldwide license (including right of sublicense) to use the eCommerce IP for the provision of eCommerce Services in the Graphic Arts Industry to printCafe, in consideration of which printCafe shall pay Fair Market Value to Creo for such perpetual, non-exclusive, worldwide license. Notwithstanding any provision herein to the contrary, the Contributed IP shall not include any Intellectual Property used in, related to or connected with CreoNet ("CreoNet" is the technology in Creo's intranet infrastructure), Prinergy Products, Prinergy Insite, Brisque Products, or Creo's Workflow Products. Notwithstanding any provision herein to the contrary, eCommerce IP shall not include any Intellectual Property used in or substantially similar to Prinergy Products or Prinergy Web, or Workflow Products. Contributed IP and eCommerce IP shall not include any Intellectual Property which Creo is prohibited from contributing or licensing to printCafe by the terms of Creo's interest in such Intellectual Property. Creo shall undertake such reasonable steps to further evidence the license of the Contributed IP set forth herein. 3. CONTENT MANAGEMENT. Subject to Section 5, Creo shall be the exclusive provider of Content Management and Workflow Products in connection with the printCafe Business as it relates to the Graphic Arts Industry. If any technology or related materials for Content Management is developed or sourced on behalf of printCafe pursuant to Section 5, printCafe shall reimburse Creo for its Fully Loaded Costs associated with such development or sourcing. Any such technology or related materials so developed, other than improvements, modifications and developments to or connected with Prinergy Products, Prinergy Web or Creo's Workflow Products which shall at all times remain the sole property of Creo, shall be jointly owned by Creo and printCafe. Creo or printCafe, as the case may be, shall take such steps as are deemed necessary or desirable by the other party, acting reasonably, to further evidence the joint ownership of such technology or related materials. Notwithstanding any provisions to the contrary, printCafe shall pay Creo Fair Market Value for the use of Creo's Content Management and Workflow Products. 4. ECOMMERCE AND ASP SERVICES. (A) eCommerce Services. Subject to Section 5, printCafe shall be Creo's exclusive provider of eCommerce Services related to the Graphic Arts Industry. (B) ASP of Prinergy Products. Subject to Paragraph 4(c), printCafe shall be Creo's exclusive ASP for Prinergy Products, including Prinergy Insite functions offered on an ASP basis (the "Prinergy ASP Services"). The strategy for the adaptation of Prinergy Products to an ASP platform will be jointly proposed and reviewed by the Product Steering Committee and Creo's development team. When such Prinergy Products on an ASP platform are available, Creo shall provide printCafe with such Prinergy Products for the purpose of printCafe providing the Prinergy ASP Services at a price equal to 70% of the sum of the list prices charged by Creo to each customer for the use of Prinergy Products, such list prices to be determined by Creo in its sole discretion. The discount from the applicable price charged by Creo will be provided in respect of printCafe: 2 (I) providing sales, installation, warranty, training, and support to customers for Prinergy ASP Services; (II) supplying hardware necessary for the Prinergy ASP Services; and (III) when technology permits, being permitted to aggregate multiple customers onto a single hardware configuration. printCafe shall be restricted to exclusively providing Creo Workflow Products, and no other Workflow Products, as an ASP to its customers ("Workflow ASP Services"). (C) ASP Exclusivity Exception. If printCafe does not offer Prinergy ASP Services to a material market segment identified by Creo from time to time or does not offer competitive features in any existing Prinergy ASP Services as determined, from time to time, by Creo with reference to the then current market for Workflow ASP Services, then Creo may provide written notice to printCafe that such services are required in the marketplace. If, within 120 days after receiving such written notice printCafe does not offer such services or features to the marketplace, then Creo may provide such Workflow ASP Services without printCafe notwithstanding any term herein to the contrary. (D) Integration of Prinergy Insite. Creo and printCafe will use commercially reasonable efforts to create the following integration features between Prinergy Products, Prinergy Insite, and eCommerce Services within a timeframe proposed and reviewed by the Product Steering Committees of printCafe and Creo: (I) Prinergy Insite or Prinergy Products integration with printCafe central site e-commerce applications; and (II) Prinergy Insite or Prinergy Products integration with printCafe ERP solutions. The parties hereto acknowledge and agree that Prinergy Products and Prinergy Insite and equivalent products are the sole property of Creo and that Creo maintains the sole right and discretion to determine end user prices, features, discount policy, distribution models, and business models for Prinergy Products and Prinergy Insite. (E) Integration of Workflow Products/eCommerce Services. Notwithstanding any provision herein to the contrary, Creo shall be permitted to connect its Workflow Products with any eCommerce Services solution marketed to the Graphic Arts Industry and printCafe shall be permitted to connect its eCommerce Services with any Workflow Products solution marketed to the Graphic Arts Industry, provided, however, that Creo and printCafe shall exclusively co-market Creo's Workflow Products and printCafe's eCommerce Services in combination to the Graphic Arts Industry. 5. RIGHT OF FIRST REFUSAL. If, from time to time, printCafe proposes to develop or acquire, in any manner, Content Management functionality or products in connection with the printCafe Business, or Creo proposes to provide, in any manner, eCommerce Services in connection with the Creo Business (in either case, printCafe or Creo to be referred to as the "Proposing Party") then the other party (the "RFR Party") shall have the exclusive right to undertake the 3 development or sourcing of such functionality, product or services (the "Additional Functionality"), as the case may be, and to provide such Additional Functionality to the Proposing Party, prior to the Proposing Party acquiring such Additional Functionality from a Third Party ("Third Party") in accordance with the following provisions: (I) Project Specification Notice. The Proposing Party shall deliver a product specification notice in writing (the "RFR Notice") to the RFR Party specifying in commercially reasonable detail the purpose; functionality, material specifications and proposed time to market of the Additional Functionality as well as any offers and materials which have been proposed by a Third Party to printCafe. (II) Right of Refusal. The RFR Party shall have 60 days following the receipt or deemed receipt of the RFR Notice within which to give written notice to the Proposing Party of its intention to develop or source and provide the Additional Functionality to the Proposing Party upon substantially the same terms as described in the RFR Notice (the "Acceptance Notice") based on Creo's use of commercially reasonable efforts. (III) Development & Sourcing. Upon the delivery of the acceptance notice the RFR Party shall promptly undertake the development or sourcing of the Additional Functionality and shall use its commercially reasonable efforts to provide the Proposing Party with the Additional Functionality on a basis which is consistent with the functionality and material specifications and proposed time to market of the Additional Functionality specified in the original RFR Notice, unless otherwise agreed. The decision to develop versus source from a third party will be commercially reasonable taking into account the cost of development and market requirements for such functionality as well as the RFR Party's product plans. The analysis performed by the RFR party will promptly be made available, upon request, to the other Proposing Party. (IV) Ownership & Pricing. Except as otherwise provided in Section 3, the RFR Party shall retain all ownership of and title to the Additional Functionality. The RFR Party shall provide the use of such Additional Functionality to the Proposing Party at its Fair Market Value. If, after the 60 day period set forth in subparagraphs (ii), the RFR Party has not provided the Proposing Party with the Acceptance Notice, then the RFR Party shall be deemed to have refused the proposed project set out in the RFR Notice and the Proposing Party may, within 120 days of the expiry of such 60 day period, negotiate with or solicit offers from a Third Party with respect to the Additional Functionality or otherwise acquire such Additional Functionality from such Third Party pursuant to, and on terms no less favourable to the Proposing Party than functionality and material specifications and proposed time to market set forth in the RFR Notice. If the Proposing Party has not undertaken the development or acquisition of the Additional Functionality within such 120 day period, then the rights of the RFR Party shall revive in respect of such Additional Functionality and if the Proposing Party shall thereafter desire to develop, use, acquire or provide, as appropriate, such Additional Functionality, it shall again comply with this Section 5. 4 6. PROVISION OF CREO SERVICES. For purposes of this Section 6, "Creo" shall mean Creo and its applicable direct or indirect wholly-owned subsidiaries and "printCafe" shall mean printCafe and its applicable direct and indirect wholly-owned subsidiaries. (A) Product Support and Servicing. Creo shall provide product support and servicing and such other services (collectively referred to herein as the "Creo Product Support Services") as may be reasonably requested by printCafe from time to time in relation to the printCafe Products and Services. Notwithstanding the forgoing, Creo shall only be obligated to provide the Creo Product Support Services requested by printCafe after a product support plan has been mutually agreed to and implemented by printCafe and Creo. printCafe shall pay Creo its Fully Loaded Costs for Creo Product Support Services provided hereunder within 30 days of the receipt of an invoice from Creo. (B) Sales Channel Services. Subject to this Paragraph 6(b) and Paragraph 6(c), Creo shall at all times have, and printCafe hereby grants to Creo, an unrestricted right to sell printCafe Products and Services on behalf of printCafe into any market (collectively referred to herein as the "Creo Sales Channel Services"). (I) Creo shall sell printCafe Products and Services in accordance with, and printCafe shall offer to Creo the benefit of, such terms and conditions, including but not limited to prices, discounts, warranties, service and functionality, related to the sale of printCafe Products and Services at least as favorable as those offered or provided to any other sales and distribution mechanism or channel used for printCafe Products and Services in the applicable market or a market similar thereto. (II) Creo Sales Channel Services shall be commissioned at least at the same rate as commissions paid by Creo to its sales force to distribute other Creo products and services in the applicable market or a market similar thereto or as otherwise determined by mutual agreement of printCafe and Creo. (III) Creo shall assign one of its senior sales persons to assist printCafe in selling printCafe Products and Services through Creo Sales Channel Services. (IV) If Creo sells eCommerce Services offered by printCafe into any market, then printCafe will reimburse Creo for its Fully Loaded Costs in connection with such sales activity; (V) If Creo wishes to sell a printCafe Products to a specific market in which printCafe is then currently selling printCafe Products (an "Existing printCafe Market"), Creo shall provide printCafe with thirty (30) days prior written notice of its intent to undertake such sales activity and printCafe shall have thirty (30) days to agree to support such Creo sales activity or decline to support such Creo sales activity. If printCafe: A. agrees to support such Creo sales activity, then printCafe will reimburse Creo for its Fully Loaded Costs in connection with such sales activity; or 5 B. does not agree to support such Creo sales activity, then printCafe will reimburse Creo for its Fully Loaded Costs subject to the limitation set forth in Paragraph 6(c)(i). (VI) If Creo wishes to sell a printCafe Product to a market to which printCafe is not then currently selling printCafe Products (a "New printCafe Market"), Creo shall provide printCafe with thirty (30) days prior written notice of its intent to undertake such sales activity and printCafe shall have thirty (30) days to agree to support such Creo sales activity or decline to support such Creo sales activity. In either case, printCafe will reimburse Creo for its Fully Loaded Costs in connection with such sales activity subject to the limitation set forth in Paragraph 6(c)(ii). If printCafe does not elect to support such Creo sales activity, then printCafe will not make any representations or warranties with respect to the sale of such printCafe Product in such New printCafe Market and printCafe shall not be obligated to incur any startup or development costs in preparation for the sale of a printCafe Product into any New printCafe Market. (vii) If printCafe requests in writing that Creo provide Creo Sales Channel Services for a specific market, then printCafe shall pay Creo or a Creo affiliate its Fully Loaded Costs with respect to the Creo Sales Channel Services so requested. (viii) printCafe and Creo shall use commercially reasonable efforts to jointly coordinate the provision of Creo Sale Channel Services into Existing printCafe Markets or New printCafe Markets in which printCafe has agreed to support with printCafe's own sales efforts, provided, however, that the foregoing shall not restrict Creo from providing Creo Sales Channel Services into any such market or being reimbursed for its Fully Loaded Costs in accordance with this Agreement. (ix) Any Fully Loaded Costs payable by printCafe to Creo in accordance with this Paragraph 6(b) within 30 days of the receipt of an invoice from Creo. (x) Creo shall use, with respect to the provision of Creo Sales Channel Services in accordance with this Paragraph 6(b), (A) a form of license agreement substantially similar to the agreement used by printCafe in Existing printCafe Markets, (B) subject to the provisions of Paragraph 6(b)(vi), a form of license agreement used by printCafe in similar markets to New printCafe Markets, or (C) such other form agreement as agreed to in writing by printCafe and Creo. (C) Adjustments to Fully Loaded Costs. Notwithstanding Paragraph 6(b), (I) if printCafe is obligated to pay Creo its Fully Loaded Costs in accordance with Paragraph 6(b)(v)B., then Creo's Fully Loaded Costs shall be limited to, for each sale of a printCafe Product, the lesser of (A) Creo's actual Fully Loaded Cost in connection with such sale activity, and (B) the "Maximum Fully Loaded Cost" determined based on the following formula: C A = B x [ ------------------------ ] D 6 Where: A = Maximum Fully Loaded Costs payable from the sale of the printCafe Product through Creo Sales Channel Services; B = amount of sales revenue recorded by printCafe from the sale of the printCafe Product through Creo Sales Channel Services; C = printCafe's cost of sales including costs related to the sales force, sales support staff and marketing staff and all related expenses thereto (but not including allocated overhead for technical and administrative support, implementation and corporate overhead) for selling the printCafe Product into the Existing printCafe Market (i) during the six month period ending at the end of the full month immediately preceding the month which Creo commences Creo Sales Channel Services in such Existing printCafe Market; or (ii) during a similar six month period immediately preceding the month of the annual anniversary of Creo's commencement of Creo Sales Channel Services in such Existing printCafe Market, as applicable; D = aggregate amount of sales revenue recorded by printCafe from the sale of the printCafe Product into the Existing printCafe Market (i) during the six month period ending at the end of the full month immediately preceding the month which Creo commences Creo Sales Channel Services in such Existing printCafe Market; or (ii) during a similar six month period immediately preceding the month of the annual anniversary of Creo's commencement of Creo Sales Channel Services in such Existing printCafe Market, as applicable. (II) if printCafe is obligated to pay Creo its Fully Loaded Costs in accordance with Paragraph 6(b)(vi), then Creo's recovery of its Fully Loaded Costs will be limited to the amount of sales revenue recorded by printCafe on the sale of printCafe Products from Creo Sales Channel Services in the New printCafe Market less printCafe Variable Costs (as hereinafter defined) (the "New Market Limitation"). The parties will apply the New Market Limitation to Creo sales in the New printCafe Market on a monthly basis, provided that if the New Market Limitation exceeds Creo's Fully Loaded Costs for such market for a month (the "Monthly Excess Recovery"), then any Creo Fully Loaded Costs which were not reimbursed by printCafe since January 1 of the year in which the sales occur due to the New Market Limitation shall be paid by printCafe to the extent of the Monthly Excess Revenue. For purposes of this Paragraph 6(c)(ii), "printCafe Variable Costs" means any variable costs (i.e. costs associated with printCafe's provision of maintenance or training services sold by Creo or the purchase of licenses or hardware in connection with such sales, but not including product development costs incurred by printCafe in connection sales to such New printCafe Market) incurred by printCafe in connection with the sale of a printCafe Product in a New printCafe Market. 7 (D) Set -off. Creo shall have the right to set-off any amount owing to it pursuant to this Section 6 against any amounts owing from time to time to printCafe. 7. PROMOTIONAL MATERIALS. printCafe and Creo acknowledge and agree that where each party shares common customers and markets, both printCafe and Creo would benefit from joint marketing activity of each party's respective products and services and, therefore, each of printCafe and Creo agree with the other that: (I) they will include references to each other in any Promotional Materials for shared customers and markets, provided, however, that the parties will meet from time to time to define those cases where it is appropriate to exclude joint references; (II) they will regularly share appropriate product marketing plans, sales training plans, product marketing specifications, promotional materials and positioning statements for all relevant products; (III) they will jointly determine standard clauses referring to the other party for inclusion in Promotional Materials which standard clauses may only be amended by mutual agreement from time to time; and (IV) each party will be entitled to review and approve the use and representation of that party in Promotional Material therein prior to any distribution of the Promotional Material and each party will promptly discontinue any reference to the other party or the other party's products in a particular promotional series if requested to do so in writing by the other party. Creo will characterize the CFX specification as a subset of the PCX specification to the Graphic Arts Industry. For greater certainty CFX remains the sole property of Creo and CFX can be included as part of any other technical specification and PCX remains the sole property of printCafe. 8. NON-COMPETE. Except as provided for in this Agreement and subject to Section 11, from and after the date hereof Creo shall not, directly or indirectly, compete with the printCafe Business solely as it relates to the Graphic Arts Industry and printCafe shall not, directly or indirectly, compete with the Creo Business solely as it relates to the Graphic Arts Industry, and Creo or printCafe, as the case may be, shall not invest in, own, manage, operate, finance, control or participate in the ownership, management, operation or control of, any business that competes with the printCafe Business or Creo Business, respectively, solely as either relates to the Graphic Arts Industry. For greater clarity, this restrictive covenant shall only apply to the respective business of the parties hereto, as defined herein, solely in the Graphic Arts Industry. Notwithstanding the above restrictive covenant, nothing herein shall prevent: (I) either party or its subsidiaries and affiliates from owning, in the aggregate, not more than 10% of the outstanding stock or other equity interests in any company that has a substantial portion of its business operations in competition with the printCafe Business or Creo Business as it relates to the graphic arts industry, as the case may be; or 8 (II) Creo or its subsidiaries and affiliates from providing eSales and eSupport with respect to Creo's products and services to Creo's customers or prospects directly without involving printCafe. 9. SOLICITATION. From and after the date hereof and unless otherwise provided in this Agreement the parties hereto shall not, directly or indirectly, either for itself, or any other person or entity, induce or attempt to induce any employee of the other party to leave the employ of such other party (except pursuant to advertisements of general public circulation). 10. CONFIDENTIALITY AGREEMENTS. The parties hereto shall and shall cause any of their respective employees providing services to or on behalf of the other party or otherwise having access to the other party's confidential information hereunder to execute and deliver the other party's standard form of confidentiality and proprietary information agreement in substantially the form as may be mutually agreed by the parties. 11. TERMINATION. (A) Termination by Creo. Subject to paragraph 11(c), Creo may terminate this Agreement at any time by written notice to printCafe and this Agreement shall cease to have any force and effect, in the event of: (I) the failure of printCafe to comply with any of the provisions hereunder upon printCafe being notified in writing by Creo of such failure failing to remedy such failure within 30 days of receiving such notice; (II) printCafe ceasing to carry on the printCafe Business or otherwise making any sale or assignment of all or a substantial portion of its assets related to or connected with the printCafe Business in bulk or out of the ordinary course of its business; (III) the second anniversary of the date that printCafe has received or is deemed to have received written notice that Creo (or any of its subsidiaries or affiliates) ceasing to be the beneficial or registered holder of any shares of capital stock of printCafe or the holder or beneficiary of any security exercisable or convertible into any shares of printCafe capital stock; or (IV) the bankruptcy or receivership of printCafe or the passing of a resolution by printCafe for its winding up or dissolution. (B) Termination by printCafe. Subject to paragraph 11(c), printCafe may terminate this Agreement at any time by written notice to Creo and this Agreement shall cease to have any force and effect in the event of: (I) the failure of Creo to comply with any of the provisions hereunder upon Creo being notified in writing by printCafe of such failure and failing to remedy such failure within 30 days of receiving such notice; 9 (II) Creo ceasing to carry on the Creo Business or otherwise making any sale or assignment of the whole or a substantial portion of its assets related to Content Management in bulk or out of the ordinary course of its business; or (III) the bankruptcy or receivership of Creo or the passing of a resolution by Creo for its winding up or dissolution. (C) Alternative Remedy for Certain Defaults. In the event of a default by printCafe pursuant to paragraph 11(a)(i) or a default by Creo pursuant to paragraph 11(b)(i) (in this section referred to as the "Defaulting Party") and the Defaulting Party has received the notice set out therein from the other party (the "Non-defaulting Party") and has failed to remedy the failure or breach within required period, then, the Non-defaulting Party may elect not to terminate this Agreement pursuant to paragraph 11(a) or 11(b), as the case may be, but may instead elect in writing to the Defaulting Party the remedy set out in this paragraph 11(c) in which case the Non-defaulting Party shall be deemed to be released from any future obligation or restriction pursuant to Section 5 - Right of First Refusal and Section 7 - Non Compete and this Agreement shall be deemed to be amended accordingly. 12. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: (A) "ASP" means application services provider; (B) "ASP Services" means the provision of software functionality to the Graphics Arts Industry supply chain solely through a web browser where the software and hardware resides at and is managed by the ASP, rather than at the end customer premises, excluding eSales and eSupport; (C) "Brisque Product" means those products branded as Brisque, PSM and/or any products based on Brisque technology targeted to the print-on-demand market or any derivative products based on Brisque or CT/LW technologies; (D) "Content Management" includes the validation, manipulation, assembly, conversion, modification, output and re-purposing of any digital content without limiting the generality of the forgoing, includes Prinergy (Connect, Collect, Direct, Convert, conCEPS, Image Database and other Prinergy products), Prinergy Insite (which may interface to all Creo's Workflow Products), TIMNA , Brisque, Image Database (e.g. Banta media, Unity, Cumulus), web based collaborative tools, and Centralized file repository (e.g., Punch Web Group, Media Depot, Cumulus); (E) "Creo Business" means to be a developer, manufacturer, distributor and service organization of hardware and software digital solutions that automate the prepress phase of commercial printing, PCB Manufacturing, Development of PCB Manufacturing Hardware and Software, Hardware design and Manufacturing, Plate Media design and manufacturing, Research and development and manufacturing of Optical equipment, electronics, and precision mechanical devices, Prepress devices, Workflow Products and Services, Content Management products and services, software products and support of software products; 10 (F) "CWR" means a common workflow and common raster image processor based specifically on PDF and Adobe Extreme(TM) architecture; (G) "eCommerce Services" means the provision of electronic services over the Internet for quotation, scheduling and tracking of orders, invoicing, payment, or fulfillment of print jobs within the Graphics Arts Industry but does not include eSales and eSupport or Creo Workflow Products and Services which are non-commerce based; (H) "eSales" means the set of technologies, solutions and services that allow Creo to interact electronically with Creo's customers or prospects to facilitate on-line sales by means of the Internet. Solutions include but are not limited to: providing prospects with requested information; web-based pricing, configuration and lead time capabilities; on-line ordering capabilities; web-based order status, invoice, payment and related capabilities; on-line service and warranty; and other e-commerce capabilities such as e-mail notification and address change. A wide range of interactions can be supported within Creo's eSales solutions including but not limited to: on-line information; on-line ordering; integrated ordering; site personalization and voice-enabled and/or agent-assisted commerce; (I) "eSupport" means the set of technologies, solutions and services that allow Creo to interact electronically with Creo's customers or prospects to deliver customer support by means of the Internet. Solutions include but are not limited to: providing requested information and applications; processing transactions as part of customer service; resolving customer problems; providing on-line training; providing professional services to assist customers with developing their own eSales and eSupport capabilities. A wide range of interactions can be supported within Creo's eSupport solutions including but not limited to on-line access to Creo content, self-service solutions, e-mail management and real-time interaction; (J) "Fair Market Value" means the price at which a product or service is generally made available and/or purchased or sold by a material number of parties in the specified market for such products or services, or for products that are deemed to be comparable in features and performance; (K) "Fully Loaded Cost" means; (i) with respect to Creo Product Support Services, normal direct labor charges (including overtime) for actual time devoted to performance of such services requested by printCafe, plus an allocation (based on such actual time) of fringe benefit costs, then multiplying such sum by a factor of 1.2 for overhead or as otherwise reasonably determined by Creo's internal accounting for such overhead allocation, and (ii) actual out-of-pocket expenses including, without limitation, materials costs consumed in providing such services, and (ii) with respect to Creo Sale Channel Services, normal direct labor charges (including overtime) for actual time devoted to performance of such services and commissions, plus an allocation (based on such actual time) of fringe benefit costs, then multiplying such sum by a factor of 1.2 for overhead or as otherwise reasonably determined by Creo's internal accounting for such overhead allocation, and (ii) actual out-of-pocket expenses including, without limitation, materials costs consumed in providing such services. 11 (L) "Graphic Arts Industry" means participation in the publishing and printing business as performed by publishers, printers, graphic arts companies, print buyers, ad agencies, and paper, ink, consumables and equipment suppliers to printers and publishers; (M) "Intellectual Property" means inventions, patents, patent applications, copyrights, copyright registrations, copyright applications, trade secrets, know-how, confidential information, source code, and all other types of intellectual property (excluding trademarks and like trade identifiers); (N) "Prinergy Products" means products based on the proprietary CWR of Creo and , where applicable, Heidelberg Druckmaschinen AG; (O) "Prinergy Insite" means the web browser interface for Creo Workflow Products and includes but is not limited to functionality for job submission, proofing and approval, and job status monitoring based on the the proprietary CWR of Creo and, where applicable, Heidelberg Druckmaschinen AG; (P) "printCafe Business" means the provision of end-to-end supply chain management (i.e. ERP) software and eCommerce Services within the Graphic Arts Industry; (Q) "printCafe Products" means all ERP and other software offered from time to time by printCafe or printCafe's subsidiaries and affiliates, together with any training and implementation services sold with respect thereto; (R) "printCafe Products and Services" any printCafe Products and eCommerce Services offered from time to time by printCafe or printCafe's subsidiaries and affiliates; (S) "Promotional Materials" includes all materials used for sales, marketing and reinforcement of the brand name and logo of products, including but not limited to advertisements, trade show banners, graphic arts images, promotional brochures, posters, Internet banner ads and product splash screens; (T) "Workflow Products" means Prinergy Products, Brisque Products, Prinergy Insite, Print on Demand systems, PSM, Content Management or software and / or hardware capable of receiving content related information in a digital format and/or processing this information or otherwise sending the data stream to an imaging device, as well as the natural evolution of these products over time; and (U) "Workflow Services" means services provided using Workflow Products. 13. CERTAIN COMMITTEES. (A) Product Steering Committee. printCafe shall establish a Product Steering Committee to determine and matters with respect to printCafe's Services product functionality, roadmaps, pricing, development schedules, product rollout schedules and criteria, strategic partnerships and alliances, and major marketing decisions. Matters which are the domain of the Operations Committee may be referred to the Operations Committee for approval. At least one member of the Product Steering Committee shall be designated by Creo. The Product Steering 12 Committee shall meet at least once a month and an agenda setting forth the proposed business of the meeting will be delivered to all members at least five days prior to the scheduled meeting. The Product Steering Committee shall act on a consensus basis. Any member of the Product Steering Committee may attend in person or by telephone conference. (B) Operations Committee. printCafe shall establish an Operations Committee to advise its Board of Directors with respect to strategic direction of printCafe and such other matters as the Board of Directors of printCafe shall from time to time deem appropriate. printCafe's Board of Directors shall from time to time determine the members of the Operations Committee, which shall at a minimum include the printCafe CEO, President, and a Creo representative from printCafe's Board of Directors or such person as the Creo representative shall appoint as his or her designee, provided that such designee shall sign a mutually agreeable confidentiality agreement for the benefit of printCafe and is approved by printCafe's Board of Directors. The Operations Committee shall meet at least once a month and shall act on a consensus basis. The Creo representative from printCafe's Board of Directors may attend in person or via telephone conference. 14. MATERIAL BUSINESS TRANSACTIONS. (A) Restriction on Sale or Transfer. printCafe shall not sell, transfer or otherwise dispose of, directly or indirectly, all or substantially all of the assets of the printCafe Business or capital stock of printCafe (a "Material Interest"), in a single transaction or series of related transactions nor enter into any agreement or commitment to do any of the same except as specifically permitted by this Agreement. (B) Permitted Sale or Transfer. Nothwithstanding paragraph 14(a), printCafe may sell, transfer or otherwise dispose of a Material Interest if, and only if: (I) it has received from a person, corporation or other entity ("Offeror") a written good faith offer ("Offer") to purchase or acquire a Material Interest; (II) printCafe has given to Creo, promptly upon its receipt of such Offer, a written notice enclosing a copy of the Offer and providing reasonable information about the Offeror known to printCafe; (III) the Offeror agrees to be bound by all rights and obligations of printCafe in respect of this Agreement and, if the Offer relates to a sale or transfer assets and if requested by Creo, the Offeror at the closing enters into an agreement with Creo (reasonably satisfactory to the solicitors of Creo) whereby the Offeror agrees to be bound by and entitled to the benefit of this Agreement in place of printCafe; (IV) printCafe has provided Creo, if Creo has indicated in writing within two (2) business days of receipt of the notice set forth in paragraph (ii) above a desire to deliver an alternative offer to the Offer received by printCafe, with eight (8) business days to to deliver an alternative offer to the Offer for consideration by printCafe, or if there has been a material change to an existing Offer, printCafe has otherwise provided Creo with a commercially reasonably opportunity to deliver an alternative offer to such amended Offer, as the case may be; 13 (V) if Creo has not indicated a desire to deliver an alternative offer or has otherwise not delivered an alternative offer in accordance with paragraph 14(b)(iv), printCafe has provided to Creo prompt updates the negotiations relating to the Offer, including copies of any definitive agreements circulated by the parties to the transaction, and prompt notice of any proposed material changes to the Offer including a copy of the Offer, as amended; and (VI) printCafe has otherwise complied with all other terms and conditions, and obtained all other necessary approvals, in favour of Creo or a Creo affiliate with respect to the sale, transfer or other disposal of a Material Interest as set forth in its Certificate of Incorporation, this Agreement and any Right of First Refusal and Co-sale Agreement, Credit Facility Agreement or Loan Agreement, Collateral Agreement or similar agreement to which printCafe and Creo or a Creo affiliate is a party. (C) Limitation on Rights in the Event of an IPO. Notwithstanding anything to the contrary in this Agreement, the rights, restrictions and obligations set forth in this Section 14 shall terminate and be of no further force and effect upon the closing of an initial public offering of printCafe's common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, other than a registration relating solely to a transaction under Rule 145 of the Securities Act of 1933. (D) Waiver of Rights. Notwithstanding any other provision of this Section 14, Creo may waive its rights, in whole or in part, with respect to or given under this Section 14 by notice in writing to the printCafe. 15. DISPUTE RESOLUTION. (A) Negotiation. No arbitration or other proceeding with respect to any claim, dispute or controversy arising out of or in connection with or relating to this Agreement or the breach or alleged breach thereof shall arise until the following procedures have been completed. Representatives from each party will meet within ten (10) business days after receipt of a request from either party to review in good faith any dispute with respect to the interpretation of any provision of this Agreement or with respect to the performance of either party under this Agreement. In the event a disagreement or dispute under this Agreement is not resolved by the designated representatives of each party by mutual agreement within five (5) business days after a meeting to discuss the disagreement, which resolution shall be evidenced by a document signed by both parties, either party may within five (5) business days thereafter provide the other written notice specifying the terms of such disagreement in reasonable detail. Upon receipt of such notice, the chief executive officer of each party shall meet at a mutually-agreed place and time (but no later than ten (10) business days after receipt of such notice) for the purpose of resolving such disagreement. Such officers shall make a good faith effort to resolve the disagreement or negotiate an acceptable revision of this Agreement acceptable to both parties, without the necessity of formal procedures relating thereto. During the course of such discussion, the parties will reasonably cooperate and provide information that is not confidential to the end that each party may be fully informed with respect to the issues in dispute. The institution of arbitration to resolve the disagreement may occur only after the earlier of the following events: (i) the chief executive officers mutually agree that resolution of the disagreement through continued 14 negotiation is not likely to occur, or (ii) ten (10) business days after the initial meeting between such chief executive officers. (B) Arbitration. Subject to the provisions of paragraph (a) above, any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in Seattle in accordance with the then-current Commercial Arbitration Rules of the American Arbitration Association by three arbitrators appointed in accordance with said rules. Each party shall select one such arbitrator, and the two arbitrators so chosen shall select the third arbitrator. The arbitrators shall apply Delaware law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. 16. NOTICES. (A) Providing Notice. Any notice, direction or other instrument required or permitted to be given by either party under this Agreement shall be in writing and shall be sufficiently given if delivered personally, sent by prepaid first class mail or transmitted by facsimile or other form of electronic communication during the transmission of which no indication of failure of receipt is communicated to the sender: (I) in the case of a notice to Creo at: Creo Products Inc. 3700 Gilmour Way Burnaby, British Columbia V5G 4M1 Attention: Chief Executive Officer Facsimile: (604) 437 - 9891 (II) in the case of a notice to printCafe at: printCafe, Inc. Forty 24th Street, Pittsburgh, PA 15222 Attention: Chief Executive Officer Facsimile: (412) 456 - 3334 (B) Deemed Delivery. Any such notice, direction or other instrument, if delivered personally, shall be deemed to have been given and received on the date on which it was received at such address, or, if sent by mail, shall be deemed to have been given and received on the date which is seven days after which it was mailed, provided that if either such day is not a business day, being a Saturday, Sunday or other statutory holiday, then the notice shall be deemed to have been given and received on the business day next following such day. Any notice transmitted by facsimile or other form of electronic communication shall be deemed to 15 have been given and received on the date of its transmission provided that if such day is not a business day or if it is received after the end of normal business hours on the date of its transmission at the place of receipt, then it shall be deemed to have been given and received at the opening of business in the office of the recipient on the first business day next following the transmission thereof. If normal mail service, facsimile or other form of electronic communication is interrupted by strike, slowdown, force majeure or other cause, a notice, direction or other instrument sent by the impaired means of communication will not be deemed to be received until actually received, and the party sending the notice shall utilize any other such service which has not been so interrupted to deliver such notice 17. MISCELLANEOUS. (A) Independent Contractors. The relationship of the parties is that of independent contractors, and nothing contained in this Agreement shall be construed to give either party the power to direct or control the day-to-day activities of the other party or create or assume any obligation on behalf of the other party. (B) Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the parties or their respective successors and assigns. Any amendment or waiver effected in accordance with this Section shall be binding upon the parties and their respective successors and assigns. (C) Assignment; Successors and Assigns. This Agreement shall not be assigned, by operation of law or otherwise, without the express prior written consent of the party not seeking such assignment. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. (D) Governing Law; Jurisdiction. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. Each of the parties to this Agreement consents to the non-exclusive jurisdiction and venue of the courts of the state and federal courts of the State of Delaware. (E) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (F) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (G) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to re-negotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a 16 mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (H) Entire Agreement. This Agreement and the documents referred to herein are the product of both of the parties hereto, and constitute the entire agreement between such parties pertaining to the subject matter hereof and thereof, and merge all prior negotiations and drafts of the parties with regard to the transactions contemplated herein and therein. Any and all other written or oral agreements existing between the parties hereto regarding such transactions are expressly canceled. (I) Attorney's Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. (J) Force Majeure. In the event that either party is prevented from performing or is unable to perform any of its obligations under this Agreement (other than a payment obligation) due to any Act of God, fire, casualty, flood, earthquake, war, strike, lockout, epidemic, destruction of production facilities, riot, insurrection, material or component unavailability or shortage, or any other cause beyond the reasonable control of the party invoking this section (a "Force Majeure") and if such party shall have used its best efforts to mitigate its effects, such party shall give prompt written notice to the other party, its performance shall be excused, and the time for the performance shall be extended for the period of delay or inability to perform due to such occurrences. Notwithstanding the foregoing, if such party is not able to perform within 180 days after the event giving rise to the excuse of Force Majeure, the other party may terminate this Agreement. [SIGNATURE PAGES TO FOLLOW] 17 IN WITNESS WHEREOF, the parties have caused this Strategic Alliance Agreement to be executed as of the date first written above by their officers thereunto duly authorized. CREO PRODUCTS INC. By: /s/ Paul Kacir -------------------------------------- Name: Paul Kacir Title: Assistant Corporate Secretary Creo Products Inc. PRINTCAFE, INC. By: /s/ Marc D. Olin -------------------------------------- Name: Marc D. Olin Title: President and Chief Executive Officer SIGNATURE PAGE TO THE AMENDED AND RESTATED STRATEGIC ALLIANCE AGREEMENT BETWEEN CREO PRODUCTS INC. AND PRINTCAFE, INC. DATED DECEMBER 31, 2001. 18 SCHEDULE "A" Contributed IP 1. theLoupe Requirements Document 2. theLoupe Use Cases 3. Demonstration Software 4. High Level Designs 5. theLoupe Business Plan 6. theLoupe Pricing Models 19 EX-10.10 15 j9249402ex10-10.txt 2002 SALES CHANNEL AGREEMENT Exhibit 10.10 2002 SALES CHANNEL AGREEMENT THIS SALES CHANNEL AGREEMENT (this "Agreement") is made as of January 1, 2002 by and among Creo Products Inc., a federally incorporated Canadian corporation ("Creo Products"), CreoScitex America, Inc., a Washington corporation ("CreoScitex"), and printCafe, Inc., a Delaware corporation ("printCafe"). RECITALS WHEREAS, printCafe and Creo Products are parties to that certain Amended and Restated Strategic Alliance Agreement dated as of December 31, 2001 (the "Strategic Alliance Agreement"); WHEREAS, Section 6(b) of the Strategic Alliance Agreement states that Creo Products and its affiliates have the right to sell printCafe Products and Services in any market; WHEREAS, CreoScitex, a wholly-owned subsidiary of Creo Products, wishes to provide the Creo Sales Channel Services for the North American market and has agreed to provide such Creo Sales Channel Services with respect to printCafe's eCommerce Services; WHEREAS, Creo Products, CreoScitex and printCafe wish to set forth the terms and conditions of such a sales channel arrangement and have entered into this Agreement; AGREEMENT NOW, THEREFORE, in consideration of the premises set forth above and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. SALES CHANNEL SERVICES. 1.1 Subject to Paragraph 4.1 of this Agreement, printCafe hereby appoints CreoScitex as a sales channel of printCafe eCommerce Services in North America (the "Territory") to sell printCafe eCommerce Services and to promote the sale of printCafe eCommerce Services and CreoScitex accepts its appointment as such sales channel of printCafe eCommerce Services in the Territory, each in accordance with the terms, provisions and conditions of this Agreement; provided, however, that notwithstanding anything to the contrary in this Agreement: (A) CreoScitex will not sell to print buyers in the Territory without the express written consent of printCafe, which consent may be withheld in the sole discretion of printCafe, and printCafe reserves the right to create new or maintain existing third party sales and promotional channels of printCafe eCommerce Services to print buyers; and (B) subject to the limitation set forth in Section 3.2 of this Agreement, printCafe reserves the right to sell printCafe eCommerce Services to any third party without any limitation and to promote the sale of printCafe eCommerce Services in the Territory through its own sales and marketing efforts. 1.2 For the purposes of this Agreement, printCafe eCommerce Services shall include those services provided by printCafe specified in Schedule "A" which is annexed to and made part of this Agreement, and, subject to the limitations set forth herein, such other printCafe eCommerce Services as may, from time to time, be offered by printCafe in the Territory. 1.3 As used in this Agreement, "Contract Value" means, unless otherwise specified: (A) with respect to a contract with a term of greater than twelve months, the average annual dollar amount of payments during the initial term of the contract, excluding value added or sales taxes or other similar taxes payable on the amounts so charged; (B) with respect to a contract with a term of twelve months or less, the dollar amount of payments under the terms of the contract for the duration of the such contract, excluding value added or sales taxes or other similar taxes payable on the amounts so charged; provided, however, that the "Contract Value" for a Transaction Purchase Agreement (as described on Schedule "A") shall equal $2,500 and, provided, further, that the "Contract Value" for a printCafe Pro Agreement (as described on Schedule "A") shall equal the average annual dollar amount of payments a printer would have paid for an e-Unlimited Agreement (as described on Schedule "A") during the initial term of the contract, excluding value added or sales taxes or other similar taxes payable on the amounts so charged. 1.4 This Agreement shall be effective as of the date first set out above (the "Effective Date") and unless otherwise terminated in accordance with the terms hereof, this Agreement shall remain in force until December 31, 2002. 2. PERFORMANCE OBLIGATIONS. 2.1 CreoScitex shall warrant and undertake to: (A) Sales Channel Services. Use reasonable commercial efforts to develop, promote and maintain as far as practicable the market potential of the printCafe eCommerce Services in the Territory. (B) Sales Representatives. Provide not less than forty (40) of sales channel representatives ("DSMs") to sell the printCafe eCommerce Services in the Territory and, unless otherwise agreed to by the parties hereto, not less than five dedicated e-media sales representatives ("ESMs") to close agreements related to the sale of the printCafe eCommerce Services by CreoScitex. (C) Quota Sales Targets. Establish and maintain the specific quotas for sales of the printCafe eCommerce Services in the CreoScitex compensation plan for all DSMs in accordance with Schedule "B" annexed to and made a part of this Agreement (the "Quota Sales Target"). Sales of printCafe eCommerce Services generated by each DSM will be allocated against the Quota Sales Target using the Contract Value for the first 2 twelve months or the duration of the contract, whichever is shorter, regardless of the term of the contract. (D) Booking Contracts. Use the DSMs and ESMs to negotiate and assist in the booking of transaction with respect to the sale of printCafe eCommerce Services by DSMs and ESMs and use contracts, purchase orders or other documentation provided by or acceptable to printCafe to book such transactions. (E) Commissions. Pay commissions based on the Contract Value in accordance with Schedule "C" annexed to and made a part of this Agreement. CreoScitex will, at its sole discretion, allocate the commission earned among its regional sales representatives, DSMs and the ESMs. Commission allocated to ESMs for any sales of non-printCafe eCommerce Services shall not be materially greater than commissions allocated to such ESMs for any sales of printCafe eCommerce Services in accordance with this Agreement. (F) Accelerator Payments. Pay a commission accelerator payment to each DSM who achieves his or her Quota Sales Target equal to 0.5% of the amount of CreoScitex products (excluding sales of the printCafe eCommerce Services) booked during the term of this Agreement. (G) Training. Provide reasonable training for the DSMs with respect to the printCafe eCommerce Services. 2.2 printCafe shall warrant and undertake, at printCafe's expense, to: (A) printCafe eCommerce Services. Promptly supply the printCafe eCommerce Services to customers pursuant to booked contracts from the DSMs and ESMs which meet the functionality and performance criteria which printCafe releases in respect thereto. (B) printCafe Product and Services Milestones. Use reasonable commercial efforts to satisfy the pricing model and functionality milestones by the deadlines set forth in Schedule "D" annexed to and made a part of this Agreement (the "Milestones") or otherwise pay to CreoScitex the applicable advance payments set forth in Schedule "D" hereto in accordance with the terms set forth therein (the "Milestone Payments") provided, however, that notwithstanding any provision of this Agreement, the Milestone Payments payable hereunder in any particular month shall not exceed, when added to the "Reimbursement of ESM Costs" (as described on Schedule "C") payable by printCafe to CreoScitex in that particular month, $41,667.00. (C) Implementation and Customer Technical Support. Promptly provide installation, implementation, instruction and ongoing technical and sales support services as reasonably required to promote and maintain the goodwill, reputation and market potential of the printCafe eCommerce Services with, and the successful use and integration of, print and pre-press providers. 3 (D) Promotion. Use its reasonable commercial efforts to develop, promote and maintain the goodwill, reputation and market potential of the printCafe eCommerce Services in the Territory including the provision of pricing and functionality of such printCafe eCommerce Services which is competitive in the marketplace. (E) Sales Literature. Assist CreoScitex by furnishing CreoScitex with promotional literature, technical data and other information with respect to the printCafe eCommerce Services as printCafe provides to its customers with respect to the printCafe eCommerce Services, if requested by CreoScitex. (F) Training and Technical Support. Provide technical and sales support to CreoScitex by promptly answering technical questions from the DSMs and ESMs with respect to the printCafe eCommerce Services, if requested by CreoScitex. Additionally, printCafe will provide reasonable training for the ESMs with respect to the printCafe eCommerce Services if requested by CreoScitex. (G) Recovery of Creo Cost of Sales. Pay to CreoScitex the "DSM Commission Reimbursement" and "Reimbursement of ESM Costs" as set forth in Schedule "C" of this Agreement (such reimbursements together referred to as the "Recovery of Creo Cost of Sales"). 3. CHANNEL MANAGEMENT LIST. 3.1 Each of printCafe and CreoScitex will, by the fifth business day of each month during the term of this Agreement prepare and distribute to the other party an updated channel management list (referred to as the "Customer List") which shall set out the name and address of each potential customer of the printCafe eCommerce Services in the Territory identified by the printCafe sales representatives or CreoScitex sales representative, respectively. 3.2 Neither printCafe nor CreoScitex, as the case may be, shall solicit sales of the printCafe eCommerce Services in the Territory from potential customers listed on the other party's Customer List delivered without written permission from such other party. 3.3 A potential customer will be removed from the Customer List of printCafe or CreoScitex, as the case may be, in the following circumstances: (A) if a sales representative of the applicable party fails to submit a proposal to the potential customer on such party's Customer List, with a copy of such proposal to the other party, within 90 days of the date that a copy of such Customer List was delivered or deemed delivered to the other party. (B) if, after submitting a proposal, the sales representative of the applicable party fails to close the sale transaction outlined in the proposal within 90 days of the date that a copy of such proposal was delivered to or deemed delivered to the other party. Once a potential customer has been removed from a Customer List of either party, the potential customer may not be reinstated on such party's Customer List for a period of 90 days from the date that the potential customer was removed from the applicable Customer List. 4 3.4 Notwithstanding any provision to the contrary in this Agreement, a customer that purchases a eCommerce Services from either CreoScitex or printCafe, as the case may be, shall be deemed to remain on the applicable party's Customer List for a period of twelve months after the initial sale is booked by printCafe. After the expiration of such twelve month period after a sale is recorded by printCafe, each customer shall be subject to the provisions of Sections 3.1, 3.2 and 3.3. 3.5 In circumstances where CreoScitex has listed a potential customer on its Customer List and printCafe can, with reasonable documented proof thereof, establish that a sales representative of printCafe has, within the previous 90 day period, submitted a proposal to such potential customer, then each of CreoScitex and printCafe shall appoint respective representatives who shall, in good faith, determine the party best able to service the potential customer in accordance with the guidelines agreed to by the parties from time to time. 4. AMENDMENT AND TERMINATION. 4.1 This Agreement may be amended or varied only by agreement in writing signed by each of the parties hereto. 4.2 If printCafe desires to appoint a sales channel for the printCafe eCommerce Services to print and pre-press providers in the Territory other than CreoScitex or the existing printCafe sale channel then: (A) printCafe will forthwith provide CreoScitex with written notice of such intent; and (B) printCafe and CreoScitex promptly negotiate amendments to the Quota Sales Targets, Accelerator Payment and Recovery of Creo Cost of Sales specified herein to adjust such factors accordingly in consideration of the added sales channel. If printCafe appoints a sales channel of the printCafe eCommerce Services to print and pre-press providers in the Territory other than CreoScitex prior to an agreement on amendments to the Quota Sales Targets described in Paragraph 2.1(c), Accelerator Payment described in Paragraph 2.1(f) and Recovery of Creo Cost of Sales, then CreoScitex will be deemed to be released from all obligations with respect to Quota Sales Targets under this Agreement and this Agreement shall be deemed to be amended accordingly. 4.3 The parties hereto will commence a review of the Quota Sales Targets, Accelerator Payments and Recovery of Creo Cost of Sales, by the first business day of August during the term of this Agreement and will, in good faith, negotiate terms for successive forms of this Agreement for additional one year terms. The parties agree that negotiations with respect to Quota Sales Targets and Recovery of Creo Cost of Sales will be based on adjustments, if any, to the Quota Sales Targets and Recovery of Creo Cost of Sales based on expected sales of the printCafe eCommerce Services by the DSMs for the next fiscal year. 4.4 Notwithstanding any other provision of this Agreement, Creo Products and CreoScitex, acting together as one party, or printCafe may terminate this Agreement upon: 5 (A) the failure of the other party to comply with any of the material terms or conditions herein upon such party being notified in writing by the terminating party of such failure and failing to remedy such failure within 30 days of receiving such notice; (B) the other party ceasing to carry on business or otherwise making or proposing to make any sale of the whole or a substantial portion of its assets in bulk or out of the ordinary course of its business; or (C) the bankruptcy or receivership of the other party or the passing of a resolution by the other party for its winding up or dissolution. 4.5 Creo and CreoScitex, acting together, may terminate this Agreement upon written notice to printCafe by February 15, 2002, if, before January 31, 2002, printCafe delivers written notice of an amended Fixed Form Functionality milestone deadline which is later than the Fixed Form Functionality milestone deadline set forth in Schedule "D". If printCafe provides such written notice to Creo and CreoScitex and Creo and CreoScitex, acting together, do not terminate this Agreement by providing written notice to printCafe by February 15, 2002, then printCafe will only be liable for the Milestone Payments to CreoScitex as set forth in Schedule "D" from the date of the Fixed Form Functionality milestone deadline set forth in the notice and Schedule "D" shall be deemed to be amended accordingly. 5. NOTICES. 5.1 Any demand, notice or other communication (a "Communication") to be made or given in connection with this Agreement shall be made or given in writing and may be made or given by nationally recognized overnight courier, facsimile, personal delivery or by registered mail addressed to the applicable recipient as follows: (A) In the case of printCafe: Forty 24th Street Pittsburgh, PA 15222 Facsimile: 412-456-1151 ATTENTION: MARC OLIN, PRESIDENT (B) In the case of CreoScitex: 8 Oak Park Drive Bedford, MA 1730 Facsimile: 781-275-3430 ATTENTION: LARRY LETTENEY 5.2 Any notice, waiver, direction or other instrument or communication if delivered will be deemed to have been validly and effectively given on the date on which it was delivered and, if sent by facsimile transmission or nationally recognized overnight delivery service, will be deemed to have been validly and effectively given on the next business day (being a day other 6 than a Saturday, Sunday or statutory holiday) following the day on which it was sent; provided that, if the day of delivery is not a business day, such notice, waiver, direction or other instrument or communication will be deemed to have been given and received on the next business day following such date. 5.3 Any party hereto may change its address for notices or service from time to time by written notice given in accordance with this Section 5. 6. EXCUSABLE DELAY. 6.1 In the event that either party is prevented from performing or is unable to perform any of its obligations under this Agreement (other than a payment obligation) due to any act of God, fire, casualty, flood, earthquake, war, strike, lockout, epidemic, destruction of production facilities, riot, insurrection, material or component unavailability or shortage, or any other cause beyond the reasonable control of the party invoking this Section (a "Force Majeure") and if such party shall have used its best efforts to mitigate its effects, such party shall give prompt written notice to the other party, its performance shall be excused, and the time for the performance shall be extended for the period of delay or inability to perform due to such occurrences. Notwithstanding the foregoing, if such party is not able to perform within 180 days after the event giving rise to the excuse of Force Majeure, the other party may terminate this Agreement. 7. DISPUTE RESOLUTION. 7.1 Any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration at Chicago, Illinois in accordance with the then-current Commercial Arbitration Rules of the American Arbitration Association by three arbitrators appointed in accordance with such rules. Each party shall select one such arbitrator, and the two arbitrators so chosen shall select the third arbitrator. The arbitrators shall apply Delaware law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section, without breach of this arbitration provision. 8. GENERAL. 8.1 Independent Contractors. The relationship of the parties is that of independent contractors, and nothing contained in this Agreement shall be construed to give either party the power to direct or control the day-to-day activities of the other party or create or assume any obligation on behalf of the other party. 8.2 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.3 Certain Definitions. The terms "printCafe Products and Services", "eCommerce Services" and "Creo Sales Channel Services" shall all have the meaning prescribed thereto in the Strategic Alliance Agreement. As used in this Agreement, "book", "booking" and "booked" means when a contract is signed by printCafe and financing, if applicable, is approved. 7 8.4 Entire Agreement. This Agreement, its Schedules and the documents referred to herein are the product of both CreoScitex and printCafe, and constitute the entire agreement between such parties pertaining to the subject matter hereof and thereof, and merge all prior negotiations and drafts of the parties with regard to the transactions contemplated herein and therein. Any and all other written or oral agreements existing between such parties hereto regarding such transactions are expressly canceled. 8.5 Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the parties or their respective successors and assigns. Any amendment or waiver effected in accordance with this Section shall be binding upon the parties and their respective successors and assigns. 8.6 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms. 8.7 Assignment; Successors and Assigns. This Agreement shall not be assigned, by operation of law or otherwise, without the express prior written consent of the party not seeking such assignment. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this agreement, except as expressly provided in this Agreement. 8.8 Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties pursuant to this Agreement shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. 8.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 8.10 Currency. Unless otherwise specifically provided in this Agreement, all references to dollar amounts or other money are expressed in terms of lawful money of the United States of America. 8.11 Strategic Alliance Agreement. The parties agree that this Agreement is intended to set forth the understanding pursuant to which Creo and its affiliates will sell printCafe eCommerce Services in the Territory as contemplated by Section 6(b) of the Strategic Alliance Agreement. Except as set forth in the immediately preceding sentence, this Agreement is not intended to amend, modify, restrict or revise the terms of the Strategic Alliance Agreement. In 8 particular, Creo Products or its affiliates may sell printCafe Product and Services, other than eCommerce Services in accordance with the Strategic Alliance Agreement without regard to this Agreement. If this Agreement is terminated in accordance with Section 4, the Strategic Alliance Agreement shall remain in full force and effect without regard to any term or condition contained herein. 8.12 Allocation of Expenses. The parties agree that, except as otherwise expressly provided herein, each party will bear its own expenses incurred in connection with the performance of its respective obligations under this Agreement. [SIGNATURE PAGES TO FOLLOW] 9 IN WITNESS WHEREOF, the parties have caused this Sales Channel Agreement to be executed as of the date first written above by their officers thereunto duly authorized. CREOSCITEX AMERICA, INC. By: /s/ Larry K. Letteney ------------------------------------- Name: Larry K. Letteney Title: President CREO PRODUCTS INC. By: /s/ Paul Kacir ------------------------------------- Name: Paul Kacir Title: Assistant Corporate Secretary Creo Products Inc. PRINTCAFE, INC. By: /s/ Marc D. Olin ------------------------------------- Name: Marc D. Olin Title: President and Chief Executive Officer SIGNATURE PAGE TO THE 2002 SALE CHANNEL AGREEMENT AMONG CREOSCITEX AMERICA, INC., CREO PRODUCTS INC. AND PRINTCAFE, INC. 10 SCHEDULE "A" PRINTCAFE ECOMMERCE SERVICES 1. printCafe Web Start: includes a branded web site, integration with printCafe Print Management Systems and printCafe PCX and also includes a specified amount of training, a pre-set number of Archive User licenses, SiteManager, and a predefined level of e-commerce volume with a three year commitment. 2. printCafe e-Unlimited: standard package licensing the customer to process unlimited e-commerce volume and includes the branded web site, integration to printCafe Print Management Systems, printCafe PCX, SiteManager, a specified amount of training and an unlimited number of Archive User licenses. 3. printCafe E-Commerce Purchase Agreement: low cost entry point for printers who are on the preferred vendor list of printCafe buyer side customers. The coupons are sold in $5,000 increments and represent $330,000 in transaction value and expire one year from the date of purchase. Web sites and training are not included with this service. 4. printCafe Pro (non ERP portion only): provides unlimited licensing of the Print Management System and the unlimited e-commerce product and service. It includes a waiver maintenance fees on any printCafe Print Management System and certain other ERP modules sold by printCafe, including Auto-Count (formerly Logic Auto-Count) for automated signature count and waste tracking. 5. printCafe Transaction Purchase Agreement: spot fee of 2% of a transaction value (excluding taxes, freight and shipping) charged to Printers who have no subscription plan in place. 6. Such other products and revisions to the above listed printCafe e-Commerce Services in accordance with the New Pricing Model (as described on Schedule "D"). 11 SCHEDULE "B" QUOTAS - ------------------------------------------------------------------------------ TERM QUOTA (PER DSM) - ------------------------------------------------------------------------------ January 1, 2002 to December 1, 2002 $250,000 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 12 SCHEDULE "C" COST OF SALE RECOVERY 1. DSM Commission Reimbursement printCafe will reimburse CreoScitex 5% on Contract Value up to the first $1,000,000 in aggregate booked contracts during the term of the Agreement. 2. Reimbursement of ESM Costs ---------------------------------------------------------------------- BOOKED CONTRACT VALUE COST RECOVERY PAYABLE (CUMULATIVE) (AS A % OF BOOKED CONTRACT VALUE) ---------------------------------------------------------------------- $0 to $250,000 60% ---------------------------------------------------------------------- $251,000 to $500,000 57% ---------------------------------------------------------------------- $501,000 to $750,000 55% ---------------------------------------------------------------------- $751,000 to $1,000,000 48% ---------------------------------------------------------------------- Greater than $1,000,000 21% ---------------------------------------------------------------------- 3. All payments pursuant to Paragraphs 1 and 2 above shall be made in three equal monthly payments beginning at the end of the month of the date of booking and collection of deposit for contracts. 4. In the event that a contract is cancelled by a customer during the 12 month period after it is booked, CreoScitex shall credit to printCafe any amounts, other than amounts that printCafe may have received and retained as payment for the printCafe eCommerce Services delivered to the customer, paid by printCafe pursuant to Paragraphs 1 and 2 related to such contract; provided, however, that CreoScitex shall not be required to credit to printCafe any amounts paid to printCafe in the event that the parties agree otherwise in writing or such cancellation is due to (i) the failure of the printCafe eCommerce Serviceto meet the site specifications published by printCafe at the time of the sale; or (ii) printCafe's failure to satisfy the training, implementation or customer service obligations set forth in the customer contract. 13 SCHEDULE "D" MILESTONES AND MILESTONE PAYMENTS
- ------------------------------------------------------------------------------------------------------------ MILESTONE DEADLINE MILESTONE PAYMENT TO CREOSCITEX - ------------------------------------------------------------------------------------------------------------ New Pricing Model January 15, 2002 $20,000 on January 16, 2002 and $20,000 on the fifteenth day of each month thereafter until the New Pricing Model is delivered. - ------------------------------------------------------------------------------------------------------------ Fixed Form Functionality February 1, 2002 N/A Specifications - ------------------------------------------------------------------------------------------------------------ Fixed Form Functionality June 1, 2002 $20,000 on June 2, 2002 and $20,000 on the first day of each month thereafter until the Fixed Form Functionality is delivered by printCafe in accordance with the Fixed Form Functionality Specifications delivered above. - ------------------------------------------------------------------------------------------------------------ Smart Form Functionality April 1, 2002 N/A Specifications - ------------------------------------------------------------------------------------------------------------ Smart Form Functionality September 9, 2002 $10,000 on September 10, 2002 and $10,000 on the first day of each month thereafter until the Static Form Functionality is delivered by printCafe to CreoScitex in accordance with the Smart Form Functionality Specifications delivered above - ------------------------------------------------------------------------------------------------------------
Where: "New Pricing Model" means the pricing model which printCafe anticipates introducing to customers in January 2002 pursuant to which e-Commerce Services are priced based on size of customer/user and product features (as opposed to transaction volume and number of users) and in which the base product features include a setup fee and use of a web site for entering request for estimates. "Static Form Functionality" means the redesign of the printCafe web services user interface to be a set of static HTML forms and pursuant to which the fields on the form will be mapped directly to data items in the Logic, PSI, and Hagen management systems. The end user will be able to add/change/delete information in these fields to specify their job details. The printer will not be able to modify the location of the fields or which ones are displayed provided, however, that the prIntellect capability will still be available for use for other product types and the printer specifies which user interface type will appear for products. "Smart Form Functionality" means the extension of the printCafe web services product user interface beyond static forms so that the printer can specify which data fields will appear and where and pursuant to which the fields on the form will be mapped directly to data items in 14 the Logic, PSI, and Hagen management systems. Printers will be able to build their own forms for all of their products. A separate forms designer tool is supplied to perform the field layout and mapping to the management system fields. 15 EX-10.12 16 j9249402ex10-12.txt CREDIT AGREEMENT Exhibit 10.12 EXECUTION COPY ================================================================================ $23,600,000 CREDIT AGREEMENT between printCafe, Inc., as Borrower, and Iris Graphics Inc., as Lender Dated as of December 31, 2001 ================================================================================ TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS......................................................................................1 1.1 Defined Terms....................................................................................1 1.2 Other Definitional Provisions...................................................................12 SECTION 2. AMOUNT AND TERMS OF COMMITMENT..................................................................13 2.1 Term Commitment.................................................................................13 2.2 Procedure for Term Loan Borrowing...............................................................13 2.3 Repayment of Term Loan..........................................................................13 2.4 Optional Prepayments............................................................................13 2.5 Mandatory Prepayments and Commitment Reductions.................................................14 2.6 Conversion and Continuation Options.............................................................14 2.7 Interest Rates and Payment Dates................................................................14 2.8 Computation of Interest and Fees................................................................15 2.9 Inability to Determine Interest Rate............................................................15 2.10 Pro Rata Treatment and Payments.................................................................15 2.11 Requirements of Law.............................................................................15 2.12 Taxes...........................................................................................16 SECTION 3. REPRESENTATIONS AND WARRANTIES..................................................................17 3.1 Organization, Good Standing and Qualification...................................................17 3.2 Subsidiaries; Joint Ventures....................................................................17 3.3 Authorization...................................................................................17 3.4 Governmental Consents...........................................................................17 3.5 Litigation......................................................................................17 3.6 Intellectual Property...........................................................................18 3.7 Confidential Information and Invention Assignment Agreements....................................18 3.8 Compliance with Other Instruments...............................................................18 3.9 Agreements; Action..............................................................................18 3.10 No Conflict of Interest.........................................................................19 3.11 Title to Property and Assets....................................................................19 3.12 Financial Statements............................................................................19 3.13 Changes.........................................................................................20 3.14 Distributions...................................................................................21 3.15 Tax Returns and Payments........................................................................21 3.16 Insurance.......................................................................................21 3.17 Employee Benefit Plans..........................................................................21 3.18 Labor Agreements and Actions....................................................................21 3.19 Compliance with Environmental Requirements......................................................21 3.20 Permits.........................................................................................22 3.21 Disclosure......................................................................................22 3.22 Compliance with Other Laws......................................................................22 3.23 Federal Regulations.............................................................................22 3.24 Investment Company Act; Other Regulations.......................................................22 3.25 Use of Proceeds.................................................................................22 3.26 Security Documents..............................................................................22 3.27 Solvency........................................................................................23 3.28 Certain Documents...............................................................................23
i SECTION 4. CONDITIONS PRECEDENT............................................................................23 4.1 Conditions to Term Loan.........................................................................23 SECTION 5. AFFIRMATIVE COVENANTS...........................................................................25 5.1 Financial Statements............................................................................25 5.2 Certificates; Other Information.................................................................26 5.3 Payment of Obligations..........................................................................27 5.4 Maintenance of Existence; Compliance............................................................27 5.5 Maintenance of Property; Insurance..............................................................27 5.6 Inspection of Property; Books and Records; Discussions..........................................27 5.7 Notices.........................................................................................27 5.8 Environmental Laws..............................................................................28 5.9 Additional Collateral, etc......................................................................28 5.10 Pay-off Letters; Proof of Payment...............................................................29 SECTION 6. NEGATIVE COVENANTS..............................................................................29 6.1 Financial Condition Covenants...................................................................29 6.2 Indebtedness....................................................................................31 6.3 Product Development Costs.......................................................................31 6.4 Liens...........................................................................................31 6.5 Fundamental Changes.............................................................................31 6.6 Disposition of Property.........................................................................32 6.7 Restricted Payments.............................................................................32 6.8 Capital Expenditures............................................................................32 6.9 Investments.....................................................................................32 6.10 Certain Payments; Modifications of Certain Instruments; Synthetic Purchase Agreements...........33 6.11 Transactions with Affiliates....................................................................33 6.12 Sales and Leasebacks............................................................................33 6.13 Changes in Fiscal Periods.......................................................................33 6.14 Negative Pledge Clauses.........................................................................33 6.15 Clauses Restricting Subsidiary Distributions....................................................34 6.16 Lines of Business...............................................................................34 SECTION 7. EVENTS OF DEFAULT...............................................................................34 SECTION 8. MISCELLANEOUS...................................................................................36 8.1 Amendments and Waivers..........................................................................36 8.2 Notices.........................................................................................36 8.3 No Waiver; Cumulative Remedies..................................................................37 8.4 Survival of Representations and Warranties......................................................37 8.5 Payment of Expenses and Taxes...................................................................37 8.6 Successors and Assigns; Assignments.............................................................38 8.7 Set-off.........................................................................................38 8.8 Counterparts....................................................................................38 8.9 Severability....................................................................................38 8.10 Integration.....................................................................................39 8.11 GOVERNING LAW...................................................................................39 8.12 Submission To Jurisdiction; Waivers.............................................................39 8.13 Acknowledgements................................................................................39 8.14 Releases of Guarantees and Liens................................................................40 8.15 Confidentiality.................................................................................40 8.16 WAIVERS OF JURY TRIAL...........................................................................40
ii SCHEDULES: 1.1 Shareholder Notes 3.2 Subsidiaries; Joint Ventures 3.4 Governmental Consents 3.5 Litigation 3.6 Intellectual Property 3.8 Compliance With Other Instruments 3.9 Agreements; Action 3.10 Conflicts of Interest 3.13 Changes 3.15 Tax Returns and Payments 3.17 Employee Benefit Plans 3.18 Labor Agreements and Actions 3.20 Permits 3.22 Compliance With Other Laws 3.26 Security Agreements 6.2(c) Indebtedness 6.4 Permitted Liens EXHIBITS: A Form of Guarantee and Collateral Agreement B Form of Compliance Certificate C Form of Closing Certificate D Form of Assignment and Acceptance E Form of Legal Opinion of Morgan, Lewis & Bockius iii CREDIT AGREEMENT (this "AGREEMENT"), dated as of December 31, 2001, between printCafe, Inc., a Delaware corporation (the "BORROWER") and Iris Graphics Inc., a Delaware corporation (the "LENDER"), a wholly-owned subsidiary of Creo Products Inc., a federally incorporated Canadian corporation. The parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. "ADJUSTMENT DATE": as defined in the Pricing Grid. "AFFILIATE": as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "AGREEMENT": as defined in the preamble hereto. "APPLICABLE MARGIN": for (a) a Base Rate Loan, 8.0% and (b) a Eurodollar Loan, 10.00%; PROVIDED, that on and after the first Adjustment Date occurring after the completion of six full fiscal quarters of the Borrower after the Closing Date, the Applicable Margin with respect to the Term Loan will be determined pursuant to the Pricing Grid; and PROVIDED, FURTHER, that if an Event of Default has occurred and is continuing, all Applicable Margins shall be increased by 3.00% (or, if the Borrower shall be in compliance with each Minimum Threshold Requirement and no other Event of Default shall have occurred and be continuing, 1.50% (with an additional 1.50% accruing as PIK Interest)) and shall be effective from the date the Lender receives notice of such Event of Default until such Event of Default has been cured or waived. "ASSET SALE": any Disposition of property or series of related Dispositions of property that yields gross proceeds to any Group Member (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $100,000. "ASSIGNEE": as defined in Section 8.6(b). "ASSIGNMENT AND ACCEPTANCE": an Assignment and Acceptance, substantially in the form of EXHIBIT D. "ASSIGNOR": as defined in Section 8.6(b). "BASE RATE": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the rate of interest per annum publicly announced from time to time by The Wall Street Journal as the prime rate in effect on such day. Any change in the Base Rate shall be effective as of the opening of business on the effective day of such change in the Base Rate. The Base Rate shall not be less than 3.5% per annum nor greater than 6.00% per annum. 2 "BASE RATE LOAN": the Term Loan, the rate of interest applicable to which at such time is based upon the Base Rate. "BOARD": the Board of Governors of the Federal Reserve System of the United States (or any successor). "BORROWER": as defined in the preamble hereto. "BUSINESS DAY": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "CAPITAL EXPENDITURES": for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "CAPITAL LEASE OBLIGATIONS": as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "CASH EQUIVALENTS": (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's Investors Service, Inc. ("MOODY'S"), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition; or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. 3 "CASH FLOW LEVERAGE RATIO": as at the last day of any period, the ratio of (a) Consolidated Total Debt on such day to (b) Operating Cash Flow for such period. "CLOSING DATE": the date on which the conditions precedent set forth in Section 4.1 shall have been satisfied, which date is December 31, 2001. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL": all property of the Borrower, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document. "COMPLIANCE CERTIFICATE": a certificate duly executed by a Responsible Officer substantially in the form of EXHIBIT B. "CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENT": as defined in Section 3.7. "CONSOLIDATED NET INCOME": for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; PROVIDED that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "CONSOLIDATED TOTAL DEBT": at any date, the aggregate principal amount of all Indebtedness (other than (a) $3,600,000 of the Term Loan on a PRO RATA basis and (b) the Excluded Debt) of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "CSI DEBT": Indebtedness of the Borrower in an aggregate amount of $23,604,051.24 under the promissory notes issued to the former shareholders of Logic Associates, Inc. "DEFAULT": any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "DISPOSITION": with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof, but shall not include the licensing of software in the ordinary course of a Group Member's business. The terms "DISPOSE" and "DISPOSED OF" shall have correlative meanings. "DOLLARS" and "$": dollars in lawful currency of the United States. 4 "DOMESTIC SUBSIDIARY": any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States. "ENVIRONMENTAL LAWS": as defined in Section 3.19. "EQUITY INVESTMENT": as defined in Section 4.1(c)(i). "EURODOLLAR LOAN": the Term Loan, the rate of interest applicable to which at such time is based upon the Eurodollar Rate. "EURODOLLAR RATE": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing in the Wall Street Journal, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear in the Wall Street Journal, the "EURODOLLAR RATE" shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Lender or, in the absence of such availability, by reference to the rate at which a commercial bank selected by the Lender is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein. The "EURODOLLAR RATE" shall not be less than 1.50% per annum nor greater than 4.00% per annum. "EVENT OF DEFAULT": any of the events specified in Section 7, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "EXCLUDED DEBT": collectively, the Hagen Debt, the M Data Debt and the National City Debt, in each case, together with any refinancing, refunding, renewal or extension thereof permitted under Section 6.2(c). "EXCLUDED FOREIGN SUBSIDIARY": any Foreign Subsidiary in respect of which either (a) the pledge of all of the Capital Stock of such Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, would, in the good faith judgment of the Borrower, result in adverse tax consequences to the Borrower. "FINANCIAL STATEMENTS": as defined in Section 3.12. "FOREIGN SUBSIDIARY": any Subsidiary of the Borrower that is not a Domestic Subsidiary. "FUNDED DEBT": as to any Person, all Indebtedness of such Person that matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation. "GAAP": generally accepted accounting principles in the United States as in effect from time to time, except that for purposes of Section 6.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements referred to in Section 3.12. In the event that any "Accounting Change" (as 5 defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Lender agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, to the Lender, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. "Accounting Changes" refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners). "GROUP MEMBERS": the collective reference to the Borrower and its Subsidiaries. "GUARANTEE AND COLLATERAL AGREEMENT": the Guarantee and Collateral Agreement to be executed and delivered by the Borrower and each Subsidiary Guarantor, substantially in the form of EXHIBIT A. "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefore, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "HAGEN DEBT": Indebtedness of the Borrower in an aggregate principal amount of $12,000,000 (which amount shall be $8,000,000 after giving effect to the payment described in Section 4.1(d)(iii)(C)) evidenced by that certain Agreement, dated as of December 31, 2001, between the Borrower, printCafe Systems and Steven R. Peterson, Patricia J. Peterson and Richard J. Hagen, as the 6 same may be amended, supplemented or otherwise modified from time to time as permitted by Section 6.10. "HAGEN NOTEHOLDERS": Richard J. Hagen, Steven R. Peterson and Patricia J. Peterson. "HAZARDOUS SUBSTANCE": as defined in Section 3.19. "HAZARDOUS WASTE": as defined in Section 3.19. "HEDGE AGREEMENTS": all interest rate swaps, caps or collar agreements or similar arrangements dealing with interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "INDEBTEDNESS": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than current trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements, (g) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (f) above, (h) all obligations of the kind referred to in clauses (a) through (g) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation, and (i) for the purposes of Sections 6.2 and 7(e) only, all obligations of such Person in respect of Hedge Agreements. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor. "INTELLECTUAL PROPERTY RIGHTS": as defined in Section 3.6. "INTERCREDITOR AGREEMENT": the intercreditor agreement, dated as of the date hereof, between the Lender and the Hagen Noteholders. "INTEREST EXPENSE": for any period, total cash interest expense (including that attributable to Capital Lease Obligations) of the Borrower and its Subsidiaries for such period with respect to all outstanding Funded Debt (other than (a) $3,600,000 of the Term Loan on a PRO RATA basis and (b) the Excluded Debt) of the Borrower and its Subsidiaries (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Hedge Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP); PROVIDED that interest expense shall be annualized until the first anniversary of the Closing Date. "INTEREST PAYMENT DATE": (a) the last day of each March, June, September and December to occur while the Loan is outstanding, (b) the final maturity date of such Loan and (c) the date of any repayment or prepayment made in respect thereof. 7 "INTEREST PERIOD": as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending three months thereafter; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending three months thereafter; PROVIDED that the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iii) no Interest Period shall extend beyond the date final payment is due on the Term Loan. "INVESTMENTS": as defined in Section 6.9. "LENDER": as defined in the preamble hereto. "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "LOAN DOCUMENTS": this Agreement, the Security Documents and the Notes. "LOAN PARTY": each Group Member that is a party to a Loan Document. "M DATA DEBT": Indebtedness of printCafe Systems in an aggregate principal amount of $4,000,000 under the Amended and Restated Subordinated Non-Negotiable Promissory Note, dated as of December 31, 2001, issued to Michael J. Miller and Neil G. Miller, as the same may be amended, supplemented or otherwise modified from time to time as permitted by Section 6.10. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business, property, operations, or financial condition of the Borrower and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Lender hereunder or thereunder. "MINIMUM THRESHOLD REQUIREMENTS": (a) the Quarterly Revenue for any fiscal quarter of the Borrower set forth below exceeds the amount set forth below opposite such fiscal quarter: FISCAL QUARTER MINIMUM QUARTERLY REVENUE -------------- ------------------------- 12/31/2001 $9,000,000 03/31/2002 $9,318,000 06/30/2002 $9,858,000 09/30/2002 $9,782,000 12/31/2002 $10,967,000 03/31/2003 $11,429,000 06/30/2003 $11,928,000 09/30/2003 $15,000,000 12/31/2003 through 12/31/2007 $15,500,000 8 (b) (i) the Operating Cash Flow for any fiscal quarter of the Borrower set forth below, and (ii) the Operating Cash Flow for any period of four consecutive fiscal quarters of the Borrower (the "TRAILING FOUR-QUARTER OPERATING CASH FLOW") ending with any fiscal quarter set forth below, exceeds the amount set forth below opposite such fiscal quarter:
Trailing Four-quarter Fiscal Quarter Operating Cash Flow Operating Cash Flow -------------- ------------------- --------------------- 12/31/2001 $0 NA 03/21/2002 $254,000 NA 06/30/2002 $547,000 NA 09/30/2002 $455,000 $1,256,000 12/31/2002 $1,075,000 $2,331,000 03/31/2003 $1,269,000 $3,347,000 06/30/2003 $1,408,000 $4,208,000 09/30/2003 $3,000,000 $6,752,000 12/31/2003 $3,250,000 $8,927,000 03/31/2004 $3,500,000 $11,158,000 06/30/2004 $3,750,000 $13,500,000 09/30/2004 $4,000,000 $14,500,000
"NATIONAL CITY DEBT": Indebtedness of the Borrower in the original principal amount of $900,000 under the Commercial Installment Note (with Financial Covenants), dated as of June 6, 1999, issued to National City Bank of Pennsylvania ("NCB") and in an aggregate principal amount of $2,000,000 under the Commercial Note: Demand Line of Credit dated March 25, 2000 issued to NCB, in each case as the same may be amended, supplemented or otherwise modified from time to time as permitted by Section 6.10. "NET CASH PROCEEDS": in connection with any Asset Sale, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements). "NON-EXCLUDED TAXES": as defined in Section 2.12(a). "NOTES": the collective reference to any promissory note evidencing the Loan. "OBLIGATIONS": the unpaid principal of and interest (including, without limitation, any PIK Interest) on (including interest accruing after the maturity of the Term Loan and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Term Loan and all other obligations and liabilities of the Borrower to the Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including 9 all fees, charges and disbursements of counsel to the Lender that are required to be paid by the Borrower pursuant hereto) or otherwise. "OPERATING CASH FLOW": for any period, Consolidated Net Income for such period PLUS, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) depreciation and amortization expense, (c) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (d) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Term Loan), and (e) any extraordinary, unusual or non-recurring non-cash expenses or losses, and MINUS, (i) to the extent included in the statement of such Consolidated Net Income for such period, the sum of (A) interest income, (B) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business), (C) any other non-cash income, capitalized software (if any), (D) capitalized Product Development Cost (if any) and (E) capital expenditures and (ii) any cash payments made during such period in respect of items described in clause (e) above subsequent to the fiscal quarter in which the relevant non-cash expenses or losses were reflected as a charge in the statement of Consolidated Net Income, all as determined on a consolidated basis. The cumulative effect of any accounting changes will be excluded. "OTHER TAXES": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "PERMITTED LIENS": any (a) mechanics', carriers', workers' and other similar Liens arising in the ordinary course of business which are not delinquent and which in the aggregate are not material in amount, and do not interfere with the present use of the assets of the Borrower or any of its Subsidiaries to which they apply; (b) Liens for current taxes and assessments not yet due and payable; (c) Liens and encumbrances that have arisen in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of the Borrower or any of its Subsidiaries; (d) with respect to any asset of the Borrower or any of its Subsidiaries which consists of a leasehold or other possessory interest in real property, all encumbrances, covenants, imperfections in title, easements, restrictions and other title matters (whether or not the same are recorded) not known to the Borrower or such Subsidiary to which the underlying fee estate in such real property is subject which were not created by or incurred by the Borrower or such Subsidiary; (e) Liens securing Indebtedness of the Borrower or any other Subsidiary incurred pursuant to Section 6.2(d) to finance the acquisition of fixed or capital assets, PROVIDED that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased; (f) Liens created pursuant to the Security Documents; (g) existing Liens set forth on SCHEDULE 6.4; and (h) Liens not otherwise permitted by this Agreement so long as neither (i) the aggregate outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined as of the date which Lien is incurred) of the assets subject thereto exceed (as to the Borrower and all Subsidiaries) $250,000 at any one time. "PERSON": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PIK INTEREST": as defined in Section 2.7(e). 10 "PIK INTEREST RATE": as defined in Section 2.7(e). "PREPAYMENT PENALTY": as defined in Section 2.4. "PRICING GRID": the table set forth below:
===================================================================================================================== Cash Flow Applicable Margin for Applicable Margin for Leverage Ratio Eurodollar Loan Base Rate Loan - --------------------------------------------------------------------------------------------------------------------- x (greater than or equal to) 2.0 10.00% 8.00% - --------------------------------------------------------------------------------------------------------------------- 2.0 (greater than) x (greater than or equal to) 1.0 8.00% 6.00% - --------------------------------------------------------------------------------------------------------------------- 1.0 (greater than) x 7.00% 5.00% =====================================================================================================================
For the purposes of the Pricing Grid, changes in the Applicable Margin resulting from changes in the Cash Flow Leverage Ratio shall become effective on the date (the "ADJUSTMENT DATE") that is two Business Days after the date on which financial statements are delivered to the Lender pursuant to Section 6.1 and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified in Section 6.1, then, until the date that is two Business Days after the date on which such financial statements are delivered, the highest rate set forth in each column of the Pricing Grid shall apply. Each determination of the Cash Flow Leverage Ratio pursuant to the Pricing Grid shall be made in a manner consistent with the determination thereof pursuant to Section 6.1. "PRINTCAFE SYSTEMS": printCafe Systems, Inc., a Delaware corporation. "PRODUCT DEVELOPMENTS COSTS": the dollar amount equal to that recorded in the line item Product Development (or the equivalent as generally accepted by other similar companies) in the Financial Statements. "PROJECTIONS": as defined in Section 5.2(b). "QUARTERLY REVENUE": total revenue less professional services revenues of the Borrower and its Subsidiaries for the most recent fiscal quarter. "REGULATION U": Regulation U of the Board as in effect from time to time. "REQUIREMENT OF LAW": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER": the chief executive officer, president or chief financial officer of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower. "RESTRICTED PAYMENTS": as defined in Section 6.7. "SEC": the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority. 11 "SECURITY DOCUMENTS": the collective reference to the Guarantee and Collateral Agreement, any mortgages entered into pursuant to Section 5.9(b) and all other security documents hereafter delivered to the Lender granting a Lien on any property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "SERVICE PROVIDERS": as defined in Section 3.7. "SHAREHOLDER NOTES": those certain promissory notes listed on SCHEDULE 1.1 in favor of the Borrower issued by certain shareholders of the Borrower in connection with the purchase of the Borrower's Capital Stock. "SOLVENT": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "SUBSIDIARY": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "SUBSIDIARY GUARANTOR": each Subsidiary of the Borrower other than any Excluded Foreign Subsidiary. "SURPLUS BALANCE": as at the end of any fiscal quarter, the amount by which the amount of cash and Cash Equivalents of the Borrower and its Subsidiaries exceeds the outstanding principal amount of the Term Loan and any interest accrued thereon at such time. "SYNTHETIC PURCHASE AGREEMENT": any agreement pursuant to which any Group Member is or may become obligated to make (a) any payment in connection with the purchase by any third party from a Person other than a Group Member of any Capital Stock of any Group Member or any Indebtedness referred to in Section 6.9 or (b) any payment (except as otherwise expressly permitted by Section 6.6 or 6.9) the amount of which is determined by reference to the price or value at any time of any such Capital Stock or Indebtedness; PROVIDED, that no phantom stock or similar plan providing for payments only to current or former directors, officers or employees of any Group Member (or to their heirs or estates) shall be deemed to be a Synthetic Purchase Agreement. 12 "TERM LOAN": as defined in Section 2.1. "TERM COMMITMENT": the obligation of the Lender to make the Term Loan to the Borrower in a principal amount equal to $23,600,000. "TOTAL CHARGE COVERAGE RATIO": for any period, the ratio of (a) Operating Cash Flow for such period to (b) Total Charges for such period. "TOTAL CHARGES": for any period, the sum (without duplication) of (a) Interest Expense for such period, (b) 85% of scheduled payments made during such period on account of principal of Funded Debt (other than the Excluded Debt) of the Borrower or any of its Subsidiaries (including scheduled principal payments in respect of the Term Loan), (c) cash income taxes required to be paid by the Borrower and its Subsidiaries during such period and (d) Capital Expenditures made by the Borrower and its Subsidiaries during such period. "TYPE": as to the Term Loan, its nature as a Base Rate Loan or a Eurodollar Loan. "UNITED STATES": the United States of America. "WARRANT": the Warrant dated the date hereof, issued to the Lender and exercisable for shares of Series F Preferred Stock of the Borrower. "WASTE": as defined in Section 3.19. "WHOLLY OWNED SUBSIDIARY": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. "WHOLLY OWNED SUBSIDIARY GUARANTOR": any Subsidiary Guarantor that is a Wholly Owned Subsidiary of the Borrower. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to any Group Member not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, (ii) the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation", (iii) the word "incur" shall be construed to mean incur, create, issue, assume, become liable in respect of or suffer to exist (and the words "incurred" and "incurrence" shall have correlative meanings), (iv) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights, and (v) references to agreements or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated or otherwise modified from time to time. (c) The words "hereof", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this 13 Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF COMMITMENT 2.1 TERM COMMITMENT. Subject to the terms and conditions hereof, the Lender agrees to make a term loan (the "TERM LOAN") to the Borrower on the Closing Date in an amount equal to the amount of the Term Commitment of the Lender. The Term Loan may from time to time be a Eurodollar Loan or a Base Rate Loan, as determined by the Borrower and notified to the Lender in accordance with Sections 2.2 and 2.6. 2.2 PROCEDURE FOR TERM LOAN BORROWING. The Borrower shall give the Lender irrevocable notice (which notice must be received by the Lender prior to 12:00 Noon, New York City time, on the anticipated Closing Date) requesting that the Lender make the Term Loan on the Closing Date. Not later than 3:00 P.M., New York City time, on the Closing Date the Lender shall make available to the Borrower (by wiring funds to the Borrower or to such other party or parties at the direction of the Borrower) an amount in immediately available funds equal to the Term Loan to be made by the Lender. 2.3 REPAYMENT OF TERM LOAN. The Term Loan shall mature in 12 consecutive quarterly installments, each of which shall be in an amount set forth below opposite such installment: Installment Principal Amount March 31, 2005 $1,180,000.00 June 30, 2005 $1,180,000.00 September 30, 2005 $1,180,000.00 December 31, 2005 $1,180,000.00 March 31, 2006 $1,180,000.00 June 30, 2006 $1,180,000.00 September 30, 2006 $1,180,000.00 December 31, 2006 $1,180,000.00 March 31, 2007 $1,180,000.00 June 30, 2007 $1,180,000.00 September 30, 2007 $1,180,000.00 December 31, 2007 $10,620,000.00 2.4 OPTIONAL PREPAYMENTS. The Borrower may at any time after December 31, 2003 and from time to time thereafter prepay the Loan, in whole or in part, upon irrevocable notice delivered to the Lender at least 3 Business Days prior thereto, which notice shall specify the date and amount of prepayment and whether the prepayment is of a Eurodollar Loan or a Base Rate Loan. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (a) accrued interest to such date on the amount prepaid and (b) in the case of any prepayment made pursuant to this Section 2.4 during the period from January 1, 2004 through December 31, 2004, a fee in the amount of 1% of the principal amount prepaid (the "PREPAYMENT PENALTY"). Notwithstanding the foregoing, if the Borrower conducts an initial public offering of its Capital Stock, the Net Cash Proceeds thereof may be used to prepay at any time up to 50% of the amount of the Term Loan then outstanding and interest thereof without incurring the Prepayment Penalty. Partial prepayments of the Term Loan shall be in an aggregate principal amount of $100,000 or a whole multiple thereof. 14 2.5 MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS. (a) If on any date any Group Member shall receive Net Cash Proceeds from any Asset Sale (other than a Disposition of the Capital Stock of the Borrower) then such Net Cash Proceeds shall be applied on such date toward the prepayment of the Term Loan as set forth in Section 2.5(b). (b) Each prepayment of the Term Loan under this Section 2.5 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. In addition, each prepayment of the Term Loan under this Section 2.5 made during the period from January 1, 2004 through December 31, 2004, shall be accompanied by amount equal to the Prepayment Penalty. 2.6 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect from time to time to convert the Term Loan from a Eurodollar Loan to a Base Rate Loan by giving the Lender at least two Business Days' prior irrevocable notice of such election. The Borrower may elect from time to time to convert the Term Loan from a Base Rate Loan to a Eurodollar Loan by giving the Lender at least two Business Days' prior irrevocable notice of such election. (b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Lender, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1. 2.7 INTEREST RATES AND PAYMENT DATES. (a) A Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) A Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin. (c) (i) If all or a portion of the principal amount of the Term Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section PLUS 5%, and (ii) if all or a portion of any interest payable on the Term Loan or any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to a Base Rate Loan PLUS 5%, in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Except as otherwise set forth in Section 2.7(e), interest shall be payable in arrears on each Interest Payment Date, PROVIDED that interest accruing pursuant to paragraph (c) of this Section shall be payable from time to time on demand. (e) In addition, the Term Loan shall also bear interest (the "PIK INTEREST") at the rate per annum equal to (a) 7.00%, if the Cash Flow Leverage Ratio is equal to or greater than 1.0: 1.0, or (b) 6.00%, if the Cash Flow Leverage Ratio is less than 1.0: 1.0 (in each case, the "PIK INTEREST RATE"), on the then outstanding amount of the Term Loan; PROVIDED that until the first Adjustment Date, the PIK Interest Rate shall be equal to a rate per annum equal to 7.00%. Any PIK Interest accrued pursuant to this Section 2.7(e) or the definition of Applicable Margin shall be compounded monthly and shall be payable (a) on the earliest to occur of (i) an Event of Default (other than an Event of Default under Section 7(c) caused by a breach of Section 6.1), (ii) December 31, 2007 or (iii) repayment in full of the Term Loan and (b) on any date the Term Loan shall be prepaid pursuant to Section 2.4 with respect to the portion of any principal amount so prepaid. 15 2.8 COMPUTATION OF INTEREST AND FEES. (a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Lender shall as soon as practicable notify the Borrower of each determination of a Eurodollar Rate. Any change in the interest rate on a Base Rate Loan resulting from a change in the Base Rate shall become effective as of the opening of business on the day on which such change becomes effective. The Lender shall as soon as practicable notify the Borrower of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Lender pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower in the absence of manifest error. The Lender shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Lender in determining any interest rate pursuant to Section 2.7(a). 2.9 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day of any Interest Period, the Lender shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, the Lender shall give telecopy or telephonic notice thereof to the Borrower as soon as practicable thereafter. If such notice is given (x) a Base Rate Loan that was to have been converted on the first day of such Interest Period to a Eurodollar Loan shall be continued as a Base Rate Loan and (y) any outstanding Eurodollar Loan shall be converted, on the last day of the then-current Interest Period, to a Base Rate Loan. Until such notice has been withdrawn by the Lender, no further Eurodollar Loan shall be made or continued as such, nor shall the Borrower have the right to convert a Base Rate Loan to a Eurodollar Loan. 2.10 PRO RATA TREATMENT AND PAYMENTS. (a) The amount of each principal prepayment of the Term Loan shall be applied to reduce the then remaining installments of the Term Loan in inverse order of maturity. Amounts prepaid on account of the Term Loan may not be reborrowed. (b) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Lender an account specified by the Lender, in Dollars and in immediately available funds. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. 2.11 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by the Lender with any request or directive (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof: (i) shall subject the Lender to any tax of any kind whatsoever with respect to this Agreement or change the basis of taxation of payments to the Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.12 and changes in the rate of tax on the overall net income of the Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, 16 any office of the Lender that is not otherwise included in the determination of the Eurodollar Rate; or (iii) shall impose on the Lender any other condition; and the result of any of the foregoing is to increase the cost to the Lender, by an amount that the Lender deems to be material, of making, converting into, continuing or maintaining a Eurodollar Loan or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay the Lender, upon its demand, any additional amounts necessary to compensate the Lender for such increased cost or reduced amount receivable. If the Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Borrower of the event by reason of which it has become so entitled. (b) A certificate as to any additional amounts payable pursuant to this Section submitted by the Lender to the Borrower shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Term Loan and all other amounts payable hereunder. 2.12 TAXES. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Lender as a result of a present or former connection between the Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("NON-EXCLUDED TAXES") or Other Taxes are required to be withheld from any amounts payable to the Lender hereunder, the amounts so payable to the Lender shall be increased to the extent necessary to yield to the Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, PROVIDED, however, that the Borrower shall not be required to increase any such amounts payable to the Lender with respect to any Non-Excluded Taxes imposed on amounts payable to the Lender at the time the Lender becomes a party to this Agreement, except to the extent that the Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Lender a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Lender the required receipts or other required documentary evidence, the Borrower shall indemnify the Lender for any incremental taxes, interest or penalties that may become payable by the Lender as a result of any such failure. (d) The agreements in this Section shall survive the termination of this Agreement and the payment of the Term Loan and all other amounts payable hereunder. 17 SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into this Agreement and to make the Term Loan, the Borrower represents and warrants to the Lender that: 3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each Group Member is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite corporate power and authority to carry on its business. Each Group Member is duly qualified as a foreign corporation or is otherwise duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would, either individually or in the aggregate, have a Material Adverse Effect. 3.2 SUBSIDIARIES; JOINT VENTURES. The Borrower does not currently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity other than the Subsidiaries set forth on SCHEDULE 3.2. The Borrower, either directly or through one of its Subsidiaries, holds all of the issued and outstanding capital stock of each of the Subsidiaries. The Borrower is not a participant in any joint venture, partnership or similar arrangement. 3.3 AUTHORIZATION. All corporate action on the part of each Loan Party, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the other Loan Documents, the performance of all obligations of the Borrower hereunder and thereunder and, in the case of the Borrower, the authorization of the borrowing of the Term Loan on the terms and conditions of this Agreement has been taken or will be taken prior to the Closing Date, and the Loan Documents, when executed and delivered by each Loan Party party thereto, shall constitute valid and legally binding obligations of such Loan Party, enforceable against such Loan Party in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. All corporate action on the part of each Loan Party and its predecessors, officers, directors, stockholders and subsidiaries necessary for the authorization, execution and/or delivery, as applicable, for all past corporate actions was obtained. 3.4 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority of the United States is required in connection with the consummation of the transactions contemplated by this Agreement, except for (i) consents, authorizations, filings and notices described in SCHEDULE 3.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect and (ii) the filings referred to in Section 3.26. 3.5 LITIGATION. Except as set forth on SCHEDULE 3.5, there is no action, suit, proceeding or investigation pending or, to the Borrower's knowledge, currently threatened against the Borrower or any of its Subsidiaries, or any basis therefor known to the Borrower, that questions the validity of the Loan Documents or the right of the Loan Parties to enter into them, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any Material Adverse Effect. Except as set forth on SCHEDULE 3.5, neither the Borrower nor any of its Subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. Except as set forth on SCHEDULE 3.5, there is no action, suit, proceeding or investigation by the Borrower or any of its Subsidiaries currently pending or which the Borrower or any of its Subsidiaries intends to initiate. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Borrower) involving the prior employment of any of the Borrower's or its Subsidiaries' employees, their use in connection with 18 the Borrower's or its Subsidiaries' business of any information or technologies allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. 3.6 INTELLECTUAL PROPERTY. Each Group Member owns or possesses sufficient legal rights to all patents, trademarks, service marks, tradenames, copyrights, trade secrets, licenses, information and proprietary rights and processes (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary for its business without any conflict with, or infringement of, the rights of others. To the Borrower's knowledge, no third party is infringing or violating any Group Member's Intellectual Property Rights. The Borrower has not received any written communications alleging that any Group Member has violated or, by conducting its business, would violate any of the Intellectual Property Rights of any other person or entity. Except with respect to license agreements entered into in the ordinary course of a Group Member's business or as disclosed on SCHEDULE 3.6, there are no outstanding options, licenses or agreements of any kind related to the foregoing, nor is any Group Member bound by, or a party to, any options, licenses or agreements of any kind with respect to Intellectual Property Rights of any other forms. 3.7 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS. Each officer, independent contractor, consultant and employee of the Borrower (collectively, "SERVICE PROVIDERS") has entered into an agreement with the Borrower regarding confidentiality, non-solicitation of employees and customers and assignment of all Intellectual Property Rights, technical information and other information developed and/or worked on by such Service Provider while employed or engaged with the Borrower (each, a "CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENT"). To the Borrower's knowledge, (i) no past or present Service Provider is in violation of any term of any Confidentiality and Invention Assignment Agreement between the Borrower and such Service Provider; and (ii) it is not nor will it be necessary to use any inventions of any of its Service Providers (or persons it currently intends to hire) made prior to their employment or engagement by the Borrower. Each Service Provider hired or engaged by the Borrower after the date hereof shall, prior to their employment or engagement with the Borrower, enter into a Confidentiality and Invention Assignment Agreement with the Borrower. 3.8 COMPLIANCE WITH OTHER INSTRUMENTS. No Group Member is in violation in any respect or default of any Requirements of Law, which violation or default is reasonably likely to result in a Material Adverse Effect. No event has occurred which with the passage of time or the giving of notice, or both, would constitute a material breach of or default under any of the foregoing, which material violation or breach or default is reasonably likely to result in a Material Adverse Effect. Except as set forth on SCHEDULE 3.8, the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated thereby will not result in any such violation or breach or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, agreement, commitment, arrangement, license, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of any Loan Party (other than the Liens created by the Security Documents.) Neither the execution or delivery of this Agreement, nor the carrying on of any Group Member's business by the employees of such Group Member, nor the conduct of such Group Member's business as proposed, will conflict in any material respect with or result in a material breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such Group Member's employees is now obligated. 3.9 AGREEMENTS; ACTION. (a) There are no agreements, understandings or proposed transactions between the Borrower and any of its officers, directors, Affiliates or any Affiliate thereof (other than this Agreement and the other Loan Documents). 19 (b) Except as explicitly contemplated by the Loan Documents, and agreements entered into in the ordinary course of business or set forth on SCHEDULE 3.9, there are no agreements, understandings, instruments, contracts or proposed transactions to which any Group Member is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, any Group Member in excess of $50,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from any Group Member, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Borrower's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. (c) No Group Member has (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any Indebtedness in excess of $50,000 or in excess of $100,000 in the aggregate (other than under this Agreement and as set forth on SCHEDULE 6.2(c)), (iii) made any loans or advances to any person, other than ordinary advances to such Group Member's employees for business expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) Except as disclosed in SCHEDULE 3.9 or as set out in the Loan Documents, the Borrower has not entered into any binding letters of intent with any corporation, partnership, association, other business entity or any individual regarding (i) the consolidation or merger of the Borrower with or into any such corporation or other business entity, (ii) the sale, conveyance or disposition of all or substantially all of the assets of the Borrower or a transaction or series of transactions in which more than 50% of the voting power of the Borrower is disposed of, or (iii) any other form of acquisition, liquidation, dissolution or winding-up of the Borrower. 3.10 NO CONFLICT OF INTEREST. No Group Member is indebted, directly or indirectly, to any of its officers or directors, in any amount whatsoever, other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. Except as set forth on SCHEDULE 3.10, none of any Group Member's officers or directors are, directly or indirectly, indebted to such Group Member (other than in connection with purchases of such Group Member's stock) or, to the Borrower's knowledge, have any direct or indirect ownership interest in any firm or corporation with which any Group Member is affiliated or with which any Group Member has a business relationship, or any firm or corporation which competes with any Group Member (other than ownership of stock in, but not exceeding two percent (2%) of the outstanding capital stock of, any publicly traded company that competes with such Group Member). To the Borrower's knowledge, except as set forth on SCHEDULE 3.10, none of any Group Member's officers or directors is, directly or indirectly, interested in any material contract with any Group Member. Except as set forth on SCHEDULE 3.10, no Group Member is a guarantor of any Indebtedness of any other person, firm or corporation. 3.11 TITLE TO PROPERTY AND ASSETS. Each Group Member has good and valid title to all of its properties and assets, both real and personal, and has good title to all its leasehold interests, in each case free and clear of all Liens, except for Permitted Liens. Each Group Member owns or leases all properties and assets reasonably necessary to the operation of its business as now conducted. With respect to the property and assets it leases, each Group Member is in compliance with such leases and, to such Group Member's knowledge, holds a valid leasehold interest free of any Liens, except for Permitted Liens. 3.12 FINANCIAL STATEMENTS. The consolidated balance sheet, statement of operations and statement of cash flows of the Borrower for the fiscal year ended December 31, 2000 and the unaudited consolidated balance sheet, statement of operations and statement of cash flows of the Borrower for the nine months ended September 30, 2001 (collectively, the "FINANCIAL STATEMENTS") have 20 been prepared in accordance with GAAP consistently applied (except that the unaudited financial statements do no contain footnotes and are subject to normal year-end audit adjustments). The Financial Statements are complete in all material respects and in accordance with the books and records of the Group Members and fairly present the financial condition and operating results of the Group Members as of the dates, and for the periods, indicated therein (except that the unaudited financial statements do no contain footnotes and are subject to normal year-end audit adjustments). Except as set forth in the Financial Statements, no Group Member has any material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 2001, (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, and (iii) performance obligations of the Borrower under the Equity Investment documents. 3.13 CHANGES. Except as set forth on SCHEDULE 3.13, since September 30, 2001 there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Borrower from that reflected in the Financial Statements, except changes in the ordinary course of business that have not had, in the aggregate, a Material Adverse Effect; (b) any damage, destruction, loss or other occurrence or development that has had a Material Adverse Effect; (c) any waiver or compromise by the Borrower of a valuable right or any material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Borrower, except in the ordinary course of business and that is not material to the assets, business, properties or financial condition or operating results of the Borrower; (e) any material change or amendment to a material contract or agreement by which the Borrower or any of its assets or properties is bound or subject; (f) any material change or amendment in any compensation arrangement or agreement with any employee, officer, director or stockholder; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (h) any resignation or termination of employment of any officer or key employee of the Borrower; and the Borrower, is not aware of any impending resignation or termination of employment of any such officer or key employee; (i) any transfer of a security interest in, or Lien, created by any Group Member, with respect to any of its material properties or assets, except for Permitted Liens; (j) any loans or guarantees made by any Group Member to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; 21 (k) any declaration, setting aside or payment or other distribution in respect to any of the Borrower's capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Borrower; (l) to the Borrower's knowledge, any other event or condition of any character that might have a Material Adverse Effect; or (m) any arrangement or commitment by the Borrower to do any of the things described in this Section 3.13. 3.14 DISTRIBUTIONS. There has been no declaration or payment by the Borrower of any dividend, nor any distribution by the Borrower of any assets of any kind, to any of its stockholders. 3.15 TAX RETURNS AND PAYMENTS. Except as set forth on SCHEDULE 3.15, each Group Member has filed all tax returns and reports as required by applicable law and such tax returns and reports are true and correct in all material respects. Except as set forth on SCHEDULE 3.15, each Group Member has paid all taxes, fees, assessments and other governmental charges upon such Group Member, or upon any of its properties, income, or franchises, shown in such returns and on assessments received by such Group Member to be due as of the date hereof and no such taxes or assessments are being contested. 3.16 INSURANCE. The Borrower has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed, and the Borrower has such other insurance policies and coverages as are customary in the Borrower's industry. 3.17 EMPLOYEE BENEFIT PLANS. SCHEDULE 3.17 sets forth all currently effective employment contracts, deferred compensation arrangements, bonus plans, incentive plans, profit sharing plans, retirement agreements or other employee compensation agreements. No Group Member has any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974, as amended. 3.18 LABOR AGREEMENTS AND ACTIONS. No Group Member is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of such Group Member, has sought to represent any of the employees, representatives or agents of such Group Member. There is no strike or other labor dispute involving any Group Member pending, or to the knowledge of such Group Member threatened, which could have a Material Adverse Effect, nor is any Group Member aware of any labor organization activity involving its employees. Except as set forth on SCHEDULE 3.18, the employment of each officer and employee of each Group Member is terminable at the will of such Group Member. The service of each consultant and independent contractor is terminable by such Group Member upon not more than thirty (30) days prior written notice. To its knowledge, each Group Member has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. 3.19 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. To the Borrower's knowledge, it has obtained all material permits, licenses and other authorizations required under federal, state and local laws relating to pollution or protection of the environment. The Borrower has not violated any applicable Environmental Law, the violation of which is reasonably likely to result in a material adverse change in the financial condition, assets, liabilities, operations or financial performance of the Borrower. To the knowledge of the Borrower, there are no present requirements of any applicable Environmental Law which are due to be imposed upon it which will materially increase its cost of complying with the Environmental Laws. All past on-site generation, treatment, storage and disposal of Waste, including 22 Hazardous Waste, by the Borrower and, to its knowledge, by its predecessors have been done in compliance with the currently applicable Environmental Laws, and all past off-site treatment, storage and disposal of Waste, including Hazardous Waste, generated by the Borrower and, to its knowledge, by its predecessors have been done in compliance with the currently applicable Environmental Laws. As used in this Agreement, the terms (i) "ENVIRONMENTAL LAWS" include, but are not limited to, any federal, state, local or foreign law, statute, charter or ordinance, and any rule, regulation, binding interpretation, binding policy, permit, order, court order or consent decree issued pursuant to any of the foregoing, which pertains to, governs or otherwise regulates any of the following activities, including, without limitation, (a) the emission, discharge, release or spilling of any substance into the air, surface water, groundwater, soil or substrata; (b) the manufacturing, processing, sale, generation, treatment, storage, disposal labeling or other management of any Waste, Hazardous Substance or Hazardous Waste, and (ii) "WASTE," "HAZARDOUS SUBSTANCE," and "HAZARDOUS WASTE" include any substance defined as such by any applicable Environmental Law. 3.20 PERMITS. Each Group Member has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could result in a Material Adverse Effect and, to its knowledge, it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. Except as set forth on SCHEDULE 3.20, no Group Member is in default in any material respect under any of such franchises, permits, licenses or other similar authority. 3.21 DISCLOSURE. The Borrower has made available to the Lender all material information relating to the Group Members. This Agreement, including all representations herein by the Borrower, each Loan Document and any exhibits hereto or any certificate furnished or to be furnished to the Lender, taken together, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. 3.22 COMPLIANCE WITH OTHER LAWS. Except as set forth on SCHEDULE 3.22, the Borrower has complied in all material respects with all laws, statutes, rules, regulations and orders of federal, state, local and foreign agencies and authorities, applicable to its business, properties and operations. 3.23 FEDERAL REGULATIONS. No part of the proceeds of the Term Loan, and no other extensions of credit hereunder, will be used for "buying" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the Regulations of the Board. If requested by the Lender, the Borrower will furnish to the Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U. 3.24 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Loan Party is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness. 3.25 USE OF PROCEEDS. The proceeds of the Term Loan shall be used to repay the CSI Debt and a portion of the Hagen Debt, and to pay closing fees and expenses payable hereunder. 3.26 SECURITY DOCUMENTS. (a) The Guarantee and Collateral Agreement is effective to create for the benefit of the Lender, a legal, valid and enforceable security interest in the Collateral 23 described therein and proceeds thereof. In the case of the Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Stock are delivered to the Lender, and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements and other filings specified on SCHEDULE 3.26 in appropriate form are filed in the offices specified on SCHEDULE 3.26, the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except Liens permitted by Section 6.4). 3.27 SOLVENCY. Each Loan Party is, and after giving effect to the Term Loan and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 3.28 CERTAIN DOCUMENTS. The Borrower has delivered to the Lender a complete and correct copy of the Equity Investment documentation, including any amendments, supplements or modifications with respect to any of the foregoing. SECTION 4. CONDITIONS PRECEDENT 4.1 CONDITIONS TO TERM LOAN. The agreement of the Lender to make the Term Loan is subject to the satisfaction, prior to or concurrently with the making of such Term Loan on the Closing Date, of the following conditions precedent: (a) CREDIT AGREEMENT; GUARANTEE AND COLLATERAL AGREEMENT. The Lender shall have received (i) this Agreement, executed and delivered by the Borrower and the Lender, (ii) the Guarantee and Collateral Agreement, executed and delivered by the Borrower and each Subsidiary Guarantor and (iii) an Acknowledgement and Consent in the form attached to the Guarantee and Collateral Agreement, executed and delivered by each Issuer (as defined therein), if any, that is not a Loan Party, and any indemnification, subordination, warrant and/or other document that the Lender shall determine to be necessary or desirable. (b) WARRANT. The Lender shall have received the Warrant, duly executed and delivered by the Borrower. (c) INTERCREDITOR AGREEMENT. The Intercreditor Agreement shall have been duly executed and delivered by all parties thereto. (d) EQUITY INVESTMENT. The following transactions shall have been consummated, in each case on terms and conditions reasonably satisfactory to the Lender: (i) The Borrower shall have received at least $14,800,000 in gross proceeds (including up to $2,250,000 in proceeds from the cancellation of indebtedness) from the issuance of, and at least $900,000 in commitments to purchase, the Series F Preferred Stock of the Borrower with rights and restrictions similar to the existing Series E Preferred Stock and on such terms as may be acceptable to the Lender to existing shareholders of the Borrower (such transaction, the "EQUITY INVESTMENT"); (ii) The Borrower shall have received at least $1,000,000 in gross proceeds from the repayment of debt owing to it; and 24 (iii) (A) The Lender shall have received satisfactory evidence that the CSI Debt shall have been terminated and all amounts thereunder shall have been paid in full, (B) satisfactory arrangements shall have been made for the termination of all Liens granted in connection therewith, (C) the Lender shall have received satisfactory evidence that $4,000,000 of the Hagen Debt shall have been repaid and (D) the Lender shall be satisfied with the terms of the Hagen Debt and the M Data Debt. (e) FINANCIAL STATEMENTS. The Lenders shall have received unaudited interim consolidated financial statements of the Borrower for each fiscal month and quarterly period ended subsequent to the date of the latest audited financial statements received by the Lender as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Lender, reflect any material adverse change in the business prospects or consolidated financial condition of the Borrower. (f) APPROVALS. (i) All governmental and third party approvals or consents necessary in connection with the Equity Investment, the continuing operations of the Group Members and the transactions contemplated hereby shall have been obtained and be in full force and effect. (ii) The Lender shall have received all requisite corporate approvals necessary to authorize the execution, delivery and performance of this Agreement and the making of the Term Loan to the Borrower. (g) LIEN SEARCHES. The Lender shall have received the results of a recent lien search in each of the jurisdictions where assets of the Borrower are located, and such search shall reveal no liens on any of the assets of the Loan Parties except for Liens permitted by Section 6.4 or discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Lender. (h) FEES. The Lender shall have received all fees required to be paid, and all reasonable expenses incurred by the Lender for which invoices have been presented (including the reasonable fees and expenses of legal counsel), in connection with due diligence, preparation, execution, filing and recording of this facility and any documents executed and delivered in connection herewith, whether or not the transaction closes, on or before the Closing Date. All such amounts will be paid with proceeds of the Term Loan made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Lender on or before the Closing Date. (i) CLOSING CERTIFICATE; CERTIFIED CERTIFICATE OF INCORPORATION; GOOD STANDING CERTIFICATES. The Lender shall have received (i) a certificate of each Loan Party, dated the date hereof, substantially in the form of EXHIBIT C, with appropriate insertions and attachments, including the certificate of incorporation of each Loan Party that is a corporation certified by the relevant authority of the jurisdiction of organization of such Loan Party, and (ii) a long form good standing certificate for each Loan Party from its jurisdiction of organization. (j) LEGAL OPINIONS. The Lender shall have received the legal opinion of (i) Morgan, Lewis & Bockius LLP, counsel to the Borrower and its Subsidiaries, substantially in the form of EXHIBIT E, and (ii) local Delaware counsel with respect to matters of perfection, in form and substance satisfactory to the Lender. (k) PLEDGED STOCK; STOCK POWERS; PLEDGED NOTES. The Lender shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) pledged to the Lender pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof. 25 (l) FILINGS, REGISTRATIONS AND RECORDINGS. Each document (including any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Lender to be filed, registered or recorded in order to create in favor of the Lender, for the benefit of the Lender, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.4), shall be in proper form for filing, registration or recordation. (m) SOLVENCY CERTIFICATE. The Lender shall have received a certificate of solvency from the chief financial officer of the Borrower. (n) INSURANCE. The Lender shall have received insurance certificates satisfying the requirements of Section 5.2(b) of the Guarantee and Collateral Agreement. (o) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct on and as of such date as if made on and as of such date. (p) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Term Loan. (q) STRATEGIC ALLIANCE AGREEMENT AND SALES CHANNEL AGREEMENT. The Lender and the Borrower shall have executed and delivered an amended and restated Strategic Alliance Agreement and Sales Channel Agreement, together with a software license and escrow agreement, on terms satisfactory to the Lender and the Borrower and approved by any party whose consent is required thereto. SECTION 5. AFFIRMATIVE COVENANTS The Borrower agrees that, so long as the Term Loan or other amount is owing to the Lender hereunder, the Borrower shall and shall cause each of its Subsidiaries to: 5.1 FINANCIAL STATEMENTS. Furnish to the Lender: (a) as soon as available, but in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception (other than with respect to fiscal year 2001), or qualification arising out of the scope of the audit, by Ernst & Young LLP or other independent certified public accountants of nationally recognized standing; (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower as of the end of such quarter and the related unaudited consolidated financial statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter (including schedules, to the extent applicable), setting forth in each case beginning with the quarter ended June 30, 2002 and for each quarterly period thereafter, in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); and (c) as soon as available, but in any event not later than 45 days after the end of each month occurring during each fiscal year of the Borrower (other than the third, sixth, ninth and twelfth 26 such month), the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such month and the related unaudited consolidated statements of income and of cash flows for such month and the portion of the fiscal year through the end of such month, setting forth in each case (beginning with the month ended April 30, 2002 and for each month thereafter) in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP, subject to year-end audit adjustments, applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 5.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Lender: (a) concurrently with the delivery of any financial statements pursuant to Section 5.1, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, the Borrower during such period has observed or performed all of its covenants and other agreements, and satisfied every condition contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, (x) a Compliance Certificate containing all information and calculations necessary for determining compliance by each Group Member with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be (it being understood that failure to demonstrate such compliance shall not in and of itself be deemed a breach of this Section 5.2(a)), and (y) to the extent not previously disclosed to the Lender, a listing of any county or state within the United States where the Borrower keeps inventory or equipment and of any Intellectual Property Rights acquired by the Borrower since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Closing Date); (b) as soon as available, and in any event no later than 30 days prior to the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, the related consolidated statements of projected cash flow and projected income and a description of the underlying assumptions applicable thereto), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the "PROJECTIONS"), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (c) within five days after the same are sent and to the extent not otherwise delivered hereunder, copies of all financial statements and reports that the Borrower sends to the holders of any class of its debt securities or public equity securities and, within five days after the same are filed, to the extent not publicly available, copies of all financial statements and reports that the Borrower may make to, or file with, the SEC; and (d) promptly, such additional financial and other information as the Lender may from time to time reasonably request. 27 5.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with, and to the extent required by, GAAP with respect thereto have been provided on the books of the relevant Group Member. 5.4 MAINTENANCE OF EXISTENCE; COMPLIANCE. (a) (i) Preserve, renew and keep in full force and effect its organizational existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 6.5 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 5.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and (b) permit representatives of the Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records upon reasonable prior notice at any reasonable time and not more than twice during any fiscal quarter (so long as an Event of Default has not occurred and is continuing) and to discuss the business, operations, properties and financial and other condition of the Group Members with officers and employees of the Group Members and with their independent certified public accountants; and (c) in the event that neither the Lender nor an Affiliate of the Lender has a representative who is a member of the Borrower's Board of Directors, grant the Lender or representatives of the Lender the right to have one representative attend all meetings of the Board of Directors of the Borrower as an observer, including all committees and sub-committees and provide the Lender or representatives of the Lender access to all written communications, minutes and materials. 5.7 NOTICES. Promptly upon obtaining knowledge thereof give notice to the Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of any Group Member or (ii) litigation, investigation or proceeding that may exist at any time between any Group Member and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting any Group Member (i) in which the amount involved is $500,000 or more and not covered by insurance, (ii) in which injunctive or similar relief is sought or (iii) which relates to any Loan Document; (d) any bona fide interest from a third party to acquire all of the assets or shares of the Borrower, details of any such proposal; and 28 (e) any development or event that has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section 5.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the relevant Group Member proposes to take with respect thereto. 5.8 ENVIRONMENTAL LAWS. (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. (b) In the event that a Group Member acquires real property, conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws. 5.9 ADDITIONAL COLLATERAL, ETC. (a) With respect to any property acquired after the Closing Date by any Group Member (other than (x) any property described in paragraph (b), (c) or (d) below and (y) property acquired by any Excluded Foreign Subsidiary) as to which the Lender does not have a perfected Lien, promptly (i) execute and deliver to the Lender such amendments to the Guarantee and Collateral Agreement or such other documents as the Lender deems necessary or advisable to grant to the Lender a security interest in such property to the extent set forth in the Guarantee and Collateral Agreement and (ii) take all actions necessary or advisable to grant to the Lender a perfected first priority (or, with respect to any property securing the Excluded Debt (other than the Hagen Debt), a perfected second priority) security interest in such property, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Lender. (b) With respect to any fee interest in any real property having a value (together with improvements thereof) of at least $500,000 acquired after the Closing Date by any Group Member (other than real property acquired by any Excluded Foreign Subsidiary), promptly (i) execute and deliver a first priority mortgage, for the benefit of the Lender, covering such real property, (ii) if requested by the Lender, provide the Lenders with (A) title and extended coverage insurance covering such real property in an amount at least equal to the purchase price of such real property (or such other amount as shall be reasonably specified by the Lender) as well as a current ALTA survey thereof, together with a surveyor's certificate and (B) any consents or estoppels reasonably deemed necessary or advisable by the Lender in connection with such mortgage, each of the foregoing in form and substance reasonably satisfactory to the Lender and (iii) if requested by the Lender, deliver to the Lender legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Lender. (c) With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date by any Group Member (which, for the purposes of this paragraph (c), shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary), promptly (i) execute and deliver to the Lender such amendments to the Guarantee and Collateral Agreement as the Lender deems necessary or advisable to grant to the Lender, for the benefit of the Lender, a perfected first priority (or, with respect to any property securing the Excluded Debt (other than the Hagen Debt and the M Data Debt), a perfected second priority) security interest in the Capital Stock of such new Subsidiary that is owned by any Group Member, (ii) deliver to the Lender the certificates 29 representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement, (B) to take such actions necessary or advisable to grant to the Lender a perfected first priority (or, with respect to any property securing the Excluded Debt (other than the Hagen Debt), a perfected second priority) security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Lender and (C) to deliver to the Lender a certificate of such Subsidiary, substantially in the form of EXHIBIT C, with appropriate insertions and attachments, and (iv) if requested by the Lender, deliver to the Lender legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Lender. (d) With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by any Group Member (other than by any Group Member that is an Excluded Foreign Subsidiary), promptly (i) execute and deliver to the Lender such amendments to the Guarantee and Collateral Agreement as the Lender deems necessary or advisable to grant to the Lender, a perfected first priority (or, with respect to any property securing the Excluded Debt (other than the Hagen Debt and the M Data Debt), a perfected second priority) security interest in the Capital Stock of such new Subsidiary that is owned by any such Group Member (provided that in no event shall more than 66% of the total outstanding voting Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Lender the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, and take such other action as may be necessary or, in the opinion of the Lender, desirable to perfect the Lender's security interest therein, and (iii) if requested by the Lender, deliver to the Lender legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Lender. 5.10 PAY-OFF LETTERS; PROOF OF PAYMENT. (a) Use commercially best efforts to obtain executed pay-off letters from the holders of the CSI Debt to the extent not previously provided to the Lender. (b) Within 10 days after the Closing Date, provide satisfactory evidence to the Lender with respect to the repayment in full of the CSI Debt. SECTION 6. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as the Term Loan or other amount is owing to the Lender hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 6.1 FINANCIAL CONDITION COVENANTS. (a) CASH FLOW LEVERAGE RATIO. Permit the Cash Flow Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters subsequent to the Closing Date) ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter: Cash Flow Fiscal Quarter Leverage Ratio -------------- -------------- 12/31/2004 through 09/30/2005 2.3 : 1.0 30 12/31/2005 through 09/30/2006 2.0 : 1.0 12/31/2006 through 12/31/2007 1.5 : 1.0 (b) TOTAL CHARGE COVERAGE RATIO. Permit the Total Charge Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters subsequent to the Closing Date) ending with any fiscal quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter: Total Charge Fiscal Quarter Coverage Ratio -------------- -------------- 03/31/2003 through 12/31/2007 1.1 : 1.0 (c) QUARTERLY REVENUE. Permit the Quarterly Revenue for any fiscal quarter of the Borrower set forth below to be less than the amount set forth below opposite such fiscal quarter: Fiscal Quarter Minimum Quarterly Revenue -------------- ------------------------- 12/31/2001 $9,000,000 03/31/2002 $9,500,000 06/30/2002 $10,500,000 09/30/2002 $11,500,000 12/31/2002 $12,500,000 03/31/2003 $13,500,000 06/30/2003 $14,500,000 09/30/2003 $15,000,000 12/31/2003 through 12/31/2007 $15,500,000 (d) OPERATING CASH FLOW. Permit (i) the Operating Cash Flow for any fiscal quarter of the Borrower set forth below, or (ii) the Operating Cash Flow for any period of four consecutive fiscal quarters of the Borrower (the "TRAILING FOUR-QUARTER OPERATING CASH FLOW") ending with any fiscal quarter set forth below, to be less than the amount set forth below opposite such fiscal quarter:
Trailing Four-quarter Fiscal Quarter Operating Cash Flow Operating Cash Flow -------------- ------------------- --------------------- 12/31/2001 $0 NA 03/21/2002 $300,000 NA 06/30/2002 $800,000 NA 09/30/2002 $1,300,000 $2,400,000 12/31/2002 $1,800,000 $4,200,000 03/31/2003 $2,200,000 $6,100,000 06/30/2003 $2,600,000 $7,900,000 09/30/2003 $3,000,000 $9,600,000 12/31/2003 $3,250,000 $11,050,000 03/31/2004 $3,500,000 $12,350,000 06/30/2004 $3,750,000 $13,500,000 09/30/2004 $4,000,000 $14,500,000
(e) The covenants set forth in Sections 6.1(a), (b) and (d) above shall not be applicable to any fiscal quarter for which a Surplus Balance has been achieved. If a Surplus Balance has been achieved, the Borrower may increase its Product Development Costs by up to $10,000,000 over the 31 limitation set forth in Section 6.3, for a period deemed necessary and reasonable by management, to develop the supplier side e-commerce software products. 6.2 INDEBTEDNESS. Create, issue, incur, assume, become liable in respect of or suffer to exist any additional funded Indebtedness, except: (a) Indebtedness of any Loan Party pursuant to any Loan Document; (b) Indebtedness of the Borrower to any Subsidiary and of any Wholly Owned Subsidiary Guarantor to the Borrower or any other Subsidiary; (c) Indebtedness outstanding on the date hereof and listed on SCHEDULE 6.2(c) and any refinancings, refundings, renewals or extensions thereof (without increasing, or shortening the maturity of, the principal amount thereof or increasing the rate of interest thereon (or, with respect to any refinancing, refunding, renewal or extension of the National City Debt, increasing the rate of interest to a rate above the then prevailing market rate) or providing additional collateral with respect thereto (except, with respect to any refinancing, refunding, renewal or extension of the Hagen Debt, collateral that also becomes subject to a Lien pursuant to the Security Documents)) (but in any event not including any additional draws on any outstanding commitments under the National City Debt) (it being understood that (i) the Lender agrees to enter into an intercreditor agreement or similar arrangement reasonably necessary to effectuate any refinancing, refunding, renewal or extension of the M Data Debt or the National City Debt in a manner consistent with the existing terms thereof (including with respect to priority) and on terms otherwise reasonably acceptable to the Lender and (ii) any refinancing, refunding, renewal or extension of the Hagen Debt shall require an assumption by the holder of the Hagen Debt of the Intercreditor Agreement or other similar agreement in form and substance satisfactory to the Lender); and (d) Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 6.4 in an aggregate principal amount not to exceed $1,000,000 at any one time outstanding. 6.3 PRODUCT DEVELOPMENT COSTS. Permit the amount of Product Development Costs to exceed $3,750,000 for each fiscal quarter; PROVIDED that the Borrower may increase its cumulative Product Development Costs in accordance with Section 6.1(e). 6.4 LIENS. Create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, except for Permitted Liens. 6.5 FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its property or business, except that: (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (PROVIDED that the Borrower shall be the continuing or surviving corporation) or with or into any Wholly Owned Subsidiary Guarantor (PROVIDED that the Wholly Owned Subsidiary Guarantor shall be the continuing or surviving corporation); (b) any Subsidiary of the Borrower may Dispose of any or all of its assets (i) to the Borrower or any Wholly Owned Subsidiary Guarantor (upon voluntary liquidation or otherwise) 32 (it being understood that after giving effect to any such Disposition of all of its assets, such Subsidiary may be dissolved) or (ii) pursuant to a Disposition permitted by Section 6.6; and (c) any Investment expressly permitted by Section 6.9 may be structured as a merger, consolidation or amalgamation. 6.6 DISPOSITION OF PROPERTY. Dispose of any of its property, whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person (it being understood that this Section 6.6 shall not prohibit the issuance or sale of shares of the Capital Stock of the Borrower), except: (a) the Disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) Dispositions permitted by Section 6.5(b); (d) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any Wholly Owned Subsidiary Guarantor; and (e) the Disposition of other property or assets having a fair market value not to exceed $2,000,000 in the aggregate during the term of this Agreement. 6.7 RESTRICTED PAYMENTS. Declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of any Group Member, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Group Member (collectively, "RESTRICTED PAYMENTS"), except that so long as no Default or Event of Default shall have occurred and be continuing, the Borrower may purchase its common stock or options to purchase its common stock, or Capital Stock or options to purchase its Capital Stock, from present or former officers or employees of any Group Member upon the death, disability or termination of employment of such officer or employee (i) to the extent effected through the discharge of the Shareholder Notes or (ii) so long as the aggregate amount of such payments after the date hereof (net of any proceeds received by the Borrower after the date hereof in connection with resales of any common stock or common stock options so purchased) shall not exceed $50,000. 6.8 CAPITAL EXPENDITURES. Make or commit to make any Capital Expenditure, except Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not exceeding $750,000 in the aggregate for each fiscal quarter. 6.9 INVESTMENTS. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting a business unit of, or make any other investment in, any Person (all of the foregoing, "INVESTMENTS"), except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; 33 (c) loans and advances to employees of any Group Member in the ordinary course of business (excluding loans and advances (i) for travel, entertainment and relocation expenses and (ii) evidenced by the Shareholder Notes) in an aggregate amount for all Group Members not to exceed $100,000 at any one time outstanding; (d) intercompany Investments by any Group Member in the Borrower or any Person that, prior to such investment, is a Wholly Owned Subsidiary Guarantor; and (e) in addition to Investments otherwise expressly permitted by this Section, Investments by the Borrower or any of its Subsidiaries in an aggregate amount (valued at cost) not to exceed $2,000,000 during the term of this Agreement. 6.10 CERTAIN PAYMENTS; MODIFICATIONS OF CERTAIN INSTRUMENTS; SYNTHETIC PURCHASE AGREEMENTS. (a) Amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Borrower's Certificate of Incorporation or its By-Laws in any manner materially adverse to the Lender; (b) make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to the Excluded Debt; (c) make or offer to make any payment, prepayment, repurchase or redemption of or otherwise defease or segregate funds with respect to any preferred Capital Stock; (d) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Excluded Debt that (i) would shorten the maturity or increase the amount of any payment of principal thereof or increase the rate or shorten any date for payment of interest thereon or provide additional collateral with respect thereto (except, with respect to the Hagen Debt, collateral that also becomes subject to a Lien pursuant to the Security Documents), (ii) is materially adverse to the Lender or (iii) involves the payment of a consent fee; (e) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of any preferred Capital Stock that (i) would shorten the scheduled redemption date or increase the amount of any scheduled redemption payment or increase the rate or shorten any date for payment of dividends thereon, (ii) is materially adverse to the Lender or (iii) involves the payment of a consent fee; or (f) enter into or be party to, or make any payment under, any Synthetic Purchase Agreement. 6.11 TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower, any Wholly Owned Subsidiary Guarantor, the Lender or any Affiliate of the Lender) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of the relevant Group Member, and (c) upon fair and reasonable terms no less favorable to the relevant Group Member than it would obtain in a comparable arm's length transaction with a Person that is not an Affiliate. 6.12 SALES AND LEASEBACKS. Enter into any arrangement with any Person providing for the leasing by any Group Member of real or personal property that has been or is to be sold or transferred by such Group Member to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Group Member. 6.13 CHANGES IN FISCAL PERIODS. Permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower's method of determining fiscal quarters. 6.14 NEGATIVE PLEDGE CLAUSES. Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Group Member to create, incur, assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure 34 its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents; (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby); and (c) any agreement governing the Excluded Debt. 6.15 CLAUSES RESTRICTING SUBSIDIARY DISTRIBUTIONS. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Borrower to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or advances to, or other Investments in, the Borrower or any other Subsidiary of the Borrower or (c) transfer any of its assets to the Borrower or any other Subsidiary of the Borrower, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary and (iii) any restrictions existing under any agreement governing the Excluded Debt. 6.16 LINES OF BUSINESS. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or that are reasonably related thereto (including, without limitation, technical businesses within the graphic arts industry and e-commerce services). SECTION 7. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) the Borrower shall fail to pay any principal of the Term Loan when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on the Term Loan, or any other amount payable hereunder or under any other Loan Document, within three days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or (c) any Loan Party shall default in the observance or performance of any agreement contained in Section 6 of this Agreement or Sections 5.5 and 5.7(b) of the Guarantee and Collateral Agreement; or (d) any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 15 days after notice to the Borrower from the Lender; or (e) any Group Member shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loan) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained 35 in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; or (iv) default in the observance or performance of any material agreement or condition or obligation owing to the Lender under any agreement or instrument; PROVIDED, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $500,000; or (f) (i) any Group Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Group Member shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Group Member any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against any Group Member any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) any Group Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) one or more judgments or decrees shall be entered against any Group Member involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has not denied coverage) of $500,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (h) any of the Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (i) the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect (other than as expressly permitted by this Agreement) or any Loan Party or any Affiliate of any Loan Party shall so assert; or (j) a Change of Control (as defined in the Borrower's Sixth Amended and Restated Certificate of Incorporation) shall occur; 36 then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Term Loan (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents shall immediately become due and payable, and (B) if such event is any other Event of Default (other than an Event of Default under Section 7(c) caused by a breach of Section 6.1) the Lender may declare the Term Loan (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower. SECTION 8. MISCELLANEOUS 8.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 8.1. The Lender and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lender or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Lender may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences. Any such waiver and any such amendment, supplement or modification shall be binding upon the Lender and the Borrower and all future holders of the Term Loan. In the case of any waiver, the Loan Parties and the Lender shall be restored to their former positions and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 8.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case the Borrower and the Lender, or to such other address as may be hereafter notified by the respective parties hereto: Borrower: printCafe, Inc. Forty 24th Street Pittsburgh, PA 15222 Attention: President Telecopy: (412) 456-1151 Telephone: (412) 456-1141 Lender: Iris Graphics Inc. 3 Federal Street Billerica, MA 01821 Attention: Stephen Avedikian, President Telecopy: (978) 313-4740 Telephone: (978) 313-4747 PROVIDED that any notice, request or demand to or upon the Lender shall not be effective until received. 37 8.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Term Loan. 8.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or reimburse the Lender for all reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable legal fees to the Lender's counsel, and filing and recording fees and expenses, with statements with respect to the foregoing to be submitted to the Borrower prior to the Closing Date (in the case of amounts to be paid on the Closing Date) and from time to time thereafter on a quarterly basis or such other periodic basis as the Lender shall deem appropriate, (b) to pay or reimburse the Lender for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including the fees and disbursements of counsel to the Lender, (c) to pay, indemnify, and hold the Lender harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, that may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold the Lender and its respective officers, directors, employees, affiliates, agents and controlling persons (each, an "INDEMNITEE") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including any of the foregoing relating to the use of proceeds of the Loan or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of any Group Member or any of the Properties and the reasonable fees and expenses of legal counsel in connection with claims, actions or proceedings by any Indemnitee against any Loan Party under any Loan Document (all the foregoing in this clause (d), collectively, the "INDEMNIFIED LIABILITIES"), PROVIDED, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are (i) based solely upon a claim of equitable subordination or (ii) found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section 8.5 shall be payable not later than 10 days after written demand therefore. Statements payable by the Borrower pursuant to this Section 8.5 shall be submitted to the President of the Borrower (Telephone No. 412-456-1141) (Telecopy No. 412-456-1151), at the address of the Borrower set forth in Section 8.2, or to such 38 other Person or address as may be hereafter designated by the Borrower in a written notice to the Lender. The agreements in this Section 8.5 shall survive repayment of the Loan and all other amounts payable hereunder. 8.6 SUCCESSORS AND ASSIGNS; ASSIGNMENTS. (a) This Agreement shall be binding upon and inure to the benefit the Borrower and the Lender, all future holders of the Term Loan and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Lender. (b) The Lender (an "ASSIGNOR") may, in accordance with applicable law, at any time and from time to time assign to any Person (an "ASSIGNEE") all or any part of its rights and obligations under this Agreement and the other Loan Documents pursuant to an Assignment and Acceptance, executed by such Assignee and such Assignor; PROVIDED that unless otherwise agreed by the Borrower, no such assignment to an Assignee shall be in an aggregate principal amount of less than $2,000,000, in each case except in the case of an assignment of all of the Lender's interests under this Agreement. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of the Lender hereunder as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor's rights and obligations under this Agreement, such Assignor shall cease to be a party hereto) (it being understood that, upon any such assignment, the rights of the Lenders hereunder shall be exercised by a single, representative Lender acting at the request of Lenders holding more than 50% of the aggregate unpaid principal amount of the Term Loan then outstanding). In the case of an assignment to a financial institution, the Borrower agrees to amend this Agreement (subject to requisite shareholder approval, which approval the Borrower shall use commercially best efforts to obtain) to the extent reasonably requested by the Lender to add provisions with respect to the making or maintaining of Eurodollar Loans. 8.7 SET-OFF. In addition to any rights and remedies of the Lender provided by law, the Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lender or any branch or agency thereof to or for the credit or the account of the Borrower, as the case may be. The Lender agrees promptly to notify the Borrower after any such setoff and application made by the Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 8.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Lender. 8.9 SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such 39 prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.10 INTEGRATION. This Agreement and the other Loan Documents represent the entire agreement of the Borrower and the Lender with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid to the Borrower at its address set forth in Section 8.2 or at such other address of which the Lender shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 8.13 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) the Lender has no fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Lender and the Borrower in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby between the Lender and the Borrower. 40 8.14 RELEASES OF GUARANTEES AND LIENS. At such time as the Term Loan and the other obligations under the Loan Documents shall have been paid in full, the Collateral shall be released from the Liens created by the Security Documents, and the Security Documents and all obligations (other than those expressly stated to survive such termination) of each Loan Party under the Security Documents shall terminate, all without delivery of any instrument or performance of any act by any Person. 8.15 CONFIDENTIALITY. The Lender agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein shall prevent the Lender from disclosing any such information (a) subject to an agreement to comply with the provisions of this Section, to any actual or prospective Assignee (or any professional advisor to such counterparty), (b) to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its affiliates, (c) upon the request or demand of any Governmental Authority, (d) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (e) if requested or required to do so in connection with any litigation or similar proceeding, (f) that has been publicly disclosed, (g) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about the Lender's investment portfolio in connection with ratings issued with respect to the Lender, or (h) in connection with the exercise of any remedy hereunder or under any other Loan Document. 8.16 WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. PRINTCAFE, INC., as Borrower By: /s/ Marc D. Olin ------------------------------------- Name: Marc D. Olin Title: President and Chief Executive Officer IRIS GRAPHICS INC., as Lender By: /s/ M. Dance ------------------------------------- Name: M. Dance Title: Director, Iris & EVP, Creo Products EX-10.13 17 j9249402ex10-13.txt GUARANTEE & COLLATERAL AGREEMENT Exhibit 10.13 EXHIBIT A ================================================================================ GUARANTEE AND COLLATERAL AGREEMENT made by printCafe, Inc. and certain of its Subsidiaries in favor of Iris Graphics Inc. Dated as of December 31, 2001 ================================================================================ Table of Contents
PAGE SECTION 1. DEFINED TERMS...................................................................................1 1.1 Definitions.....................................................................................1 1.2 Other Definitional Provisions...................................................................4 SECTION 2. Guarantee.......................................................................................4 2.1 Guarantee.......................................................................................4 2.2 Right of Contribution...........................................................................5 2.3 No Subrogation..................................................................................5 2.4 Amendments, etc. with respect to the Borrower Obligations.......................................5 2.5 Guarantee Absolute and Unconditional............................................................6 2.6 Reinstatement...................................................................................6 2.7 Payments........................................................................................6 SECTION 3. GRANT OF SECURITY INTEREST......................................................................6 SECTION 4. REPRESENTATIONS AND WARRANTIES..................................................................7 4.1 Title; No Other Liens...........................................................................7 4.2 Perfected First Priority Liens..................................................................8 4.3 Jurisdiction of Organization; Chief Executive Office............................................8 4.4 Inventory and Equipment.........................................................................8 4.5 Farm Products...................................................................................8 4.6 Investment Property.............................................................................8 4.7 Receivables.....................................................................................9 4.8 Contracts.......................................................................................9 4.9 Intellectual Property...........................................................................9 SECTION 5. COVENANTS......................................................................................10 5.1 Delivery of Instruments, Certificated Securities and Chattel Paper.............................10 5.2 Maintenance of Insurance.......................................................................10 5.3 Payment of Obligations.........................................................................10 5.4 Maintenance of Perfected Security Interest; Further Documentation..............................11 5.5 Changes in Locations, Name, etc................................................................11 5.6 Notices.......................................................................................11 5.7 Investment Property............................................................................11 5.8 Receivables....................................................................................12 5.9 Contracts......................................................................................12 5.10 Intellectual Property..........................................................................13 SECTION 6. REMEDIAL PROVISIONS............................................................................14 6.1 Certain Matters Relating to Receivables........................................................14 6.2 Communications with Obligors; Grantors Remain Liable...........................................14 6.3 Pledged Stock..................................................................................15 6.4 Proceeds to be Turned Over To Lender...........................................................16 6.5 Application of Proceeds........................................................................16 6.6 Code and Other Remedies........................................................................16 6.7 Registration Rights............................................................................17
i 6.8 Deficiency.....................................................................................17 SECTION 7. THE LENDER.....................................................................................18 7.1 The Lender's Appointment as Attorney-in-Fact, etc..............................................18 7.2 Duty of the Lender.............................................................................19 7.3 Execution of Financing Statements..............................................................19 7.4 Authority of the Lender........................................................................19 SECTION 8. MISCELLANEOUS..................................................................................20 8.1 Amendments in Writing..........................................................................20 8.2 Notices........................................................................................20 8.3 No Waiver by Course of Conduct; Cumulative Remedies............................................20 8.4 Enforcement Expenses; Indemnification..........................................................20 8.5 Successors and Assigns.........................................................................20 8.6 Set-Off........................................................................................20 8.7 Counterparts...................................................................................21 8.8 Severability...................................................................................21 8.9 Section Headings...............................................................................21 8.10 Integration....................................................................................21 8.11 GOVERNING LAW..................................................................................21 8.12 Submission To Jurisdiction; Waivers............................................................21 8.13 Acknowledgements...............................................................................22 8.14 Additional Grantors............................................................................22 8.15 Releases.......................................................................................22 8.16 Prior Liens....................................................................................22 8.17 WAIVER OF JURY TRIAL...........................................................................23
SCHEDULES - --------- Schedule 1........Notice Addresses Schedule 2........Investment Property Schedule 3........Perfection Matters Schedule 4........Jurisdictions of Organization and Chief Executive Offices Schedule 5........Inventory and Equipment Locations Schedule 6........Intellectual Property Schedule 7........Material Contracts ii GUARANTEE AND COLLATERAL AGREEMENT GUARANTEE AND COLLATERAL AGREEMENT, dated as of December 31, 2001, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the "GRANTORS"), in favor of Iris Graphics Inc., as Lender (the "LENDER"), party to the Credit Agreement, dated as of December 31, 2001 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), between printCafe, Inc. (the "BORROWER") and the Lender. W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to make a Term Loan to the Borrower upon the terms and subject to the conditions set forth therein; WHEREAS, the Borrower is a member of an affiliated group of companies that includes each other Grantor; WHEREAS, the proceeds of the Term Loan under the Credit Agreement will be used in part to enable the Borrower to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses; WHEREAS, the Borrower and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the making of the Term Loan under the Credit Agreement; and WHEREAS, it is a condition precedent to the obligation of the Lender to make the Term Loan to the Borrower under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Lender; NOW, THEREFORE, in consideration of the premises and to induce the Lender to enter into the Credit Agreement and to make the Term Loan to the Borrower thereunder, each Grantor hereby agrees with the Lender as follows: SECTION 1. DEFINED TERMS 1.1 DEFINITIONS. (a). Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms are used herein as defined in the New York UCC: Accounts, Certificated Security, Chattel Paper, Documents, Equipment, Farm Products, General Intangibles, Instruments, Inventory, Letter-of-Credit Rights and Supporting Obligations. (b) The following terms shall have the following meanings: "AGREEMENT": this Guarantee and Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "BORROWER OBLIGATIONS": the collective reference to the unpaid principal of and interest (including, without limitation, any PIK Interest) on the Term Loan and all other obligations and liabilities of the Borrower (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loan and interest accruing at the then applicable rate provided 2 in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to the Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, the other Loan Documents, or any other document (other than the Warrant) made, delivered or given in connection with any of the foregoing, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Lender that are required to be paid by the Borrower pursuant to the terms of any of the foregoing agreements). "COLLATERAL": as defined in Section 3. "COLLATERAL ACCOUNT": any collateral account established by the Lender as provided in Section 6.1 or 6.4. "CONTRACTS": the material contracts and agreements listed in SCHEDULE 7, as the same may be amended, supplemented or otherwise modified from time to time, including, without limitation, (i) all rights of any Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of any Grantor to damages arising thereunder and (iii) all rights of any Grantor to perform and to exercise all remedies thereunder. "COPYRIGHTS": (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in SCHEDULE 6), all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof. "COPYRIGHT LICENSES": any written agreement naming any Grantor as licensor or licensee (including, without limitation, those listed in SCHEDULE 6), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright. "DEPOSIT ACCOUNT": as defined in the Uniform Commercial Code of any applicable jurisdiction and, in any event, including, without limitation, any demand, time, savings, passbook or like account maintained with a depositary institution. "FOREIGN SUBSIDIARY": any Subsidiary organized under the laws of any jurisdiction outside the United States of America. "FOREIGN SUBSIDIARY VOTING STOCK": the voting Capital Stock of any Foreign Subsidiary. "GUARANTOR OBLIGATIONS": with respect to any Guarantor, all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement (including, without limitation, Section 2) or any other Loan Document to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Lender that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document). 3 "GUARANTORS": the collective reference to each Grantor other than the Borrower. "INTELLECTUAL PROPERTY": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "INTERCOMPANY NOTE": any promissory note evidencing loans made by any Grantor to the Borrower or any of its Subsidiaries. "INVESTMENT PROPERTY": the collective reference to (i) all "investment property" as such term is defined in Section 9-102(a)(49) of the New York UCC (other than any Foreign Subsidiary Voting Stock excluded from the definition of "Pledged Stock") and (ii) whether or not constituting "investment property" as so defined, all Pledged Notes and all Pledged Stock. "ISSUERS": the collective reference to each issuer of any Investment Property. "NEW YORK UCC": the Uniform Commercial Code as from time to time in effect in the State of New York. "OBLIGATIONS": (i) in the case of the Borrower, the Borrower Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations. "PATENTS": (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including, without limitation, any of the foregoing referred to in SCHEDULE 6, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any of the foregoing referred to in SCHEDULE 6, and (iii) all rights to obtain any reissues or extensions of the foregoing. "PATENT LICENSE": all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in SCHEDULE 6. "PLEDGED NOTES": all promissory notes listed on SCHEDULE 2, all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business). "PLEDGED STOCK": the shares of Capital Stock listed on SCHEDULE 2, together with any other shares, stock certificates, options, interests or rights of any nature whatsoever in respect of the Capital Stock of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect; PROVIDED that in no event shall more than 66% of the total outstanding Foreign Subsidiary Voting Stock of any Foreign Subsidiary be required to be pledged hereunder. "PROCEEDS": all "proceeds" as such term is defined in Section 9-102(a)(64) of the New York UCC and, in any event, shall include, without limitation, all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto. 4 "RECEIVABLE": any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including, without limitation, any Account). "SECURITIES ACT": the Securities Act of 1933, as amended. "TRADEMARKS": (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including, without limitation, any of the foregoing referred to in SCHEDULE 6, and (ii) the right to obtain all renewals thereof. "TRADEMARK LICENSE": any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in SCHEDULE 6. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor's Collateral or the relevant part thereof. SECTION 2. GUARANTEE 2.1 GUARANTEE. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Lender and its respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Lender. (d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full and the Commitments shall be terminated, notwithstanding 5 that from time to time during the term of the Credit Agreement the Borrower may be free from any Borrower Obligations. (e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower Obligations are paid in full. 2.2 RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Lender, and each Guarantor shall remain liable to the Lender for the full amount guaranteed by such Guarantor hereunder. 2.3 NO SUBROGATION. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Lender against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Lender for the payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Lender by the Borrower on account of the Borrower Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Lender, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Lender in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Lender, if required), to be applied against the Borrower Obligations, whether matured or unmatured, in such order as the Lender may determine. 2.4 AMENDMENTS, ETC. WITH RESPECT TO THE BORROWER OBLIGATIONS. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by the Lender may be rescinded by the Lender and any of the Borrower Obligations continued, and the Borrower Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Lender, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Lender may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Lender for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. The Lender shall not have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 6 2.5 GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by the Lender upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Borrower and any of the Guarantors, on the one hand, and the Lender, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against the Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.6 REINSTATEMENT. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations is rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 2.7 PAYMENTS. Each Guarantor hereby guarantees that payments hereunder will be paid to the Lender without set-off or counterclaim in Dollars to an account specified by the Lender. SECTION 3. GRANT OF SECURITY INTEREST Each Grantor hereby assigns, transfers and grants to the Lender a security interest in all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "COLLATERAL"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor's Obligations,: 7 (a) all Accounts; (b) all Chattel Paper; (c) all Contracts; (d) all Deposit Accounts; (e) all Documents; (f) all Equipment; (g) all General Intangibles; (h) all Instruments; (i) all Intellectual Property; (j) all Inventory; (k) all Investment Property; (l) all Letter-of-Credit Rights; (m) all other property not otherwise described above; (n) all books and records pertaining to the Collateral; and (o) to the extent not otherwise included, all Proceeds, Supporting Obligations and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing; provided, however, that notwithstanding any of the other provisions set forth in this Section 3, this Agreement shall not constitute a grant of a security interest in (i) the Shareholder Notes and (ii) any property to the extent that such grant of a security interest is prohibited by any Requirements of Law of a Governmental Authority, requires a consent not obtained of any Governmental Authority pursuant to such Requirement of Law or is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any Investment Property, Pledged Stock or Pledged Note, any applicable shareholder or similar agreement, except to the extent that such Requirement of Law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable law. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into the Credit Agreement and to induce the Lenders to make the Term Loan to the Borrower thereunder, each Grantor hereby represents and warrants to the Lender that: 4.1 TITLE; NO OTHER LIENS. Except for the security interest granted to the Lender pursuant to this Agreement and the Permitted Liens, such Grantor owns or has the right to use each item of the Collateral 8 free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Lender, pursuant to this Agreement or as are permitted by the Credit Agreement. For the avoidance of doubt, it is understood and agreed that any Grantor may, as part of its business, grant licenses to third parties to use Intellectual Property owned by, licensed to, or developed by a Grantor. For purposes of this Agreement and the other Loan Documents, such licensing activity, and any restrictions arising as a result therefrom, shall not constitute a "Lien" or "claim of others" on, or an impairment of, such Intellectual Property. The Lender understands that any such licenses may be exclusive to the applicable licensees, and such exclusivity provisions, may limit the ability of the Lender to utilize, sell, lease or transfer the related Intellectual Property or otherwise realize value from such Intellectual Property pursuant hereto. The Lender further understands that a Grantor may be granted licenses by third parties to use Intellectual Property, which licenses may limit the ability of Lender to utilize, sell, Lease or transfer the related Intellectual Property or otherwise realize value from such Intellectual Property pursuant hereto. For purposes of this Agreement and the other Loan Documents, such licensing activity and the limitations imposed thereby shall not constitute a "Lien" or "claim of others" on, or an impairment of, such Intellectual Property. 4.2 PERFECTED FIRST PRIORITY LIENS. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on SCHEDULE 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Lender in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral in favor of the Lender, as collateral security for such Grantor's Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Liens. 4.3 JURISDICTION OF ORGANIZATION; CHIEF EXECUTIVE OFFICE. On the date hereof, such Grantor's jurisdiction of organization, identification number from the jurisdiction of organization (if any), and the location of such Grantor's chief executive office or sole place of business or principal residence, as the case may be, are specified on SCHEDULE 4. Such Grantor has furnished to the Lender a certified charter, certificate of incorporation or other organization document, of a date which shall not be prior to September 1, 2001, and long-form good standing certificate as of a date which is recent to the date hereof. 4.4 INVENTORY AND EQUIPMENT. On the date hereof, the Inventory and the Equipment (other than mobile goods) are kept at the locations listed on SCHEDULE 5. 4.5 FARM PRODUCTS. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 4.6 INVESTMENT PROPERTY. (a) The shares of Pledged Stock pledged by such Grantor hereunder constitute all the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor or, in the case of Foreign Subsidiary Voting Stock, if less, 66% of the outstanding Foreign Subsidiary Voting Stock of each relevant Issuer. (b) All the shares of the Pledged Stock have been duly and validly issued and are fully paid and nonassessable. (c) Each of the Pledged Notes constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 9 (d) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the security interest created by this Agreement. 4.7 RECEIVABLES. (a) No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Lender. (b) None of the obligors on any Receivables in an amount not exceeding $500,000 is a Governmental Authority. (c) The amounts represented by such Grantor to the Lender from time to time as owing to such Grantor in respect of the Receivables will at such times be accurate. 4.8 CONTRACTS. (a) No consent of any party (other than such Grantor) to any Contract is required, or purports to be required, in connection with the execution, delivery and performance of this Agreement, except as has been obtained. (b) Each Contract is in full force and effect and constitutes a valid and legally enforceable obligation of the parties thereto, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (c) No consent or authorization of, filing with or other act by or in respect of any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of any of the Contracts by any party thereto other than those which have been duly obtained, made or performed, are in full force and effect and do not subject the scope of any such Contract to any material adverse limitation, either specific or general in nature. (d) Neither such Grantor nor (to the best of such Grantor's knowledge) any of the other parties to the Contracts is in default in the performance or observance of any of the terms thereof. (e) The right, title and interest of such Grantor in, to and under the Contracts are not subject to any defenses, offsets, counterclaims or claims. (f) Such Grantor has delivered or made available to the Lender a complete and correct copy of each Contract, including all amendments, supplements and other modifications thereto. (g) No amount payable to such Grantor under or in connection with any Contract is evidenced by any Instrument or Chattel Paper which has not been delivered to the Lender. (h) None of the parties to any Contract is a Governmental Authority. 4.9 INTELLECTUAL PROPERTY. (a) SCHEDULE 6 lists all registered Intellectual Property owned by such Grantor in its own name on the date hereof. (b) On the date hereof, all material Intellectual Property owned by the Grantor is valid, subsisting, unexpired and enforceable, has not been abandoned and does not, to the Grantor's knowledge, infringe the intellectual property rights of any other Person. 10 (c) Except as set forth in SCHEDULE 6, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor. (d) No holding, decision or judgment has been rendered by any Governmental Authority, against any Grantor as a party to any proceeding giving rise to such holding, decision or judgment, which would limit, cancel or question the validity of, or such Grantor's rights in, any Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect. (e) No action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof against any Grantor (i) seeking to limit, cancel or question the validity of any Intellectual Property owned by any Grantor or such Grantor's ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property. SECTION 5. COVENANTS Each Grantor covenants and agrees with the Lender that, from and after the date of this Agreement until the Obligations shall have been paid in full and the Commitment shall have terminated: 5.1 DELIVERY OF INSTRUMENTS, CERTIFICATED SECURITIES AND CHATTEL PAPER. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be immediately delivered to the Lender, duly indorsed in a manner satisfactory to the Lender, to be held as Collateral pursuant to this Agreement. 5.2 MAINTENANCE OF INSURANCE. (a) Such Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory and Equipment against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Lender and (ii) to the extent requested by the Lender, insuring such Grantor and the Lender against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Lender. (b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Lender of written notice thereof, (ii) name the Lender as insured party or loss payee, (iii) if reasonably requested by the Lender, include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Lender. (c) The Borrower shall deliver to the Lender a report of a reputable insurance broker with respect to such insurance substantially concurrently with each delivery of the Borrower's audited annual financial statements and such supplemental reports with respect thereto as the Lender may from time to time reasonably request. 5.3 PAYMENT OF OBLIGATIONS. Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Grantor and such proceedings could 11 not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 5.4 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION. (a) Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.2 and shall defend such security interest against the claims and demands of all Persons whomsoever, subject to the rights of such Grantor under the Loan Documents to dispose of the Collateral. (b) Such Grantor will furnish to the Lender from time to time statements and schedules further identifying and describing the assets and property of such Grantor and such other reports in connection therewith as the Lender may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Lender, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) filing any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) in the case of Investment Property, Deposit Accounts, Letter-of-Credit Rights and any other relevant Collateral, taking any actions necessary to enable the Lender to obtain "control" (within the meaning of the applicable Uniform Commercial Code) with respect thereto. 5.5 CHANGES IN LOCATIONS, NAME, ETC. Such Grantor will not, except upon 15 days' prior written notice and delivery to the Lender of (a) all additional executed financing statements and other documents reasonably requested by the Lender to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to SCHEDULE 5 showing any additional location at which Inventory or Equipment shall be kept: (i) change its jurisdiction of organization or the location of its chief executive office or sole place of business or principal residence from that referred to in Section 4.3; or (ii) change its name. 5.6 NOTICES. Such Grantor will advise the Lender promptly, in reasonable detail, of: (a) any Lien (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of the Lender to exercise any of its remedies hereunder; and (b) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. 5.7 INVESTMENT PROPERTY. (a) If such Grantor shall become entitled to receive or shall receive any certificate (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Lender, hold the same in trust for the Lender and deliver the same forthwith to the Lender in the exact form received, duly indorsed by such Grantor to the Lender, if required, together with an undated stock power covering 12 such certificate duly executed in blank by such Grantor and with, if the Lender so requests, signature guaranteed, to be held by the Lender, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of the Investment Property upon the liquidation or dissolution of any Issuer shall be paid over to the Lender to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Investment Property or any property shall be distributed upon or with respect to the Investment Property pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Lender, be delivered to the Lender to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Investment Property shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Lender, hold such money or property in trust for the Lender, segregated from other funds of such Grantor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Lender, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any Capital Stock of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any Capital Stock of any nature of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Investment Property or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for the security interests created by this Agreement or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Lender to sell, assign or transfer any of the Investment Property or Proceeds thereof. (c) In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Investment Property issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Lender promptly in writing of the occurrence of any of the events described in Section 5.7(a) with respect to the Investment Property issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the Investment Property issued by it. 5.8 RECEIVABLES. (a) Other than in the ordinary course of business consistent with its past practice, such Grantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could adversely affect the value thereof. (b) Such Grantor will deliver to the Lender a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of more than 5% of the aggregate amount of the then outstanding Receivables. 5.9 CONTRACTS. (a) Such Grantor will, to the extent consistent with prudent business practices, perform and comply in all material respects with all its obligations under the Contracts. (b) Such Grantor will not amend, modify, terminate or waive any provision of any Contract in any manner which could reasonably be expected to materially adversely affect the value of such Contract as Collateral. 13 (c) Such Grantor will, to the extent consistent with prudent business practices, exercise promptly and diligently each and every material right which it may have under each Contract (other than any right of termination). (d) Such Grantor will deliver to the Lender a copy of each material demand, notice or document received by it relating in any way to any Contract that questions the validity or enforceability of such Contract. 5.10 INTELLECTUAL PROPERTY. (a) With respect to each material Trademark owned by a Grantor, such Grantor will, except to the extent the Grantor determines, in accordance with prudent business practices, to change the Trademark associated with such goods or services, or to cease offering the goods or services with which the Trademark is associated, (i) continue to use such Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Lender shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way (b) Such Grantor will not (and will not authorize any licensee or sublicensee thereof to) do any act, or omit to do any act, whereby any material Patent owned by it may become forfeited, abandoned or dedicated to the public in any jurisdiction where such action or omission could reasonably be expected to adversely affect the value of such Patent. (c) Such Grantor (i) will employ each material Copyright and (ii) will not (and will not authorize any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired. Such Grantor will not and will not authorize any licensee or sublicense thereof to do any act whereby any material portion of the Copyrights may fall into the public domain. (d) Such Grantor will not (and will not authorize any licensee or sublicensee thereof to) do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person. (e) Such Grantor will notify the Lender promptly if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property owned by it may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property owned by it or such Grantor's right to register the same or to own and maintain the same. (f) Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Lender within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of the 14 Lender, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Lender may reasonably request to evidence the Lender's security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (g) Such Grantor will take all reasonable and necessary steps, to the extent consistent with prudent business practices, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration arising from such application) and to maintain each registration of the material Intellectual Property owned by Grantor, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any material Intellectual Property owned by a Grantor is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Lender after it learns thereof and to the extent consistent with prudent business practices, sue for infringement, misappropriation or dilution, seek injunctive relief where appropriate and use reasonable efforts to recover damages for such infringement, misappropriation or dilution. SECTION 6. REMEDIAL PROVISIONS 6.1 CERTAIN MATTERS RELATING TO RECEIVABLES. (a) The Lender shall have the right to make test verifications of the Receivables twice a year (and if an Event of a Default shall have occurred and be continuing, at any time and from time to time) in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Lender may require in connection with such test verifications. At any time and from time to time, upon the Lender's request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Lender to furnish to the Lender reports showing reconciliations, aging and test verifications of, and trial balances for, the Receivables. (b) The Lender hereby authorizes each Grantor to collect such Grantor's Receivables, subject to the Lender's direction and control, and the Lender may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Lender at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Lender if required, in a Collateral Account maintained under the sole dominion and control of the Lender, subject to withdrawal by the Lender only as provided in Section 6.5, and (ii) until so turned over, shall be held by such Grantor in trust for the Lender, segregated from other funds of such Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit. (c) At the Lender's reasonable request, each Grantor shall deliver to the Lender all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including, without limitation, all original orders, invoices and shipping receipts. 6.2 COMMUNICATIONS WITH OBLIGORS; GRANTORS REMAIN LIABLE. (a) Upon the occurrence and continuance of an Event of Default, the Lender may, in its own name or in the name of others, or at any 15 time in the name of a Grantor, communicate with obligors under the Receivables and parties to the Contracts to verify with them to the Lender's satisfaction the existence, amount and terms of any Receivables or Contracts. (b) Upon the request of the Lender at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall notify obligors on the Receivables and parties to the Contracts that the Receivables and the Contracts have been assigned to the Lender and that payments in respect thereof shall be made directly to the Lender. (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Receivables and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. The Lender shall not have any obligation or liability under any Receivable (or any agreement giving rise thereto) or Contract by reason of or arising out of this Agreement or the receipt by the Lender of any payment relating thereto, nor shall the Lender be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto) or Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 6.3 PLEDGED STOCK. (a) Unless an Event of Default shall have occurred and be continuing and the Lender shall have given notice to the relevant Grantor of the Lender's intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Stock and all payments made in respect of the Pledged Notes, in each case paid in the normal course of business of the relevant Issuer and consistent with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and corporate or other organizational rights with respect to the Investment Property; provided, however, that no vote shall be cast or corporate or other organizational right exercised or other action taken which, in the Lender's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) If an Event of Default shall occur and be continuing and the Lender shall give notice of its intent to exercise such rights to the relevant Grantor or Grantors, (i) the Lender shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Investment Property and make application thereof to the Obligations in such order as the Lender may determine, and (ii) any or all of the Investment Property shall be registered in the name of the Lender or its nominee, and the Lender or its nominee may thereafter exercise (x) all voting, corporate and other rights pertaining to such Investment Property at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Investment Property upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate or other organizational structure of any Issuer, or upon the exercise by any Grantor or the Lender of any right, privilege or option pertaining to such Investment Property, and in connection therewith, the right to deposit and deliver any and all of the Investment Property with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Lender may determine), all without liability except to account for property actually received by it, but the Lender shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. 16 (c) Each Grantor hereby authorizes and instructs each Issuer of any Investment Property pledged by such Grantor hereunder to (i) comply with any instruction received by it from the Lender in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Investment Property directly to the Lender. 6.4 PROCEEDS TO BE TURNED OVER TO LENDER. In addition to the rights of the Lender specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, checks and other near-cash items shall be held by such Grantor in trust for the Lender, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Lender in the exact form received by such Grantor (duly indorsed by such Grantor to the Lender, if required). All Proceeds received by the Lender hereunder shall be held by the Lender in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Lender in a Collateral Account (or by such Grantor in trust for the Lender) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 6.5. 6.5 APPLICATION OF PROCEEDS. At such intervals as may be agreed upon by the Borrower and the Lender, or, if an Event of Default shall have occurred and be continuing, at any time at the Lender's election, the Lender may apply all or any part of Proceeds constituting Collateral, whether or not held in any Collateral Account, in payment of the Obligations in such order as the Lender may elect, and any part of such funds which the Lender elects not so to apply and deems not required as collateral security for the Obligations shall be paid over from time to time by the Lender to the Borrower or to whomsoever may be lawfully entitled to receive the same. Any balance of such Proceeds remaining after the Obligations shall have been paid in full and the Commitment shall have terminated, and shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive the same. 6.6 CODE AND OTHER REMEDIES. If an Event of Default shall occur and be continuing, the Lender may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees, at the Lender's request, to assemble the Collateral and make it available to the Lender at places which the Lender shall reasonably select, whether at such Grantor's premises or elsewhere. The Lender shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Lender hereunder, including, without limitation, reasonable attorneys' fees and disbursements, 17 to the payment in whole or in part of the Obligations, in such order as the Lender may elect, and only after such application and after the payment by the Lender of any other amount required by any provision of law, including, without limitation, Section 9-615(a)(3) of the New York UCC, need the Lender account for the surplus, if any, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. 6.7 REGISTRATION RIGHTS. (a) If the Lender shall determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 6.6, and if in the opinion of the Lender it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act, the relevant Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Lender, necessary or advisable to register the Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of the Pledged Stock, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Lender, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. Each Grantor agrees to cause such Issuer to comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions which the Lender shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) Each Grantor recognizes that the Lender may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Lender shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so. (c) Each Grantor agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and in compliance with any and all other applicable Requirements of Law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to the Lender, that the Lender has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement. 6.8 DEFICIENCY. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Lender to collect such deficiency. 18 SECTION 7. THE LENDER 7.1 THE LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC. (a) Each Grantor hereby irrevocably constitutes and appoints the Lender and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Lender the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following: (i) in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or Contract or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Lender for the purpose of collecting any and all such moneys due under any Receivable or Contract or with respect to any other Collateral whenever payable; (ii) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Lender may request to evidence the Lender's security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (iii)pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iv) execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (v) (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Lender or as the Lender shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Lender may deem appropriate; (7) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Lender shall in its sole discretion determine; and (8) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Lender were the absolute owner thereof for all purposes, and do, at the Lender's option and such Grantor's expense, at any time, or from time to time, all acts and things which the Lender deems necessary to protect, preserve or realize upon the Collateral and the Lender's security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. 19 Anything in this Section 7.1(a) to the contrary notwithstanding, the Lender agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing. (b) If any Grantor fails to perform or comply with any of its agreements contained herein, the Lender, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Lender incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the highest rate per annum at which interest would then be payable on any category of past due ABR Loans under the Credit Agreement, from the date of payment by the Lender to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Lender on demand. (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 7.2 DUTY OF THE LENDER. The Lender's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Lender deals with similar property for its own account. Neither the Lender nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Lender hereunder are solely to protect the Lender's interests in the Collateral and shall not impose any duty upon the Lender to exercise any such powers. The Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7.3 EXECUTION OF FINANCING STATEMENTS. Pursuant to any applicable law, each Grantor authorizes the Lender to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Lender determines appropriate to perfect the security interests of the Lender under this Agreement. Each Grantor authorizes the Lender to use the collateral description "all personal property" in any such financing statements. Each Grantor hereby ratifies and authorizes the filing by the Lender of any financing statement with respect to the Collateral made prior to the date hereof. 7.4 AUTHORITY OF THE LENDER. Each Grantor acknowledges that the rights and responsibilities of the Lender under this Agreement with respect to any action taken by the Lender or the exercise or non-exercise by the Lender of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them. 20 SECTION 8. MISCELLANEOUS 8.1 AMENDMENTS IN WRITING. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 8.1 of the Credit Agreement. 8.2 NOTICES. All notices, requests and demands to or upon the Lender or any Grantor hereunder shall be effected in the manner provided for in Section 8.2 of the Credit Agreement; provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on SCHEDULE 1. 8.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. The Lender shall not by any act (except by a written instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 8.4 ENFORCEMENT EXPENSES; INDEMNIFICATION. (a) Each Guarantor agrees to pay or reimburse the Lender for all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel to each Lender and of counsel to the Lender. (b) Each Guarantor agrees to pay, and to save the Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) Each Guarantor agrees to pay, and to save the Lender harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Borrower would be required to do so pursuant to Section 8.5 of the Credit Agreement. (d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents. 8.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Lender and their successors and assigns; provided that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Lender. 8.6 SET-OFF. Each Grantor hereby irrevocably authorizes the Lender at any time and from time to time, without notice to such Grantor or any other Grantor, any such notice being expressly waived by such Grantor to the extent permitted by applicable law, upon any amount becoming due and payable by such Grantor hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and 21 appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lender or any branch or agency thereof to or for the credit or the account of the Borrower, as the case may be. The Lender agrees promptly to notify such Grantor after any such setoff and application made by the Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 8.7 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 8.8 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.9 SECTION HEADINGS. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 8.10 INTEGRATION. This Agreement and the other Loan Documents represent the agreement of the Grantors, the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Lender relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 SUBMISSION TO JURISDICTION; WAIVERS. Each Grantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor at its address referred to in Section 8.2 or at such other address of which the Lender shall have been notified pursuant thereto; 22 (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 8.13 ACKNOWLEDGEMENTS. Each Grantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party; (b) the Lender does not have a fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors and the Lender in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Grantors and the Lender. 8.14 ADDITIONAL GRANTORS. Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to Section 5.9 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto. 8.15 RELEASES. (a) At such time as the Term Loan and the other Obligations shall have been paid in full, the Commitments have been terminated and the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Lender and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor following any such termination, the Lender shall deliver to such Grantor any Collateral held by the Lender hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. (b) If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Lender, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of the Borrower, a Guarantor shall be released from its obligations hereunder in the event that all the Capital Stock of such Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement; PROVIDED that the Borrower shall have delivered to the Lender, at least ten Business Days prior to the date of the proposed release, a written request for release identifying the relevant Guarantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrower stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents. 8.16 PRIOR LIENS. The obligations of certain of the Grantors hereunder are subject to the provisions of agreements entered into in connection with the National City Debt and the M Data Debt. The Lender acknowledges that with respect to the collateral covered by the respective agreements, the Liens securing the National City Debt and the M Data Debt have priority over the Liens granted pursuant to this Agreement. It shall not be a breach of this Agreement for the Grantors to comply with their obligations with respect to the collateral securing the National City Debt and the M Data Debt. 23 8.17 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written. PRINTCAFE, INC. By: /s/ Marc D. Olin ------------------------------------------- Name: Marc D. Olin Title: President and Chief Executive Officer A.H.P. SYSTEMS, INC. AUTOMATION, INC. CONSTELLATION SOFTWARE OF NEW HAMPSHIRE, INC. LOGIC ASSOCIATES, INC. LOGIC COVALENT CORPORATION M DATA, INC. PRINTCAFE SYSTEMS, INC. PRINTCAFE IP MANAGEMENT, INC. PROGRAMMED SOLUTIONS, INC. By: /s/ Marc D. Olin ------------------------------------------- Name: Marc D. Olin Title: President and Chief Executive Officer ACKNOWLEDGEMENT AND CONSENT*** The undersigned hereby acknowledges receipt of a copy of the Guarantee and Collateral Agreement dated as of December 31, 2001 (the "AGREEMENT"), made by the Grantors parties thereto for the benefit of Iris Graphics Inc., as Lender. The undersigned agrees for the benefit of the Lender as follows: 1. The undersigned will be bound by the terms of the Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. The undersigned will notify the Lender promptly in writing of the occurrence of any of the events described in Section 5.7(a) of the Agreement. 3. The terms of Sections 6.3(c) and 6.7 of the Agreement shall apply to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 of the Agreement. [NAME OF ISSUER] By: ----------------------------------- Name: Title: Address for Notices: -------------------------------------- -------------------------------------- -------------------------------------- Fax: - --------------------- *** This consent is necessary only with respect to any Issuer which is not also a Grantor. Annex 1 to GUARANTEE AND COLLATERAL AGREEMENT ASSUMPTION AGREEMENT, dated as of __________ ___, 200_, made by ______________________________ (the "ADDITIONAL GRANTOR"), in favor of Iris Graphics Inc., as the lender (the "LENDER") party to the Credit Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Credit Agreement. W I T N E S S E T H : - - - - - - - - - - WHEREAS, printCafe, Inc. (the "BORROWER") and the Lender have entered into a Credit Agreement, dated as of December 31, 2001 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"); WHEREAS, in connection with the Credit Agreement, the Borrower and certain of its Subsidiaries (other than the Additional Grantor) have entered into the Guarantee and Collateral Agreement, dated as of December 31, 2001 (as amended, supplemented or otherwise modified from time to time, the "GUARANTEE AND COLLATERAL AGREEMENT"), in favor of the Lender; WHEREAS, the Credit Agreement requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement; NOW, THEREFORE, IT IS AGREED: 1. GUARANTEE AND COLLATERAL AGREEMENT. By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section 8.14 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. The information set forth in Annex 1-A hereto is hereby added to the information set forth in the Schedules to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in Section 4 of the Guarantee and Collateral Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 2 IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL GRANTOR] By:___________________________ Name: Title: Annex 1-A to ASSUMPTION AGREEMENT SUPPLEMENT TO SCHEDULE 1 SUPPLEMENT TO SCHEDULE 2 SUPPLEMENT TO SCHEDULE 3 SUPPLEMENT TO SCHEDULE 4 SUPPLEMENT TO SCHEDULE 5 SUPPLEMENT TO SCHEDULE 6 SUPPLEMENT TO SCHEDULE 7 EX-10.14 18 j9249402ex10-14.txt SERIES F PREFERRED STOCK PURCHASE AGREEMENT Exhibit 10.14 PRINTCAFE, INC. SERIES F PREFERRED STOCK PURCHASE AGREEMENT DECEMBER 31, 2001 TABLE OF CONTENTS PAGE 1. PURCHASE AND SALE OF STOCK AND NOTES.....................................1 1.1 Sale and Issuance of Stock and Notes...............................1 1.2 Closing; Delivery..................................................1 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................1 2.1 Organization, Good Standing and Qualification......................2 2.2 Capitalization.....................................................2 2.3 Rights of Registration and Voting Rights...........................3 2.4 Subsidiaries; Joint Ventures.......................................3 2.5 Authorization......................................................4 2.6 Valid Issuance of Securities.......................................4 2.7 Governmental Consents..............................................4 2.8 Litigation.........................................................5 2.9 Intellectual Property..............................................5 2.10 Confidential Information and Invention Assignment Agreements.......5 2.11 Compliance with Other Instruments..................................6 2.12 Agreements; Action.................................................6 2.13 No Conflict of Interest............................................7 2.14 Title to Property and Assets.......................................7 2.15 Financial Statements...............................................7 2.16 Changes............................................................8 2.17 Distributions......................................................9 2.18 Tax Returns and Payments...........................................9 2.19 Insurance..........................................................9 2.20 Employee Benefit Plans.............................................9 2.21 Labor Agreements and Actions.......................................9 2.22 Compliance with Environmental Requirements........................10 2.23 Permits...........................................................10 2.24 Private Offering..................................................10 2.25 Brokers and Finders...............................................11 2.26 Certificate of Incorporation......................................11 2.27 Bylaws............................................................11 2.28 Disclosure........................................................11 2.29 Compliance with Other Laws........................................11 2.30 Investment Company................................................11 3. INTERPRETATION..........................................................11 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................11 4.1 Authorization.....................................................11 4.2 Purchase Entirely for Own Account.................................12 i TABLE OF CONTENTS (continued) 4.3 Disclosure of Information.........................................12 4.4 Restricted Securities.............................................12 4.5 No Public Market..................................................12 4.6 Legends...........................................................12 4.7 Qualified Institutional Buyer or Accredited Investor..............13 4.8 Foreign Investors.................................................13 4.9 Manner of Offering................................................13 4.10 Nature of Purchaser...............................................14 5. COVENANTS OF THE COMPANY................................................14 5.1 Compliance........................................................14 5.2 Performance.......................................................14 5.3 Books and Records.................................................14 5.4 Renewals and Good Standing........................................14 5.5 Principal Business................................................14 5.6 Proprietary Information and Assignment Agreement..................14 5.7 Stock Options.....................................................14 5.8 Securities Filings................................................15 5.9 Investment of Funds...............................................15 5.10 Survival of Company's Covenants...................................15 6. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT THE CLOSING................15 6.1 Representations and Warranties....................................15 6.2 Performance.......................................................15 6.3 Compliance Certificate............................................15 6.4 Qualifications....................................................15 6.5 Written Consents..................................................15 6.6 Stock Certificates................................................16 6.7 Restated Certificate..............................................16 6.8 Restated Investors' Rights Agreement..............................16 6.9 Restated Co-Sale Agreement........................................16 6.10 Restated Voting Agreement.........................................16 6.11 Confidential Information and Invention Assignment Agreement.......16 6.12 No Material Adverse Change........................................16 6.13 Company Legal Opinions............................................17 6.14 No Litigation.....................................................17 6.15 Proceedings and Documents.........................................17 6.16 Closing Documents.................................................17 6.17 Other Transactions................................................17 6.18 General...........................................................18 7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING..................18 ii TABLE OF CONTENTS (continued) 7.1 Representations and Warranties....................................18 7.2 Performance.......................................................18 7.3 Qualifications....................................................18 8. Miscellaneous...........................................................18 8.1 Survival of Warranties............................................18 8.2 Entire Agreement..................................................19 8.3 Transfer; Successors and Assigns..................................19 8.4 Governing Law.....................................................19 8.5 Counterparts......................................................19 8.6 Titles and Subtitles..............................................19 8.7 Notices...........................................................19 8.8 Finder's Fee......................................................19 8.9 Attorneys' Fees...................................................20 8.10 Amendments and Waivers of Agreement...............................20 8.11 Severability......................................................20 8.12 Delays or Omissions...............................................20 8.13 Confidentiality...................................................20 8.14 Exculpation Among Purchasers......................................21 8.15 Indemnification...................................................21 8.16 Press Release.....................................................21 8.17 Use of Proceeds...................................................21 iii PRINTCAFE, INC. SERIES F PREFERRED STOCK PURCHASE AGREEMENT ------------------------------------------- This Series F Preferred Stock Purchase Agreement (this "AGREEMENT") is made as of December 31, 2001 by and among printCafe, Inc., a Delaware corporation (the "COMPANY"), and the investors listed on EXHIBIT A attached hereto (each a "PURCHASER" and together the "PURCHASERS"). In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto hereby agree as follows: 1. PURCHASE AND SALE OF STOCK AND NOTES. 1.1 SALE AND ISSUANCE OF STOCK. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined in Section 1.2(a) below) the Sixth Amended and Restated Certificate of Incorporation in the form attached hereto as EXHIBIT B (the "RESTATED CERTIFICATE"). (b) Subject to the terms and conditions of this Agreement, each Purchaser identified on EXHIBIT A hereto agrees to purchase at the Closing (as defined below), and the Company agrees to sell and issue to each Purchaser at the Closing that number of shares of the Company's Series F Preferred Stock (the "SERIES F PREFERRED STOCK"), $0.0001 par value per share set forth opposite each such Purchaser's name on EXHIBIT A attached hereto at a purchase price equal to $4.00 per share of Series F Preferred Stock. The shares of Series F Preferred Stock issued to the Purchasers pursuant to this Agreement shall be hereinafter referred to as the "STOCK." 1.2 CLOSING; DELIVERY. (a) The purchase and sale of the Stock shall take place at the executive offices of the Company, at 10:00 a.m., on December 31, 2001, or at such other time and place as the Company and the Purchasers mutually agree upon, orally or in writing (which time and place are designated as the "CLOSING" and the date of which is designated the "CLOSING DATE"). (b) At the Closing, the Company shall deliver to each Purchaser a certificate representing the Stock being purchased by such Purchaser against payment of the purchase price therefor by check payable to the Company or by wire transfer to the Company's bank account, or by cancellation of the promissory notes set forth opposite such Purchaser's name on EXHIBIT A. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to each Purchaser that (acknowledging that each Purchaser is relying on the representations and warranties set forth in this Section 2 in connection with the purchase of the Stock by such Purchaser), except as set forth on the Schedule of Exceptions attached hereto as EXHIBIT C: 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business. The Company is duly qualified as a foreign corporation or is otherwise duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would, either individually or in the aggregate, have a material adverse effect on its business or properties. 2.2 CAPITALIZATION. Immediately prior to the Closing, and prior to giving effect to the Reverse Stock Split (as defined in the Restated Certificate), the authorized capital of the Company shall consist of: (a) 70,789,957 shares of Preferred Stock, of which (i) 2,455,798 shares have been designated Series A Preferred Stock, all of which will be issued and outstanding immediately prior to the Closing, (ii) 10,090,707 shares have been designated Series A-1 Preferred Stock, 9,564,885 of which will be issued and outstanding immediately prior to the Closing, (iii) 31,186,312 shares have been designated Series B Preferred Stock, all of which will be issued and outstanding immediately prior to the Closing, (iv) 1,915,080 have been designated Series C Preferred Stock, all of which will be issued and outstanding immediately prior to the Closing, (v) 283,125 shares have been designated Series D Preferred Stock, all of which will be issued and outstanding immediately prior to the Closing, (vi) 20,333,333 shares have been designated Series E-1 Preferred Stock, 17,375,000 of which will be issued and outstanding immediately prior to the Closing, and (vii) 4,525,602 shares have been designated Series F Preferred Stock, none of which will be issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Restated Certificate. All of the outstanding shares of Preferred Stock have been duly authorized, fully paid and nonassessable and issued in compliance with all applicable federal and state securities laws. (b) 100,000,000 shares of Class A Common Stock, 9,751,683 of which are issued and outstanding immediately prior to the Closing. All of the outstanding shares of Common Stock have been duly authorized, fully paid and are nonassessable and issued in compliance with all applicable federal and state securities laws. (c) The Company has reserved (i) 380,915 shares of Class A Common Stock and 525,822 shares of Series A-1 Preferred Stock (collectively, "OPTION STOCK") for issuance to officers, directors, employees and consultants of the Company pursuant to its 1999 Revised Stock Plan duly adopted by the Board of Directors and approved by the Company's stockholders (the "1999 REVISED STOCK PLAN"), and (ii) 10,000,000 shares of Class A Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to its 2000 Incentive Stock Plan duly adopted by the Board of Directors and approved by the Company's stockholders (the "2000 INCENTIVE STOCK PLAN" and, together with the 1999 Revised Stock Plan, the "STOCK PLANS"). Of such reserved shares of Option Stock under the 1999 Revised Stock Plan, no shares have been issued pursuant to restricted stock purchase agreements, options 2 to purchase 380,915 shares of Class A Common Stock and 525,822 shares of Series A-1 Preferred Stock have been granted, of which options to purchase 297,633 shares of Class A Common Stock and 362,370 shares of Series A-1 Preferred Stock are currently outstanding, and no shares of Class A Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the 1999 Revised Stock Plan. Of such reserved shares of Class A Common Stock under the 2000 Incentive Stock Plan, no shares have been issued pursuant to restricted stock purchase agreements, options to purchase 8,283,936 shares of Class A Common Stock are currently outstanding, and 1,716,064 shares of Class A Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the 2000 Incentive Stock Plan. (d) Except for outstanding options issued pursuant to the Stock Plans and the warrants listed in Section 2.2 of the Schedule of Exceptions, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. The shares of Common Stock described in Section 4(n)(ii)(B) of Division B of the Restated Certificate include shares of Common Stock issuable upon conversion of shares of Series E-1 Preferred Stock issuable upon exercise of options therefor that may be issued to employees of the Company. (e) Attached to Section 2.2 of the Schedule of Exceptions is a true, correct and complete capitalization table of the Company prepared by the Company on a pro forma basis after giving effect to the transactions contemplated hereby, including the Reverse Stock Split. 2.3 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as contemplated in the Fifth Amended and Restated Investors' Rights Agreement, in the form attached hereto as EXHIBIT D (the "RESTATED INVESTORS' RIGHTS Agreement"), the Company has not granted or agreed to grant any registration rights, including piggyback registration rights, to any person or entity. To the Company's knowledge, except as contemplated in the Fourth Amended and Restated Voting Agreement, in the form attached hereto as EXHIBIT E (the "RESTATED VOTING Agreement"), no stockholder of the Company has entered into any agreements with respect to the voting of capital stock of the Company. Except as contemplated by the Restated Certificate, the Restated Voting Agreement and the Fourth Amended and Restated Right of First Refusal and Co-Sale Agreement, in the form attached hereto as EXHIBIT F (the "RESTATED CO-SALE AGREEMENT"), there are no stockholders agreements, pledge agreements, buy-sell arrangements, rights of first refusal or proxies related to any securities of the Company to which the Company is subject or a party or to which, to the Company's knowledge, any stockholder, officer, director or affiliate of the Company is a party or subject. 2.4 SUBSIDIARIES; JOINT VENTURES. The Company does not currently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity other than the subsidiaries set forth on Schedule 2.4 of the Schedule of Exceptions (the "SUBSIDIARIES"). The Company, either directly or through one of its Subsidiaries, holds all of the issued and outstanding capital stock of each of the Subsidiaries. The Company is not a participant in any joint venture, partnership or similar arrangement. 3 2.5 AUTHORIZATION. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the Restated Investors' Rights Agreement, the Restated Voting Agreement and the Restated Co-Sale Agreement (collectively, the "TRANSACTION DOCUMENTS"), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Stock and the Common Stock issuable upon conversion of the Stock (together, the "SECURITIES") has been taken or will be taken prior to the Closing, and the Transaction Documents, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (ii) to the extent the indemnification provisions contained in the Restated Investors' Rights Agreement may be limited by applicable federal or state securities laws. All corporate action on the part of the Company and its predecessors, officers, directors, stockholders and subsidiaries necessary for the authorization, execution and/or delivery, as applicable, for all past corporate actions was obtained. 2.6 VALID ISSUANCE OF SECURITIES. The Stock that is being issued to the Purchasers hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and any other encumbrances imposed by or through the Company other than restrictions on transfer under this Agreement, the Restated Investors' Rights Agreement, the Restated Co-Sale Agreement and applicable state and federal securities laws of the United States. Based in part upon the representations of the Purchasers in this Agreement and subject to the provisions of Section 2.7 below, the Stock will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the Stock has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, shall be duly and validly issued, fully paid and nonassessable and free and clear of all preemptive rights, rights of first refusal, liens, charges, restrictions, claims and any other encumbrances imposed by or through the Company other than restrictions on transfer under this Agreement, the Restated Investors' Rights Agreement, the Restated Co-Sale Agreement and applicable federal and state securities laws and, based in part on the representations of the Purchasers set forth in Section 4 hereof, will be issued in compliance with all applicable federal and state securities laws of the United States and, where applicable, provincial securities laws of Canada. 2.7 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority of the United States is required in connection with the consummation of the transactions contemplated by this Agreement, except for filings pursuant to applicable state securities laws and Regulation D of the Securities Act of 1933, as amended (the "SECURITIES ACT"). Based in part on the representations of the Purchasers set forth in Section 4 hereof, the offer, sale and issuance of the Stock, in accordance with the terms hereof for the consideration 4 expressed herein, are exempt from the registration requirements of Section 5 of the Securities Act and from the qualification requirements of applicable state securities laws. 2.8 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company or any of the Subsidiaries, or any basis therefor known to the Company, that questions the validity of the Transaction Documents or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse change in the financial condition, assets, liabilities, operations or financial performance of the Company, or any change in the current equity ownership of the Company. Neither the Company nor any of the Subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company or any of the Subsidiaries currently pending or which the Company or any of the Subsidiaries intends to initiate. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or technologies allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. 2.9 INTELLECTUAL PROPERTY. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, tradenames, copyrights, trade secrets, licenses, information and proprietary rights and processes (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary for its business without any conflict with, or infringement of, the rights of others. To the Company's knowledge, no third party is infringing or violating any of the Company's Intellectual Property Rights. The Company has not received any written communications alleging that the Company has violated or, by conducting its business, would violate any of the Intellectual Property Rights of any other person or entity. Except with respect to license agreements entered into in the ordinary course of the Company's business, there are no outstanding options, licenses or agreements of any kind related to the foregoing, nor is the Company bound by, or a party to, any options, licenses or agreements of any kind with respect to Intellectual Property of any other forms. 2.10 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS. Each officer, independent contractor, consultant and employee of the Company (collectively, "SERVICE PROVIDERS") has entered into an agreement with the Company regarding confidentiality, non-solicitation of employees and customers and assignment of all Intellectual Property Rights, technical information and other information developed and/or worked on by such Service Provider while employed or engaged with the Company (each, a "CONFIDENTIALITY AND INVENTION ASSIGNMENT AGREEMENT"). To the Company's knowledge, (i) no past or present Service Provider is in violation of any term of any Confidentiality and Invention Assignment Agreement between the Company and such Service Provider; and (ii) it is not nor will it be necessary to use any inventions of any of its Service Providers (or persons it currently intends to hire) made prior to their employment or engagement by the Company. Each Service Provider hired or engaged by the Company after the date hereof shall, prior to their employment or engagement with the Company, enter into a Confidentiality and Invention Assignment Agreement with the Company. 5 2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation in any respect or default of any provisions of its Restated Certificate or Bylaws or of any provision, instrument, agreement, commitment, arrangement, license, judgment, order, writ, decree or contract to which it is a party or by which it is bound or of any provision of federal or state statute, rule or regulation applicable to the Company, which violation or default is reasonably likely to result in a material adverse effect on the financial condition, assets, liabilities, operations or financial performance of the Company. No event has occurred which with the passage of time or the giving of notice, or both, would constitute a material breach of or default under any of the foregoing, which material violation or breach or default is reasonably likely to result in a material adverse effect on the financial condition, assets, liabilities, operations or financial performance of the Company. The execution, delivery and performance of the Transaction Documents and the consummation of the transactions contemplated thereby will not result in any such violation or breach or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, agreement, commitment, arrangement, license, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will conflict in any material respect with or result in a material breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any of the Company's employees is now obligated. 2.12 AGREEMENTS; ACTION. (a) There are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates or any affiliate thereof. (b) Except as explicitly contemplated by the Transaction Documents, and agreements entered into in the ordinary course of business, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company or any of the Subsidiaries is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company or any of the Subsidiaries in excess of $50,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any of the Subsidiaries, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. (c) Neither the Company nor any of the Subsidiaries has (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances to the Company's employees for business expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. 6 (d) Except as disclosed in Section 2.12 of the Schedule of Exceptions or as set out in the Transaction Documents, the Company has not entered into any binding letters of intent with any corporation, partnership, association, other business entity or any individual regarding (i) the consolidation or merger of the Company with or into any such corporation or other business entity, (ii) the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of transactions in which more than 50% of the voting power of the company is disposed of, or (iii) any other form of acquisition, liquidation, dissolution or winding-up of the Company. 2.13 NO CONFLICT OF INTEREST. The Company is not indebted, directly or indirectly, to any of its officers or directors, in any amount whatsoever, other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. None of the Company's officers or directors are, directly or indirectly, indebted to the Company (other than in connection with purchases of the Company's stock) or, to the Company's knowledge, have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company (other than ownership of stock in, but not exceeding two percent (2%) of the outstanding capital stock of, any publicly traded company that competes with the Company). To the Company's knowledge, none of the Company's officers or directors are, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor of any indebtedness of any other person, firm or corporation. 2.14 TITLE TO PROPERTY AND ASSETS. The Company has good and valid title to all of its properties and assets, both real and personal, and has good title to all its leasehold interests, in each case free and clear of all mortgages, liens, pledges, loans, security interests, conditional sales agreements, encumbrances or charges, except for Permitted Liens (as defined below). The Company owns or leases all properties and assets reasonably necessary to the operation of its business as now conducted. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the Company's knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances, except for Permitted Liens. For purposes of this Agreement, "Permitted Liens" shall mean any (a) mechanics', carriers', workers' and other similar liens arising in the ordinary course of business which are not delinquent and which in the aggregate are not material in amount, and do not interfere with the present use of the assets of the Company to which they apply; (b) liens for current taxes and assessments not yet due and payable; (c) liens and encumbrances that have arisen in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of the Company; and (d) with respect to any asset of the Company which consists of a leasehold or other possessory interest in real property, all encumbrances, covenants, imperfections in title, easements, restrictions and other title matters (whether or not the same are recorded) not known to the Company to which the underlying fee estate in such real property is subject which were not created by or incurred by the Company. 2.15 FINANCIAL STATEMENTS. Attached hereto as EXHIBIT G are the unaudited consolidated balance sheet, statement of operations and statement of cash flows of the Company for the fiscal year ended December 31, 2000 and the unaudited consolidated balance sheet, 7 statement of operations and statement of cash flows of the Company for the nine months ended September 30, 2001 (collectively, the "FINANCIAL STATEMENTS"). The Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied (except that the unaudited financial statements do not contain footnotes and are subject to normal year-end audit adjustments). The Financial Statements are complete in all material respects and in accordance with the books and records of the Company and fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein (except that the unaudited financial statements do no contain footnotes and are subject to normal year-end audit adjustments). Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 2001, (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, and (iii) performance obligations of the Company under the Transaction Documents. 2.16 CHANGES. Since September 30, 2001 there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse; (b) any damage, destruction, loss or other occurrence or development materially and adversely affecting the business, properties or financial condition of the Company; (c) any waiver or compromise by the Company of a valuable right or any material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that is not material to the assets, business, properties or financial condition or operating results of the Company; (e) any material change or amendment to a material contract or agreement by which the Company or any of its assets or properties is bound or subject; (f) any material change or amendment in any compensation arrangement or agreement with any employee, officer, director or stockholder; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (h) any resignation or termination of employment of any officer or key employee of the Company; and the Company, is not aware of any impending resignation or termination of employment of any such officer or key employee; 8 (i) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except for Permitted Liens; (j) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; (k) any declaration, setting aside or payment or other distribution in respect to any of the Company's capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (l) to the Company's knowledge, any other event or condition of any character that might materially and adversely affect the business, properties or financial condition of the Company; or (m) any arrangement or commitment by the Company to do any of the things described in this Section 2.16. 2.17 DISTRIBUTIONS. There has been no declaration or payment by the Company of any dividend, nor any distribution by the Company of any assets of any kind, to any of its stockholders. 2.18 TAX RETURNS AND PAYMENTS. The Company has filed all tax returns and reports as required by applicable law and such tax returns and reports are true and correct in all material respects. The Company has paid all taxes, fees, assessments and other governmental charges upon the Company, or upon any of its properties, income, or franchises, shown in such returns and on assessments received by the Company to be due as of the date hereof and no such taxes or assessments are being contested. 2.19 INSURANCE. The Company has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed, and the Company has such other insurance policies and coverages as are customary in the Company's industry. 2.20 EMPLOYEE BENEFIT PLANS. Section 2.20 of the Schedule of Exceptions sets forth all currently effective employment contracts, deferred compensation arrangements, bonus plans, incentive plans, profit sharing plans, retirement agreements or other employee compensation agreements. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974, as amended. 2.21 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute 9 involving the Company pending, or to the knowledge of the Company threatened, which could have a material adverse effect on the financial condition, assets, liabilities, operations or financial performance of the Company, nor is the Company aware of any labor organization activity involving its employees. The employment of each officer and employee of the Company is terminable at the will of the Company. The services of each consultant and independent contractor is terminable by the Company upon not more than thirty (30) days prior written notice. To its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. 2.22 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. To the Company's knowledge, it has obtained all material permits, licenses and other authorizations required under federal, state and local laws relating to pollution or protection of the environment. The Company has not violated any applicable Environmental Law, the violation of which is reasonably likely to result in a material adverse change in the financial condition, assets, liabilities, operations or financial performance of the Company. To the knowledge of the Company, there are no present requirements of any applicable Environmental Law which are due to be imposed upon it which will materially increase its cost of complying with the Environmental Laws. All past on-site generation, treatment, storage and disposal of Waste, including Hazardous Waste, by the Company and, to its knowledge, by its predecessors have been done in compliance with the currently applicable Environmental Laws, and all past off-site treatment, storage and disposal of Waste, including Hazardous Waste, generated by the Company and, to its knowledge, by its predecessors have been done in compliance with the currently applicable Environmental Laws. As used in this Agreement, the terms (i) "Environmental Laws" include, but are not limited to, any federal, state, local or foreign law, statute, charter or ordinance, and any rule, regulation, binding interpretation, binding policy, permit, order, court order or consent decree issued pursuant to any of the foregoing, which pertains to, governs or otherwise regulates any of the following activities, including, without limitation, (a) the emission, discharge, release or spilling of any substance into the air, surface water, groundwater, soil or substrata; (b) the manufacturing, processing, sale, generation, treatment, storage, disposal labeling or other management of any Waste, Hazardous Substance or Hazardous Waste, and (ii) "Waste," "Hazardous Substance," and "Hazardous Waste" include any substance defined as such by any applicable Environmental Law. 2.23 PERMITS. The Company and each of the Subsidiaries has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the business, properties or financial condition of the Company and, to its knowledge, it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.24 PRIVATE OFFERING. Neither the Company nor anyone acting on its behalf has offered any of the Stock or similar securities for issuance or sale to, or solicited any offer to acquire any of the same from, anyone so as to make the issuance and sale of the Stock subject to registration requirements of Section 5 of the Securities Act. 10 2.25 BROKERS AND FINDERS. The Company has not retained any investment banker, broker, finder or any other third party in connection with the transactions contemplated by this Agreement. 2.26 CERTIFICATE OF INCORPORATION. At the time of Closing, the Company's certificate of incorporation on file with the Secretary of the State of Delaware shall be in the form of the Restated Certificate, and no action shall have been taken to amend or modify such Restated Certificate. 2.27 BYLAWS. The Bylaws of the Company are in the form attached hereto as EXHIBIT H and no action has been taken to amend or modify such Bylaws. 2.28 DISCLOSURE. The Company has made available to the Purchasers all material information relating to the Company. This Agreement, including all representations herein by the Company, and any exhibits hereto or any certificate furnished or to be furnished to Purchasers at the Closing, taken together, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. 2.29 COMPLIANCE WITH OTHER LAWS. The Company has complied in all material respects with all laws, statutes, rules, regulations and orders of federal, state, local and foreign agencies and authorities, applicable to its business, properties and operations. 2.30 INVESTMENT COMPANY. The Company is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 3. INTERPRETATION. (a) For the purposes of the representations and warranties contained in Section 2, whenever "to the Company's knowledge" or "to its knowledge" is used, it means to the knowledge of the officers and directors of the Company after making such diligent inquiry as may be reasonable under the circumstances. (b) For the purposes of the representations and warranties contained in Section 2, all references to the "Company" shall be deemed to include the Subsidiaries. 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser hereby represents and warrants to the Company that: 4.1 AUTHORIZATION. Such Purchaser has full power and authority to enter into the Transaction Documents. The Transaction Documents, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their respective terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to 11 the extent the indemnification provisions contained in the Restated Investors' Rights Agreement may be limited by applicable federal or state securities laws. 4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Purchaser in reliance upon the Purchaser's representations to the Company. The Purchaser hereby confirms that the Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act. The Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Purchaser has not been formed for the specific purpose of acquiring the Securities. 4.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Stock with the Company's management and has had an opportunity to review the Company's facilities. The Purchaser understands that such discussions, as well as any other written information delivered by the Company to the Purchaser, were intended to describe the aspects of the Company's business which it believes to be material. 4.4 RESTRICTED SECURITIES. The Purchaser understands that the Securities have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser's representations as expressed herein. The Purchaser understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Securities for resale except as set forth in the Restated Investors' Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements, including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy except as specifically provided in the Restated Investors' Rights Agreement. 4.5 NO PUBLIC MARKET. The Purchaser understands that no public market now exists for any of the securities issued by the Company, and that the Company has made no assurances that a public market will ever exist for the Securities. 4.6 LEGENDS. The Purchaser understands that the Securities, and any securities issued in respect of or exchange for the Securities, may bear one or all of the following legends: 12 (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (b) Any legend set forth in the other Transaction Documents. (c) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. 4.7 QUALIFIED INSTITUTIONAL BUYER OR ACCREDITED INVESTOR. The Purchaser is a "Qualified Institutional Buyer" as defined in Rule 144A under the Securities Act (a "QIB") or an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 4.8 FOREIGN INVESTORS. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Securities or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Securities, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Securities. Such Purchaser's subscription and payment for and continued beneficial ownership of the Securities, will not violate any applicable securities or other laws of the Purchaser's jurisdiction. Furthermore, if the Purchaser is not a "U.S. person" as defined in Regulation S under the Securities Act, Purchaser hereby represents and warrants that it is not acquiring the Shares for the account or benefit of any U.S. person and no offer to purchase the Shares was made to the undersigned while the undersigned was in the United States. If the Purchaser is not a "U.S. person" as defined in Regulation S under the Securities Act, Purchaser agrees to resell the Shares only in accordance with the provisions of Rule 903(b)(3) of Regulation S under the Securities Act, pursuant to registration under the Securities Act, or pursuant to an available exemption from registration; and the undersigned agrees not to engage in hedging transactions with regard to the Shares unless in compliance with the Securities Act. 4.9 MANNER OF OFFERING. The offer to sell the Stock was communicated to such Purchaser by the Company in such a manner that such Purchaser was able to ask questions of and receive answers from the Company concerning the terms and conditions of this transaction and that at no time was such Purchaser presented with or solicited by any leaflet, public promotional meeting, newspaper or magazine article, radio or television advertisement or any other form of advertising or general solicitation. 13 4.10 NATURE OF PURCHASER. By reason of the Purchaser's business or financial experience, such Purchaser has the capacity to protect its own interest in connection with this transaction. 5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each Purchaser that: 5.1 COMPLIANCE. The Company shall comply with all laws, rules, regulations and orders, the non-compliance with which could materially and adversely affect the financial condition, assets, liabilities, operations or financial performance of the Company or its obligations under this Agreement or any other agreement with each Purchaser. 5.2 PERFORMANCE. The Company shall diligently observe and perform or cause to be observed all covenants to be observed or performed under the Transaction Documents and under any other agreement between the Company and each Purchaser. 5.3 BOOKS AND RECORDS. The Company shall maintain complete and accurate records and books of account in which entries shall be made in accordance with generally accepted accounting principles consistently applied, reflecting all transactions of the Company and its subsidiaries, if any. 5.4 RENEWALS AND GOOD STANDING. The Company shall (a) do all things necessary to obtain, promptly renew and maintain in good standing from time to time, all approvals, leases, licenses, permits and consents as are required to own, develop and operate the business, assets or operations of the Company and undertaking, except where the failure to obtain, renew or maintain in good standing such approvals, leases, licenses, permits and consents is not reasonably likely to result in a material adverse change in the Company's financial condition, assets, liabilities, operations or financial performance and (b) perform its obligations under this Agreement and all other agreements between the Company and each Purchaser. 5.5 PRINCIPAL BUSINESS. Prior to the initial public offering of the Company's Common Stock, the Company shall not change its principal business or engage in any other business from that which it is engaged on the date of this Agreement without the written consent of at least two-thirds of the holders of shares of Stock converted or convertible into Common Stock. 5.6 PROPRIETARY INFORMATION AND ASSIGNMENT AGREEMENT. The Company shall require all future officers, directors and employees of the Company and each subsidiary of the Company to execute and deliver a proprietary information and assignment agreement and shall require all future consultants and independent contractors to the Company to execute and deliver a consulting agreement which provides substantially similar protection from misappropriation to the intellectual property of the Company. 5.7 STOCK OPTIONS. All stock options granted by the Company shall have a term of ten (10) years and shall be exercisable, over time, based upon continued employment over a vesting period to be determined by the Company's Board of Directors. The per share 14 exercise price of all options granted by the Company will be no less than the fair market value on the date of grant as determined by the Board of Directors in good faith. Unless otherwise specifically approved by the Board of Directors, options granted by the Company will not accelerate upon a change of control of the Company or any subsidiary of the Company. 5.8 SECURITIES FILINGS. Within the prescribed time after the Closing, the Company shall file all documents and take all proceedings required to be taken by it to permit the Stock to be distributed to each Purchaser in compliance with applicable federal and state securities laws and the applicable securities legislation in Canada. 5.9 INVESTMENT OF FUNDS. The Company shall not make any investments in any securities, other than high grade commercial paper or other form of comparable security. 5.10 SURVIVAL OF COMPANY'S COVENANTS. The covenants of the Company set forth in this Section 5 will survive the completion of the transactions contemplated by this Agreement and will continue in full force and effect for the benefit of each Purchaser until the earlier to occur of (a) five (5) years from the Closing, or (b) the consummation of an IPO (as defined in the Restated Certificate). 6. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT THE CLOSING. The obligations of each Purchaser to the Company under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true and correct in all respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, it being understood that, where any such representation or warranty includes a materiality or material adverse effect exception, this Section 6.1 shall not abrogate such exception. 6.2 PERFORMANCE. The Company shall have performed and complied in all material respects with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 6.3 COMPLIANCE CERTIFICATE. The President or CEO of the Company shall deliver to the Purchasers at the Closing a certificate certifying that the conditions specified in Sections 6.1 and 6.2 have been fulfilled. 6.4 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required to be obtained prior to the Closing in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 6.5 WRITTEN CONSENTS. The Company shall have obtained and delivered to the Purchasers any and all written waivers, permits, consents and approvals required to be obtained prior to the Closing in connection with the consummation of the transactions 15 contemplated by the Transaction Documents in a form and content reasonably acceptable to the Purchasers. 6.6 STOCK CERTIFICATES. The Company shall have delivered to the Purchasers executed stock certificates in form and content acceptable to the Purchasers ("STOCK CERTIFICATES") and sufficient to transfer to and vest in each Purchaser good and valid title to the purchased Stock free of any lien created by or through the Company. 6.7 RESTATED CERTIFICATE. The Company shall have filed the Restated Certificate with the Secretary of State of the State of Delaware on or prior to the Closing, which shall continue to be in full force and effect as of the Closing. 6.8 RESTATED INVESTORS' RIGHTS AGREEMENT. The Company, each Purchaser, and the existing parties to the Fourth Amended and Restated Investors' Rights Agreement entered into by the Company and the stockholders party thereto necessary to amend such agreement pursuant to Section 3.2 thereof shall have executed and delivered the Restated Investors' Rights Agreement in substantially the form attached as EXHIBIT D. 6.9 RESTATED CO-SALE AGREEMENT. The Company, each Purchaser, and the existing parties to the Third Amended and Restated Co-Sale Agreement entered into by the Company and the stockholders party thereto necessary to amend such agreement pursuant to Section 4.2 thereof shall have executed and delivered the Restated Co-Sale Agreement in substantially the form attached as EXHIBIT F. 6.10 RESTATED VOTING AGREEMENT. The Company, each Purchaser, and the existing parties to the Third Amended and Restated Voting Agreement entered into by the Company and the stockholders party thereto necessary to amend such agreement pursuant to Section 5.6 thereof shall have executed and delivered the Restated Voting Agreement in substantially the form attached as EXHIBIT E. 6.11 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. The Company and each of its Service Providers (other than as set forth on Section 2.10 of the Schedule of Exceptions) shall have entered into a Confidential Information and Invention Assignment Agreement, in substantially the form provided to the Purchasers. 6.12 NO MATERIAL ADVERSE CHANGE. Except as set forth on the Schedule of Exceptions, there shall have been no material adverse change in the Company's financial condition, assets, liabilities, operations or financial performance since September 30, 2001 (it being understood that none of the following shall be deemed, in and of itself, to constitute a material adverse change in the financial condition, assets, liabilities, operations or financial performance of the Company since September 30, 2001: (a) a change that results from conditions generally affecting the U.S. economy or the world economy; (b) a change that results from conditions generally affecting the Company's industry; (c) a change that results from the announcement or pendency of the transactions contemplated hereby; and (d) a change that results from the taking of any action required by this Agreement). 16 6.13 COMPANY LEGAL OPINION. Morgan, Lewis & Bockius LLP, special counsel for the Company, shall have delivered a legal opinion to the Purchasers in the form attached hereto as EXHIBIT I. 6.14 NO LITIGATION. There shall be no action, suit or proceeding or investigation instituted or threatened to set aside the transactions provided for herein or to enjoin or prevent the consummation of the transactions contemplated hereby. 6.15 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated hereby and all documents and instruments incident to such transactions shall be in form and substance satisfactory to each Purchaser and its counsel and each Purchaser shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request. 6.16 CLOSING DOCUMENTS. The Company shall have delivered the following documents to each of the Purchasers: (a) copies certified by the Secretary of the Company of the resolutions duly adopted by the Company's board of directors authorizing and approving: (i) the execution, delivery and performance of the Transaction Documents and each of the other agreements contemplated hereby, (ii) the Restated Certificate and the filing of the Restated Certificate with the Secretary of the State of Delaware, (iii) the reservation for issuance upon conversion of the Series F Preferred Stock of an aggregate number of shares of Common Stock equal to the total number of shares initially issuable upon conversion, and (iv) consummation of all other transactions contemplated by the Transaction Documents; (b) copies certified by the Secretary of the Company of the resolutions of the Company's stockholders authorizing and approving the Restated Certificate and the filing of the Restated Certificate with the Delaware Secretary of the State; (c) copies certified by the Secretary of the Company of the Restated Certificate (as filed with the Delaware Secretary of the State) and the Company's Bylaws, each as in effect at the Closing; (d) a good standing certificate with respect to the Company from the Delaware Secretary of State; and (e) such other documents relating to the transactions contemplated by this Agreement as the Purchasers or their counsel may reasonably request. 6.17 OTHER TRANSACTIONS. The Company shall have effected the following transactions prior to or contemporaneous with the Closing: (a) the Company and Iris Graphics, Inc. shall have entered into the Credit Agreement dated December 31, 2001, and the proceeds of the Term Loan (as defined in the Credit Agreement) shall be used to repay the promissory notes to the former shareholders of Logic Associates, Inc.; 17 (b) the Company and each of Richard Hagen, Steven Peterson and Patricia Peterson (the "Hagen Noteholders") shall have entered into agreements amending those certain Subordinated Non-Negotiable Promissory Notes by and between the Company and each of the Hagen Noteholders, dated March 8, 2000, as amended, providing for a prepayment of $4,000,000 upon the Closing and the repayment of the remaining outstanding principal balance over a three-year period commencing January 1, 2003 and extending the maturity date with respect to the remaining principal amount under each of the notes to a date not earlier than May 30, 2003; and (c) the Company and each of Michael Miller and Neil Miller (the "Miller Noteholders") shall have entered into an agreement amending that certain Subordinated Non-Negotiable Promissory Note among the Company and the Miller Noteholders, dated March 10, 2000, providing for the repayment of the outstanding principal balance over a two-year period commencing January 1, 2003. 6.18 GENERAL. (a) Each Purchaser's obligations under Section 1 shall be contingent upon the performance by each other Purchaser of its obligations under Section 1. (b) In any event the Purchasers may in their sole discretion waive any conditions to the Closing and close. No such waiver shall be effective unless it shall be in writing and signed by each Purchaser. 7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations of the Company to each Purchaser under this Agreement are subject to the fulfillment, on or before the Closing, of each of the following conditions, unless otherwise waived: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of each Purchaser contained in Section 4 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 7.2 PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchasers on or prior to the Closing shall have been performed or complied with in all material respects. 7.3 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 8. MISCELLANEOUS. 8.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this Agreement, the warranties and representations of the Company contained in Section 2 hereof shall survive 18 the execution and delivery of this Agreement and the Closing for a period of two (2) years following the Closing. 8.2 ENTIRE AGREEMENT. This Agreement and the other Transaction Documents together with all exhibits and schedules hereto and thereto constitute the entire agreement between the Company and the Purchasers relative to the subject matter hereof and thereof. Any previous agreement or negotiations between the Company and the Purchasers concerning the subject matter hereof is superseded by this Agreement and the Transaction Documents except for any agreements relating to confidentiality. 8.3 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 8.4 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. 8.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 8.6 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.7 NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or five (5) days after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page or EXHIBIT A hereto, or as subsequently modified by written notice, and if to the Company, with a copy (not constituting notice) to Morgan, Lewis & Bockius LLP, One Oxford Centre, Thirty-Second Floor, Pittsburgh, Pennsylvania 15219, Attention: Marlee S. Myers. 8.8 FINDER'S FEE. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which such Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any commission or compensation in the nature of a finder's fee 19 (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 8.9 ATTORNEYS' FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Transaction Documents, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 8.10 AMENDMENTS AND WAIVERS OF AGREEMENT. Any term of this Agreement may be amended or waived only with the written consent of the Company and at least seventy-five percent (75%) of the holders of shares of Stock converted or convertible into the Common Stock. Any amendment or waiver effected in accordance with this Section 8.10 shall be binding upon the Purchasers and each transferee of the Stock (or the Common Stock issuable upon conversion thereof), each future holder of all such securities, and the Company. 8.11 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of this Agreement shall be interpreted as if such provision were so excluded and (c) the balance of this Agreement shall be enforceable in accordance with its terms. 8.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and signed by the party charged with such waiver and such waiver shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 8.13 CONFIDENTIALITY. Each party hereto agrees that, except with the prior written permission of the other party, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of the Stock purchased hereunder; PROVIDED, HOWEVER, that the receiving party may disclose such information (i) on a confidential basis to its attorneys, accountants, consultants and other professionals to the extent necessary to obtain their services in connection with its investment in the Company, (ii) to any prospective purchaser of Stock from such receiving party as long as such prospective purchaser agrees in writing to be bound by the provisions of this Section 8.13, (iii) on a confidential basis 20 to any affiliate or partner of such receiving party and (iv) as required by judicial decree or applicable law. Notwithstanding the foregoing, any Purchaser may disclose summary financial information and a narrative description of the Company's business to partners or potential partners of such Purchaser. The provisions of this Section 8.13 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. 8.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Securities. 8.15 INDEMNIFICATION. The Company shall defend, indemnify and hold the Purchasers harmless from and against any and all claims, liabilities, damages, losses and expenses, including reasonable attorney's fees and expenses and costs of suit, arising out of any breach of the representations and warranties, and out of any and all breaches of covenants, warranties, stipulations, agreements and certifications made by or on behalf of the Company, in the Transaction Documents or in any document delivered hereunder or thereunder. 8.16 PRESS RELEASE. Upon the consummation of the transactions contemplated hereby, the Company may issue a press release identifying any Purchaser by name, subject to the prior approval by such Purchaser of such press release, which approval will not be unreasonably withheld. 8.17 USE OF PROCEEDS. Except as set forth in Section 6.18 of this Agreement, the proceeds the Company shall receive upon the consummation of the transactions contemplated hereby shall be solely used for product development, working capital and other general corporate purposes and not for investment purposes other than high grade commercial paper or other instruments. [Signature Pages Follow] 21 The parties have executed this Series F Preferred Stock Purchase Agreement as of the date first written above. COMPANY: PRINTCAFE, INC. By: /s/ Marc D. Olin ------------------------------------- Name: Marc D. Olin Title: President and Chief Executive Officer Address: 40 24th Street Pittsburgh, PA 15222 Attn: President Fax: (412) 456-1151 SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT PURCHASERS: MELLON VENTURES II, L.P. By its general partner MVMA II L.P. By its general partner MVMA Inc. By: /s/ Ryan Busch -------------------------------------- Name: Ryan Busch Title: Vice President HARBOURVEST PARTNERS VI - DIRECT FUND L.P. By: HarbourVest VI - Direct Associates LLC By: HarbourVest Partners, LLC By: /s/ Robert Wadsworth ------------------------------ Name: Robert Wadsworth Title: Managing Director SELIGMAN NEW TECHNOLOGIES FUND II, INC. By: J. & W. Seligman & Co. Incorporated, its investment adviser By: /s/ Vishal Saluja -------------------------------------- Name: Vishal Saluja Title: Vice President SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT WEISS, PECK & GREER, L.L.C. By: /s/ Benjamin James Taylor ------------------------------------- Name: Title: SIGNATURE PAGE TO SERIES F PREFERRED STOCK PURCHASE AGREEMENT EXHIBITS -------- Exhibit A - Schedule of Purchasers Exhibit B - Form of Amended and Restated Certificate of Incorporation Exhibit C - Schedule of Exceptions to Representations and Warranties Exhibit D - Form of Restated Investors' Rights Agreement Exhibit E - Form of Restated Voting Agreement Exhibit F - Form of Restated Co-Sale Agreement Exhibit G - Financial Statements Exhibit H - Form of Bylaws Exhibit I - Form of Opinion of Morgan, Lewis & Bockius LLP EXHIBIT A --------- SCHEDULE OF PURCHASERS
SHARES OF SERIES F NAME/ADDRESS/FAX NO. PURCHASE PRICE PREFERRED STOCK -------------------- -------------- --------------- Mellon Ventures II, L.P. Cash 5,161,644 1,861,048 c/o Mellon Ventures, Inc. Cancelled Note 750,000 Attn: Ryan Busch Cancelled Note 750,000 One Mellon Center, Suite 5210 Cancelled Note 750,000 Pittsburgh, PA 15258-0001 Interest on Notes 32,548 ==================================== Fax: (412) 236-3593 Total Purchase Price 7,444,192 HarbourVest Partners VI - Direct Fund L.P. 4,652,620 1,163,155 Attn: Ofer Nemorivsky One Financial Center, 44th Floor Boston, MA 02111 Fax: (617) 350-0305 Weiss, Peck & Greer, L.L.C. 754,944 188,736 Attn: Ben Taylor 555 California Street, Suite 3130 San Francisco, CA 94104 Fax: (415) 989-5108 Seligman New Technologies Fund II, Inc. 2,791,572 697,893 c/o J. & W. Seligman and Co. Incorporated 100 Park Avenue New York, NY 10017 Attn: Dennis Crilly Fax: (212) 922-5731
A-1 EX-10.15 19 j9249402ex10-15.txt 5TH AMENDMENT & RESTATED INVESTORS' RIGHTS AGREEME Exhibit 10.15 EXECUTION COPY PRINTCAFE, INC. FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT DECEMBER 31, 2001 TABLE OF CONTENTS PAGE 1. REGISTRATION RIGHTS............................................2 1.1 Definitions....................................................2 1.2 Requested Registration.........................................3 1.3 Company Registration...........................................4 1.4 Form S-3 Registration..........................................4 1.5 Obligations of the Company.....................................5 1.6 Furnish Information............................................7 1.7 Expenses of Registration.......................................7 1.8 Underwriting Requirements......................................7 1.9 Delay of Registration..........................................8 1.10 Indemnification................................................8 1.11 Reports Under Securities Exchange Act of 1934.................10 1.12 Assignment of Registration Rights.............................11 1.13 Market-Standoff Agreement.....................................11 1.14 Termination of Registration Rights............................12 1.15 Investor Acts.................................................12 2. COVENANTS OF THE COMPANY......................................12 2.1 Canadian Securities Filings...................................12 2.2 Delivery of Financial Statements and Other Information........12 2.3 Inspection....................................................13 2.4 Termination of Covenants......................................14 2.5 Limitations on Subsequent Registration Rights.................14 3. MISCELLANEOUS.................................................14 3.1 Successors and Assigns........................................14 3.2 Amendments and Waivers........................................15 3.3 Notices.......................................................15 3.4 Severability..................................................15 3.5 Governing Law.................................................15 3.6 Counterparts..................................................15 3.7 Titles and Subtitles..........................................15 3.8 Aggregation of Stock..........................................15 3.9 Confidentiality...............................................16 3.10 Expenses......................................................16 3.11 Stock Splits..................................................16 3.12 Future Changes in Registration Requirements...................16 3.13 Entire Agreement..............................................16 3.14 Further Assurances............................................16 3.15 Injunctive Relief.............................................16 -i- PRINTCAFE, INC. FIFTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Fifth Amended and Restated Investors' Rights Agreement (this "AGREEMENT") is made as of December 31, 2001 by and among printCafe, Inc., a Delaware corporation (the "COMPANY"), Creo SRL, a Barbados restricted liability society ("CREO"), as the holder of all of the Company's issued and outstanding Series B Preferred Stock, the Series C Preferred Stock investors listed on EXHIBIT B hereto (each, a "SERIES C INVESTOR" and, collectively, the "SERIES C INVESTORS"), the Series D Preferred Stock investors listed on EXHIBIT C hereto (each, a "SERIES D INVESTOR" and, collectively, the "SERIES D INVESTORS"), the common stock investors listed on EXHIBIT D hereto (the "COMMON STOCK INVESTORS"), the Series E-1 Preferred Stock investors listed on EXHIBIT E hereto (each, a "SERIES E INVESTOR" and, collectively, the "SERIES E INVESTORS"), and the Series F Preferred Stock Investors listed on EXHIBIT F hereto (each, a "SERIES F INVESTOR" and collectively, the "SERIES F INVESTORS"). RECITALS WHEREAS, the Company, Creo, the Series C Investors, the Common Stock Investors, the Series D Investors, and the Series E Investors have previously entered into that certain Fourth Amended and Restated Investors' Rights Agreement dated as of October 30, 2000 (the "PRIOR RIGHTS AGREEMENT"). WHEREAS, the Company and the Series F Investors have entered into a Stock Purchase Agreement of even date herewith (the "PURCHASE AGREEMENT"), pursuant to which the Company desires to sell to such Investors, and such Investors desire to purchase from the Company, and shares of the Company's Series F Preferred Stock (collectively, the "SERIES F PREFERRED STOCK"). WHEREAS, a condition to the obligations of the Series F Investors under the Purchase Agreement is that the Company and the Investors enter into this Agreement in order to provide the Holders with (i) certain rights to register Registrable Securities (as defined in Section 1 below) under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and (ii) certain rights to receive or inspect information pertaining to the Company. WHEREAS, the Company, Creo, the Series C Investors, the Common Stock Investors, the Series D Investors and the Series E Investors each desire to amend and restate the Prior Rights Agreement to add the Series F Investors as parties to this Agreement and make certain other changes. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto hereby agree as follows: A. AMENDMENTS OF PRIOR RIGHTS AGREEMENT; WAIVER OF RIGHT OF FIRST OFFER. Effective and contingent upon execution of this Agreement by the Company, Creo, each of the Series C Investors, each of the Series D Investors, each of the Series E Investors and each of the Common Stock Investors, the Prior Rights Agreement is hereby amended and restated in its entirety to read as set forth in this Agreement, and the Company and the Holders hereby agree to be bound by the provisions hereof as the sole agreement of the Company and the Holders with respect to registration rights of the Registrable Securities and certain other rights, as set forth herein. Each party to this Agreement that is a Major Investor, as such term is defined in the Company's Certificate of Incorporation, hereby waives its respective Right of First Offer, including the notice requirements, set forth in the Company's Certificate of Incorporation with respect to the issuance of the Series F Preferred Stock to the Series F Investors. 1. REGISTRATION RIGHTS. The Company and the Holders covenant and agree as follows: 1.1 DEFINITIONS. For purposes of this Section 1: (a) "EXCLUDED REGISTRATION" means any registration (i) on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto, (ii) in connection with an exchange offer or offering solely to the Company's stockholders, (iii) on Form S-1 or Form S-3 or any successor forms thereto solely in connection with mergers or acquisitions conducted or contemplated by the Company or (iv) the IPO; (b) "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor form under the Securities Act that permits significant incorporation by reference of the Company's subsequent public filings under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"); (c) "HOLDER" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 of this Agreement; (d) "PREFERRED STOCK" means, collectively, the Company's Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E-1 Preferred Stock, and Series F Preferred Stock, issued or issuable to the Holders. (e) "IPO" shall have the meaning assigned to such term in the Company's Certificate of Incorporation. (f) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document; (g) "REGISTRABLE SECURITIES" means (i) the shares of Common Stock issued or issuable upon conversion of the Preferred Stock (including the shares of Series F Preferred Stock issued or issuable upon the exercise of the warrant issued to Iris Graphics, Inc. in connection with the transactions contemplated by the Credit Agreement between the Company and Iris Graphics, Inc. dated December 31, 2001), (ii) the Common Stock Investors' Shares, (iii) the shares of Common Stock issued or issuable upon exercise of the Warrants issued to Creo and 2 Mellon Ventures II, L.P. ("MELLON") pursuant to the terms of that certain Note Purchase Agreement, dated as of July 14, 2000, by and among Mellon, Creo and the Company, (iv) the shares of Common Stock issued or issuable upon exercise of the Warrants issued to Creo and Mellon pursuant to the terms of that certain Note Purchase Agreement, dated as of September 27, 2001, (v) the shares of Common Stock issued or issuable upon conversion of the shares of Series E-1 Preferred Stock issued or issuable upon exercise of the Warrants issued to Creo and Mellon pursuant to the terms of that certain Note Purchase Agreement, dated as of November 28, 2001, and (vi) any other shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend, stock split, recapitalization or other similar event or distribution with respect to, or in exchange for or in replacement of, the shares listed in clauses (i), (ii), (iii), (iv), or (v) above; PROVIDED, HOWEVER, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a person in a transaction in which its rights under this Agreement are not assigned. Notwithstanding the foregoing, Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction (including, without limitation, pursuant to Rule 144 under the Securities Act), or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale; (h) "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (i) "SEC" means the Securities and Exchange Commission. 1.2 REQUESTED REGISTRATION. If the Company shall receive a written request from the Holders of (i) at least a majority of the shares of Common Stock issued or issuable upon conversion of the Series B Preferred Stock then outstanding (voting together as a single class), (ii) at least a majority of the shares of Common Stock issued or issuable upon conversion of the Series C Preferred Stock and Series D Preferred Stock then outstanding (voting together as a single class), (iii) at least a majority of the shares of Common Stock issued or issuable upon conversion of the Series E-1 Preferred Stock then outstanding (voting together as a single class), or (iv) at least a majority of the shares of Common Stock issued or issuable upon conversion of the Series F Preferred stock then outstanding (voting together as a single class), that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities having an aggregate market value of not less than $10,000,000, then the Company shall promptly, and in no event more than ten (10) days following receipt of such request, give written notice of such request to all other Holders and shall, subject to the provisions of Section 1.8, use its best efforts to effect as soon as practicable, and in any event within sixty (60) days of the receipt of such request, the registration under the Securities Act of all Registrable Securities which the Holders request to be registered within fifteen (15) days of the mailing of such notice by the Company in accordance with Section 3.3. Notwithstanding the foregoing, the Company shall not be obligated to effect a registration statement under this Section 1.2: 3 (a) prior to the date that is six months after the Company's IPO; (b) after the Company has effected two registration statements pursuant to this Section 1.2 and such registration statements have been declared or ordered effective and have remained effective until the earlier of (A) 120 days after the date of effectiveness, and (B) the date all Registrable Securities registered thereunder have been sold; PROVIDED, HOWEVER, that if the Company has withdrawn or abandoned such registration due to the fraud, material misstatement or omission of a material fact of a Holder participating in such registration, such withdrawn or abandoned registration shall count as one of the two registration statements the Company is obligated to effect under this Section 1.2; (c) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer or President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer the filing of such registration statement for a period of not more than 90 days after receipt of the request of the Holder or Holders under this Section 1.2, PROVIDED, HOWEVER, that the Company shall not exercise such right (or the equivalent right set forth in Section 1.4(b)) more than once in any six (6) month period; or (d) during the period starting sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date ninety (90) days after the effective date of any registration subject to Section 1.3 hereof, PROVIDED, HOWEVER, that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective. 1.3 COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its securities under the Securities Act in connection with the public offering of such securities other than in connection with an Excluded Registration, the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within fifteen (15) days after mailing of such notice by the Company in accordance with Section 3.3, the Company shall, subject to the provisions of Section 1.8, use its best efforts to register under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered by including such Registrable Securities in the Company registration statement filed pursuant to this Section 1.3. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 1.7. 1.4 FORM S-3 REGISTRATION. If the Company shall receive from any Holder or Holders of not less than five percent (5%) of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 or its successor form and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders (a "FORM S-3 Registration"), the Company will: 4 (a) promptly, and in no event more than five (5) business days following receipt of such request, give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, use its best efforts to effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within ten (10) days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 1.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to participate in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer or President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of such Form S-3 Registration for a period of not more than 90 days after receipt of the request of the Holder or Holders under this Section 1.4, PROVIDED, HOWEVER, that the Company shall not exercise such right (or the equivalent rights set forth in Section 1.2(d)) more than once in any six (6) month period; (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two Form S-3 Registrations for the Holders pursuant to this Section 1.4 and such Form S-3 Registrations have been declared or ordered effective and have remained effective until the earlier of (A) 120 days after the date of effectiveness, and (B) the date all Registrable Securities registered thereunder have been sold; PROVIDED, HOWEVER, that if the Company has withdrawn or abandoned such Form S-3 Registration due to the fraud, material misstatement or omission of a material fact of a Holder participating in such Form S-3 Registration, such withdrawn or abandoned registration shall count as one of the two Form S-3 Registrations the Company is obligated to effect under this Section 1.4 in any 12 month period; or (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. 1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities 5 registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for up to one hundred twenty (120) days. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request (and in such quantities as they reasonably request) in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; PROVIDED, HOWEVER, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering effected pursuant to Section 1.2 or 1.3, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter or underwriters of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement (i) when such registration statement, or any post-effective amendment thereto, shall have become effective, (ii) of the receipt of any comments from the SEC, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of such registration statement of the initiation of proceedings for that purpose, and (iv) at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, such obligation to continue for one hundred twenty (120) days. (g) Cause all such Registrable Securities registered pursuant hereto to be listed on each securities exchange or automated quotation system on which similar securities issued by the Company are then listed or quoted. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such 6 Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter, dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.6 FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement if, as a result of the application of the preceding sentence, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in Section 1.2 or Section 1.4, whichever is applicable. 1.7 EXPENSES OF REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications of Registrable Securities pursuant to this Section 1 for each Holder, including, without limitation, all registration, filing, and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company. The Company shall pay all expenses in connection with any registration initiated pursuant to Section 1 which is withdrawn, delayed or abandoned at the request of the Company or the Holders participating in such registration, except if such withdrawal, delay or abandonment is caused by the fraud, material misstatement or omission of a material fact by a Holder participating in such registration, in which case, the Holder whose fraud, material misstatement or omission of a material fact caused the withdrawal, delay or abandonment of such registration statement shall pay all of the foregoing expenses related to such registration statement. 1.8 UNDERWRITING REQUIREMENTS. If the registration of which the Company gives notice under Section 1.3 is for a registered public offering involving an underwriting, then the Company shall so advise the Holders as part of the written notice given pursuant to Section 1.3. In such event, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine 7 in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be allocated, first, to the Company, second, pro rata among the Holders requesting inclusion in such registration and, if the Holders were able to sell all Registrable Securities that they desired to sell, third, pro rata among the remaining selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders). No such reduction shall reduce the amount of securities of the selling Holders included in such registration below twenty percent (20%) of the total amount of securities included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder or holder to the nearest 100 shares. If the Holder or holder disapproves of the terms of any such underwritten offering, such person may elect to withdraw therefrom by written notice to the Company and the underwriters. Any securities excluded or withdrawn from such underwritten offering shall be excluded and withdrawn from such registration and, in the case of withdrawn shares, shall not be transferred in a public distribution prior to 180 days after the effective date of the registration statement relating thereto, or such shorter period of time as the underwriters may require. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "SELLING STOCKHOLDER," and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder," as defined in this sentence. 1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.10 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) The Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) for such Holder, each of its officers, directors, partners and members, and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "VIOLATION"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary 8 prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable to any Holder, underwriter or controlling person for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) Each selling Holder will, if Registrable Securities held by such Holder are included in the registration which is the subject of any losses, claims, damages or liabilities arising out of or relating to a Violation, indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon such Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; PROVIDED, FURTHER, that in no event shall any indemnity under this subsection 1.10(b) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate 9 counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; PROVIDED, HOWEVER, that in no event shall any contribution by a Holder under this Subsection 1.10(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and the Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the first registration statement filed by the Company for the offering of its securities; 10 (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 and any similar or successor forms for the sale of their Registrable Securities; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to an affiliate or partner of such Holder or a transferee or assignee of at least 100,000 of such Holder's Registrable Securities (or all of such Holder's Registrable Securities if such Holder holds less than 100,000 Registrable Securities); PROVIDED, HOWEVER, the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such affiliate, partner, transferee or assignee and the securities with respect to which such registration rights are being assigned; and PROVIDED, FURTHER, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the affiliate, partner, transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; PROVIDED, HOWEVER, that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 1. 1.13 MARKET-STANDOFF AGREEMENT. (a) MARKET-STANDOFF PERIOD; AGREEMENT. In connection with an IPO and upon request of the Company or the underwriters managing such offering of the Company's securities (the "MANAGING Underwriters"), each Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities of the Company (the "RESTRICTED STOCK") without the prior written consent of the Company or the Managing Underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or the Managing Underwriters and to execute an agreement reflecting the foregoing as may be 11 requested by the Managing Underwriters at the time of the Company's IPO (the "UNDERWRITER'S LOCKUP AGREEMENT"). (b) LIMITATIONS. The obligations described in Section 1.13(a) shall apply only if all executive officers, directors and one percent (1%) stockholders of the Company and any other persons having registration rights enter into similar agreements. If the Managing Underwriters agree to waive or release any of the restrictions set forth in the Underwriter's Lockup Agreement, such waiver or release must apply, on a pro rata basis, to all holders of Registrable Securities. (c) STOP-TRANSFER INSTRUCTIONS. In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the securities of each Holder (and the securities of every other person subject to the restrictions in Section 1.13(a)). (d) TRANSFEREES BOUND. Each Holder agrees that it will not transfer Registrable Securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Section 1.13. 1.14 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to exercise any right provided for in this Section 1 if Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder's shares during a three (3) month period without registration and without compliance with the manner of sale restrictions of Rule 144(f), except for such Holder's rights set forth in Section 1.3 hereof if such Holder is the record owner of Registrable Securities representing more than two percent (2%) of the capital stock of the Company (on a fully diluted, as converted to Common Stock basis). 1.15 INVESTOR ACTS. Whenever under this Section 1 the Holders are registering Registrable Securities pursuant to any registration statement, the Holder agrees to (i) timely provide to the Company, at its request, such information and materials as it may reasonably request in order to effect the registration of such Registrable Securities and (ii) convert all shares of Preferred Stock, Class B Common Stock and Class C Common Stock included in any registration statement to shares of Class A Common Stock, such conversion to be effective at the closing of such offering pursuant to such registration statement. 2. COVENANTS OF THE COMPANY. 2.1 CANADIAN SECURITIES FILINGS. Whenever required under Section 1.2 or Section 1.3 to effect the registration of any Registrable Securities or otherwise whenever the Company undertakes any public offering of its securities, the Company shall, as soon as reasonably practicable after the filing of any registration statement, prepare and file in British Columbia, Canada a preliminary and final prospectus in accordance with the Securities Act (British Columbia), as amended, to do all things reasonably necessary or desirable as and when required by law to obtain a receipt therefor from the British Columbia Securities Commission in order to obtain reporting issuer status in British Columbia. 2.2 DELIVERY OF FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall deliver to each Holder of at least 100,000 shares of Registrable Securities (other 12 than a Holder reasonably deemed by the Company to be a competitor of the Company, which for this purpose shall not include any of the initial Holders who are signatories to this Agreement or affiliates of such initial Holders): (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by an independent public accounting firm of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited operating statement, statement of cash flows and balance sheet as of the end of such fiscal quarter; (c) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, and, as soon as prepared, any other budgets or revised budgets prepared by the Company as well as financial and operating statements compared to such budget; and (d) with respect to the financial statements called for in subsections (a) and (b) of this Section 2.2, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment, provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board of Directors determines that it is in the best interest of the Company to do so and such change is approved in writing by the Company's independent public accountants; and (e) as soon as practicable, copies of any material press releases issued by the Company, notice of the filing of any registration statement with respect to the Company's equity securities, notice of issuance of the Company's equity securities (other than pursuant to the exercise of options or warrants therefor), and notice of the occurrence of any other material corporate events. 2.3 INSPECTION. The Company shall permit each Holder of at least 100,000 shares of Registrable Securities (except for a Holder reasonably deemed by the Company to be a competitor of the Company, which for this purpose shall not include any of the initial Holders who are signatories to this Agreement or affiliates of such initial Holders), at such Holder's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Holder; PROVIDED, HOWEVER, that any Holder or employee, agent or representative of such Holder, as the case may be, agrees to hold all 13 information confidential on the terms set forth in Section 3.9 hereof; PROVIDED, FURTHER, that the Company shall not be obligated pursuant to this Section 2.3 to provide access to (a) any information which it reasonably considers to be a trade secret or similar confidential information, or (b) any information which it deems in good faith would adversely affect the attorney-client privilege. 2.4 TERMINATION OF COVENANTS. (a) The covenants set forth in Sections 2.2 and Section 2.3 shall terminate as to each Holder and be of no further force or effect immediately prior to the consummation of a IPO. (b) The covenants set forth in Sections 2.2 and 2.3 shall terminate as to each Holder and be of no further force or effect when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act, if this occurs earlier than the events described in Section 2.4(a) above. 2.5 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of (a) holders of at least a majority of the then outstanding shares of Series B Preferred Stock, voting together as a single class, (b) holders of at least a majority of the then outstanding shares of Series C Preferred Stock, voting together as a single class, (c) holders of at least a majority of the then outstanding shares of Series D Preferred Stock, voting together as a single class, (d) holders of at least eighty-one percent (81%) of the then outstanding shares of Series E-1 Preferred Stock, voting together as a single class, and (f) holders of at least seventy-five percent (75%) of the then outstanding shares of Series F Preferred Stock, voting together as a single class, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (i) to include such securities in any registration filed under this Agreement, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of Registrable Securities of the Holders which is included or would materially affect the marketability of the offering as determined by the managing underwriter or (ii) to have registration rights superior to or otherwise more favorable than, or which limit in any material respect, the registration rights of the Holders set forth in this Agreement. 3. MISCELLANEOUS. 3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties (including permitted transferees of any of the Holders). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 14 3.2 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived only with the written consent of (a) the Company, (b) the holders of a majority of the then outstanding shares of Series B Preferred Stock, voting together as a single class, (c) the holders of a majority of the then outstanding shares of Series C Preferred Stock, voting together as a single class, (d) the holders of a majority of the then outstanding shares of Series D Preferred Stock, voting together as a single class, (e) the holders of at least eighty-one percent (81%) of the then outstanding shares of Series E-1 Preferred Stock, voting together as a single class, and (f) holders of at least seventy-five percent (75%) of the then outstanding shares of Series F Preferred Stock, voting together as a single class. In addition to the consent required by the preceding sentence, Section 1.13 hereof may be amended or waived only with the written consent of any holder of Registrable Securities that is an investment company under the Investment Company Act of 1940, as amended. Any amendment or waiver effected in accordance with this Section 3.2 shall be binding upon each party to the Agreement, whether or not such party has signed such amendment or waiver, each future holder of all such Registrable Securities, and the Company. 3.3 NOTICES. Unless otherwise provided, any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or five (5) days after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address or fax number as set forth on the signature page hereto with respect to notices to the Company or the exhibits hereto with respect to notices to the Holders or, in each case, as subsequently modified by written notice. 3.4 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 3.5 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of laws. 3.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3.7 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 3.8 AGGREGATION OF STOCK. All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 15 3.9 CONFIDENTIALITY. Each Holder agrees that it will keep confidential and will not disclose or divulge any confidential, proprietary, secret or non-public information which such Holder may obtain from the Company pursuant to financial statements, reports and other materials submitted by the Company to such Holder pursuant to this Agreement, or pursuant to visitation or inspection rights granted hereunder, unless such information is known, or until such information becomes known, to the public; PROVIDED, HOWEVER, that a Holder may disclose such information (i) on a confidential basis to its attorneys, accountants, consultants and other professionals to the extent necessary to obtain their services in connection with its investment in the Company, (ii) to any prospective purchaser of any Registrable Securities from such Holder as long as such prospective purchaser agrees in writing to be bound by the provisions of this Section 3.9, (iii) on a confidential basis to any affiliate or partner of such Holder or (iv) as required by applicable law. Notwithstanding the foregoing, any Holder may disclose summary financial information and a narrative description of the Company's business to partners or potential partners of such Holder. 3.10 EXPENSES. If any action at law or in equity is necessary to enforce the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 3.11 STOCK SPLITS. All references to numbers of shares in this Agreement shall be appropriately adjusted to reflect any stock divided, split, combination or other recapitalization of shares by the Company occurring after the date of this Agreement. 3.12 FUTURE CHANGES IN REGISTRATION REQUIREMENTS. In the event the registration requirements under the Securities Act are eliminated to accommodate a "company registration" or similar approach, this Agreement shall be deemed to be amended to the extent necessary to reflect such changes and the intent of the parties hereto with respect to the benefits and obligations of the parties, and in such connection, the Company shall use reasonable efforts to provide the Holders, pursuant to Section 1.3, of Registrable Securities equivalent benefits to those provided under this Agreement. 3.13 ENTIRE AGREEMENT. This Agreement and the other Transaction Documents (as defined in the Purchase Agreement) constitute the entire agreement between the Company and the Investors relative to the subject matter hereof and thereof. Any previous agreement or negotiations between the Company and the Investors concerning the subject matter hereof is superseded by this Agreement and the Transaction Documents except for any agreements relating to confidentiality. 3.14 FURTHER ASSURANCES. Each party hereto agrees to execute and deliver all such further instruments and documents and take all such other actions as another party may reasonably request in order to carry out the intent and purposes of this Agreement. 3.15 INJUNCTIVE RELIEF. Each of the parties hereto hereby acknowledges that in the event of a breach by any of them of any material provision of this Agreement, the aggrieved party may be without an adequate remedy at law. Each of the parties therefore agrees that, except as otherwise provided in Section 1.9, in the event of a breach of any material provision of this Agreement the aggrieved party may elect to institute and prosecute proceedings in any court of 16 competent jurisdiction to enforce specific performance or to enjoin continuing breach of such provision, as well as to obtain damages for breach of this Agreement. By seeking or obtaining such relief, the aggrieved party will not he precluded from seeking or obtaining any other relief to which it may be entitled. [Signature Pages Follow] 17 The parties have executed this Fifth Amended and Restated Investors' Rights Agreement as of the date first above written. COMPANY: PRINTCAFE, INC. By: /s/ Marc D. Olin ------------------------------- Name: Marc D. Olin Title: President and Chief Executive Officer Address: 40 24th Street Pittsburgh, PA 15222 Attn: President Fax: (412) 456-1151 SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT SERIES B INVESTOR: CREO SRL By: /s/ Chris G. Evans ------------------------------ Name: Chris G. Evans Title: Manager SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT SERIES C INVESTORS: MELLON VENTURES II, L.P. By its general partner MVMA II L.P. By its general partner MVMA Inc. By: /s/ Ryan Busch ------------------------------ Name: Ryan Busch Title: Vice President KEY PRINCIPAL PARTNERS LLC By: ------------------------------ Name: Title: BANCBOSTON CAPITAL INC. By: ------------------------------ Name: Title: SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT SERIES D INVESTORS: MELLON VENTURES II, L.P. By its general partner MVMA II L.P. By its general partner MVMA Inc. By: /s/ Ryan Busch ----------------------------- Name: Ryan Busch Title: Vice President SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT SERIES E INVESTORS: MELLON VENTURES II, L.P. By its general partner MVMA II L.P. By its general partner MVMA Inc. By: /s/ Ryan Busch ----------------------------- Name: Ryan Busch Title: Vice President CREO SRL By: /s/ Chris G. Evans ----------------------------- Name: Chris G. Evans Title: Manager HARBOURVEST PARTNERS VI - DIRECT FUND L.P. By: HarbourVest VI - Direct Associates LLC By: HarbourVest Partners, LLC By: /s/ Robert Wadsworth ----------------------------- Name: Robert M. Wadsworth Title: Managing Director SELIGMAN NEW TECHNOLOGIES FUND II, INC. By: J. & W. Seligman & Co. Incorporated, its investment adviser By: /s/ Vishal Saluja ----------------------------- Name: Vishal Saluja Title: Senior Vice President SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT WPG SOFTWARE FUND, L.P. By: Weiss, Peck & Greer, L.L.C., its General Partner By: /s/ Benjamin James Taylor ----------------------------- Name: Benjamin James Taylor Title: WPG INSTITUTIONAL SOFTWARE FUND, L.P. By: Weiss, Peck & Greer, L.L.C. its General Partner By: /s/ Benjamin James Taylor ----------------------------- Name: Benjamin James Taylor Title: WPG RAYTHEON SOFTWARE FUND, L.P. By: Weiss, Peck & Greer, L.L.C. its General Partner By: /s/ Benjamin James Taylor ----------------------------- Name: Benjamin James Taylor Title: SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT SERIES F INVESTORS: MELLON VENTURES II, L.P. By its general partner MVMA II L.P. By its general partner MVMA Inc. By: /s/ Ryan Busch ----------------------------- Name: Ryan Busch Title: Vice President HARBOURVEST PARTNERS VI - DIRECT FUND L.P. By: HarbourVest VI - Direct Associates LLC By: HarbourVest Partners, LLC By: /s/ Robert Wadsworth --------------------------- Name: Robert Wadsworth Title: Managing Director SELIGMAN NEW TECHNOLOGIES FUND II, INC. By: J. & W. Seligman & Co. Incorporated, its investment adviser By: /s/ Vishal Saluja ----------------------------- Name: Vishal Saluja Title: Senior Vice President SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT WEISS, PECK & GREER, L.L.C. By: /s/ Benjamin James Taylor ----------------------------- Name: Ben Taylor Title: Managing Director SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT EXHIBIT A SERIES B INVESTOR NAME/ADDRESS/FAX NO. NO. OF SHARES OF SERIES B PREFERRED STOCK Creo SRL 2nd Street 31,186,312 Barbados EXHIBIT B SERIES C INVESTORS NAME/ADDRESS/FAX NO. NO. OF SHARES OF -------------------- ---------------- SERIES C PREFERRED STOCK ------------------------ BancBoston Capital Inc. Attn: Jason H. Hurd 172,413 175 Federal Street, 10th Floor Boston, MA 02110 Fax: (617) 434-1153 Gary Herrmann c/o Orrick, Herrington & Sutcliffe LLP 862 Old Federal Reserve Bank Building 400 Sansome Street San Francisco, CA 94111-3143 Fax: (415) 773-5759 Key Principal Partners LLC Attn: Bill Blake 344,827 127 Public Square, 2nd Floor Cleveland, OH 44114 Fax: (216) 689-4121 Mellon Ventures II, L.P. c/o Mellon Ventures, Inc. 1,293,103 Attn: Ryan Busch One Mellon Center, Suite 5210 Pittsburgh, PA 15258-0001 Fax: (412) 236-3593 Menlo Ventures VII, L.P. Attn: Doug Carlisle 55,776 3000 Sand Hill Road M Building 4 Suite 100 Menlo Park, CA 94026 Fax: (650) 854-8540 Menlo Entrepreneurs Fund VII, L.P. Attn: Doug Carlisle 2,474 3000 Sand Hill Road M Building 4 Suite 100 Menlo Park, CA 94026 Fax: (650) 854-8540 B-1 NAME/ADDRESS/FAX NO. NO. OF SHARES OF -------------------- ---------------- SERIES C PREFERRED STOCK ------------------------ Iain Mickle c/o Orrick, Herrington & Sutcliffe LLP 862 400 Capitol Mall, Suite 3000 Sacramento, CA 95814 Fax: (916) 329-4900 Olympic Venture Partners III, L.P. Attn: George Clute 30,337 2420 Carillon Point Kirkland, WA 98033 Fax: (425) 889-0153 OVP III Entrepreneurs Fund Attn: George Clute 1,426 2420 Carillon Point Kirkland, WA 98033 Fax: (425) 889-0153 Orrick, Herrington & Sutcliffe LLP Old Federal Reserve Bank Building 13,000 400 Sansome Street San Francisco, CA 94111-3143 Fax: (415) 773-5759 B-2 EXHIBIT C --------- SERIES D INVESTORS ------------------ NO. OF SHARES OF ---------------- NAME/ADDRESS/TAX NO. SERIES D PREFERRED STOCK -------------------- ------------------------ Mellon Ventures II, L.P. 293,125 c/o Mellon Ventures, Inc. Attn: Ryan Busch One Mellon Center, Suite 5210 Pittsburgh, PA 15258-0001 Fax: (412) 236-3593 C-1 EXHIBIT D --------- COMMON STOCK INVESTORS ---------------------- NO. OF SHARES NAME/ADDRESS/ TAX NO. OF CLASS A COMMON STOCK --------------------- ----------------------- Efi Gildor 101,925 163 John Street Greenwich, CT 06831 Nicholas C. Rigopulos 8,493 41 Commonwealth Avenue, #4 Boston, MA 02116 Iphigonia M. Rigopulos 2,831 47 Woodbury Road Watertown, CT 06795 Creo SRL 1,132,502 2nd Street Holetown St. James Barbados Kevin Cook 566 3018 Clay Street San Francisco, CA 94115 Eric Satz 566 3627 21st Street San Francisco, CA 94114 Eric Woodward 2,831 1550 Lombard Street San Francisco, CA 94123 Michael Ogborne 2,831 2059 Broadway Street San Francisco, CA 94115-1537 Gregory S. Ager 1,132 176 Baypoint Drive San Rafael, CA 94901 Charlie Grisi 200 W. Fairlawn Boulevard Akron, OH 44313 14,156 Laurel Advisors, LLC Christopher Allick, Managing Partner 3565 Washington Street 11,325 San Francisco, CA 94118 D-1 Robert G. McCreary, III 5,662 3160 Topping Lane Hunting Valley, OH 44022 Doug Holmes 11,325 1421 Chagrin River Road Gates Mills, OH 44040 Robert B. Shepherd 5,662 357 South Island Rocky River, OH 44116-1734 JD Sullivan 5,622 13715 Shaker Boulevard, 2B Cleveland, OH 44120 Mark Shafir 2,831 38 Bigelow Avenue Mill Valley, CA 94941-1108 John Hollister 5,662 110 Dorset Drive Chagrin Falls, OH 44022 Paul Schneir 8,493 36050 Pepper Drive Solon, OH 44139 Tom Coury 20,385 5240 Smith Road Brookpark, OH 44142 Jay Coury 13,590 (Robert M. Coury Trust) 3737 Greenbriar Circle Westlake, OH 44145 D-2 EXHIBIT E SERIES E INVESTORS NO. OF SHARES NAME/ADDRESS/FAX NO. OF SERIES E-1 PREFERRED STOCK Mellon Ventures II, L.P. c/o Mellon Ventures, Inc. 3,125,000 Attn: Ryan Busch One Mellon Center, Suite 5210 Pittsburgh, PA 15258-0001 Fax: (412) 236-3593 Creo SRL 2nd Street 8,000,000 Holetown St. James Barbados HarbourVest Partners VI - Direct Fund L.P. Attn: Ofer Nemorivsky 3,750,000 One Financial Center, 44th Floor Boston, MA 02111 Fax: (617) 350-0305 WPG Software Fund, L.P. Attn: Ben Taylor 172,725 555 California Street, Suite 3130 San Francisco, CA 94104 Fax: (415) 989-5108 WPG Institutional Software Fund, L.P. Attn: Ben Taylor 272,775 555 California Street, Suite 3130 San Francisco, CA 94104 Fax: (415) 989-5108 WPG Raytheon Software Fund, L.P. Attn: Ben Taylor 304,500 555 California Street, Suite 3130 San Francisco, CA 94104 Fax: (415) 989-5108 Seligman New Technologies Fund II, Inc. c/o J. & W. Seligman and Co. Incorporated 1,750,000 100 Park Avenue New York, NY 10017 Attn: Dennis Crilly Fax: (212) 922-5731 E-1 EXHIBIT F --------- SERIES F INVESTORS ------------------ NO. OF SHARES ------------- NAME/ADDRESS/FAX NO. OF SERIES F PREFERRED - -------------------- --------------------- STOCK ----- Mellon Ventures II, L.P. 1,861,048 c/o Mellon Ventures, Inc. Attn: Ryan Busch One Mellon Center, Suite 5210 Pittsburgh, PA 15258-0001 Fax: (412) 236-3593 HarbourVest Partners VI - Direct Fund L.P. 1,163,155 Attn: Ofer Nemorivsky One Financial Center, 44th Floor Boston, MA 02111 Fax: (617) 350-0305 Weiss, Peck & Greer, L.L.C. 188,736 Attn: Ben Taylor 555 California Street, Suite 3130 San Francisco, CA 94104 Fax: (415) 989-5108 Seligman New Technologies Fund II, Inc. 697,893 c/o J. & W. Seligman and Co. Incorporated 100 Park Avenue New York, NY 10017 Attn: Dennis Crilly Fax: (212) 922-5731 F-1 EX-10.26 20 j9249402ex10-26.txt SEPARATION & MUTUAL GENERAL RELEASE AGREEMENT Exhibit 10.26 SEPARATION AND MUTUAL GENERAL RELEASE AGREEMENT This Separation and Mutual General Release Agreement ("Agreement"), made as of this 26th day of April 2001 ("Effective Date"), by and between WILLIAM GUTTMAN, an individual ("Executive"), and PRINTCAFE, INC., a Delaware corporation ("Company"), is entered into with reference to the following recitals: 1.0 RECITALS. --------- 1.1 Executive is a stockholder, member of the Board of Directors and the Co-Chief Executive Officer of Company. 1.2 Executive and Company are parties to that certain Second Amended and Restated Employment Agreement ("Employment Agreement"), dated as of July 14,2000. 1.3 Executive and Company desire to terminate the Employment Agreement and provide for a separation of relations and mutual general releases as further set forth below. 2.0 DEFINITIONS. ------------ 2.1 "AGREEMENT" shall mean this Separation and Mutual General Release Agreement. 2.2 "COMPANY" shall mean printCafe, Inc., a Delaware corporation. 2.3 "EMPLOYMENT AGREEMENT" shall have the meaning set forth in Section 1.2. 2.4 "EFFECTIVE DATE" shall mean the date first written above. 2.5 "EXECUTIVE" shall mean William Guttman, an individual. 2.6 "THIRD AMENDED AND RESTATED VOTING AGREEMENT" shall mean that certain Third Amended and Restated Voting Agreement dated as of October 30, 2000, by and between Executive, Company and the other parties listed on the signature page thereto. 3.0 TERMINATION OF EMPLOYMENT AGREEMENT. 3.1 TERMINATION. The Employment Agreement, except as specifically set forth herein, is terminated as of the Effective Date. All payments and benefits due to Executive from Company from and after the Effective Date shall be determined under this Agreement and neither party shall have any further obligations to the other under the Employment Agreement. Without limiting the generality of the foregoing, Executive is specifically waiving any right to severance under the Employment Agreement in consideration of the fact that he is a significant stockholder of 1 the Company and wishes to avoid any adverse inferences that might otherwise arise following Executive's separation from the Company. The consideration for the termination of the Employment Agreement includes the agreements reached herein, and the Stock Purchase Agreement, Unsecured Promissory Note and letter agreement between the parties, all of even date herewith. 3.2 RETENTION OF TITLE. Executive shall retain the title of Co-Chief Executive Officer of Company until the earlier of (i) September 30, 2001, or (ii) such earlier date as Executive, in his sole discretion, notifies Company in writing of his decision to terminate his Co-Chief Executive role with Company (the "Termination Date"). Executive's duties will consist of serving Company on matters relating to business development strategy, product development strategy and financing strategy. Notwithstanding the retention of such title, it is acknowledged that Executive shall not be obligated to devote all of his time or business efforts to the affairs of the Company but shall only devote whatever time and effort as he deems appropriate in providing such services to Company from and after the Effective Date. Company shall continue to indemnify Executive pursuant to the terms of its Amended and Restated Bylaws for the period Executive serves as Co-Chief Executive Officer. 3.3 DIRECTOR. Executive shall continue to serve as one of the two management members of Company's Board of Directors pursuant to the terms of the Third Amended and Restated Voting Agreement. However, Company's "Senior Officers" (as described in the Voting Agreement), may request Executive's resignation any time after the Effective Date, and Executive shall retain the right, in his sole discretion, to so resign at any time after the Effective Date. In the event that Executive continues to serve as a director of Company after the Termination Date, Executive shall be entitled to reimbursement for all reasonable business expenses incurred by Executive on Company's behalf, including but not limited to reasonable travel and entertainment expenses. Company agrees to reimburse any reasonable expenses within thirty (30) days of their submission to Company. 3.4 COMPENSATION AND EXPENSES. Until the Termination Date, (i) Executive shall be entitled to reimbursement for all reasonable business expenses incurred by Executive on Company's behalf, including but not limited to reasonable travel and entertainment expenses, (ii) Company shall provide Executive with a Company credit card, and (iii) Executive shall also be entitled to continue to use his current computer, Handspring hand-held computer and cell phone, and Company shall be responsible for all reasonable charges related to same. Executive shall be entitled to retain the computer, hand-held computer and cell phone thereafter. Company agrees to reimburse any reasonable expenses within thirty (30) days of their submission to Company. 3.5 INSURANCE. Company shall pay for all Executive's insurance benefits as currently provided to other employees of Company, as described in Company's manual until the earlier of (i) April 1, 2003, or (ii) such earlier time as Executive is eligible to be covered under another employer-sponsored insurance plan. Executive shall be included in the manager's section of the disability insurance. 2 3.6 OPTIONS. Any options to purchase common shares of Company's stock granted to Executive shall vest in full as of the Termination Date. 3.7 CONSULTING SERVICES. During the period commencing on October 1, 2001 and ending on April 1, 2003 (the "Consulting Period"), Executive shall provide Company with advice and recommendations concerning various matters respecting the strategic alliances, product development strategy and financing strategy; provided, however, that Executive shall be required to make himself available only telephonically to Company and for no more than three (3) hours per month, on a non-cumulative basis, during the Consulting Period. In the event Company desires to utilize Executive's services as a consultant more than three (3) hours in any one month, and Executive is amenable thereto, Company shall compensate Executive at the rate of Two Hundred Dollars ($200.00) per hour thereafter. If the Termination Date occurs prior to September 30, 2001, Employee shall be considered to have taken a bona fide "leave of absence" which was authorized and approved by Company for purposes of exercising Employee's stock option grants. Notwithstanding anything to the contrary in this Agreement, Executive will not be compensated in connection with his role as a director of Company unless the Board of Directors elects to compensate outside directors. Executive will be reimbursed for his reasonable business expenses incurred in connection with consulting services requested to be performed during the Consulting Period, subject to appropriate documentation of such expenses in accordance with Company policy. Executive shall keep all Company matters confidential pursuant to Article IX of the Employment Agreement. 3.8 NON-COMPETITION. Executive shall continue to be bound by Article VII of the Employment Agreement for a period of two (2) years from and after the Effective Date. 3.9 SOLICITATION. Executive shall be bound by the provisions of Article VIII of the Employment Agreement for a period of two (2) years from and after the Effective Date. 3.10 USE OF CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY. Executive shall continue to be bound by the provisions of Article IX of the Employment Agreement. 3.11 INDEMNIFICATION. Company shall continue to maintain directors and officers' liability insurance in reasonable amounts and cover Executive under such insurance on an "occurrence" basis through the date that Executive resigns or is removed as a Director of Company. By way of illustration only, if such insurance provided by Company is on a "claims made basis," Company shall continue to list Executive as a named insured on all of such insurance, or procure "tail" insurance covering Executive through the applicable limitations periods. 3.12 NON-DISPARAGEMENT. Executive on the one hand, and Company, or any executive officer or director thereof, on the other, agree that each shall not (i) directly or indirectly, make or ratify any statement, public or private, oral or written, that disparages, either professionally or personally, the other party, the other parry's subsidiaries and affiliates, past and present, and each of them, as well as its and their trustees, directors, officers, agents, attorneys, insurers, employees, stockholders, representatives, assigns, and successors, past and present, and each of them, or (ii) make any statement or engage in any conduct that has the purpose or effect of disrupting the 3 business of the other party. The parties hereby agree that any statement made in violation of the foregoing shall constitute and be treated as a material breach of this Agreement, provided that the only remedy for such breach shall be monetary damages. This Section 3.12 shall not apply to or in any way limit (x) statements made by a party in any court, arbitral or governmental proceeding, (y) disclosures to a third party which has entered into a confidentiality agreement with the disclosing party, or (z) a party's private consultation with its attorneys or other professional advisors. 3.13 PRESS RELEASES. Prior to any release or distribution thereof, Company shall forward to Executive any press release concerning or otherwise arising out of the separation of Executive from the Company for review and approval, which approval shall not be unreasonably withheld. Executive shall have one (1) business day to review and approve on any proposed press release, or otherwise notify Company of his objections thereto. 3.14 CONFIDENTIALITY. Executive and Company agree that the terms and conditions of this Agreement shall remain confidential as between the parties and they shall not (except as required by law, including disclosures required to stockholders or regulators) disclose them to any other person. This Section 3.14 shall not apply to or in any way limit (i) statements made by a party in any court, arbitration or governmental proceeding, (ii) disclosures to a third party which has entered into a confidentiality agreement with the disclosing party, or (iii) a party's private consultation with its attorneys or other professional advisors. 4.0 MUTUAL RELEASE -------------- 4.1 EXECUTIVE RELEASE. Except for those obligations created by or arising out of this Agreement, the Option Agreement, the Secured Promissory Note, the Amendment to Pledge Agreement, the Unsecured Promissory Note and side letter entered into contemporaneously herewith, agreements entered into by Executive based on his status as a stockholder of Company other than those executed or prepared by the Company, and the agreements listed on Exhibit "A" or any other rights Executive may have in his capacity as a stockholder of Company, Executive on behalf of himself, his descendants, dependents, heirs, executors, administrators, assigns, and successors, and each of them, hereby covenants not to sue and fully releases and discharges Company, its predecessors, successors and assigns, and their respective past, present and future parents, subsidiaries, affiliates, trustees, executors, administrators, officers, directors, owners, associates, heirs, agents, insurers, stockholders, partners, employees, licensees, representatives, lawyers, consultants, investment bankers, accountants or any of them, and each of them, hereinafter together and collectively referred to as "Releasees," with respect to and from any and all manner of action or actions, cause or causes of action, in law or equity, and any suits, debts, liens, liabilities, claims, counter-claims, cross-claims, demands, rights, obligations, damages, losses, costs, expenses, attorneys' fees, judgments, orders or indemnities, of all and any nature whatsoever, including, without limitation, payroll after March 15, 2001, whether individual or derivative, state or federal, known or unknown, fixed or contingent, suspected or unsuspected, and whether or not concealed or hidden, that against said Releasees, or any of them, Executive: (i) may have or may now have up to the date of this Agreement; or (ii) may hereafter have based upon, arising out of, related to or in any way connected with Executive's service as an officer or employee of Company, his separation from his position as a member of the Board of Directors and, except as set forth herein, his position as Co- 4 Chief Executive Officer, or his employment by, or status as, an officer of any Company affiliate, or any other transactions, occurrences, acts or omissions or any loss, damage or injury whatever, known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of said Releasees, or any of them, committed or omitted prior to the date of this Agreement including, without limiting the generality of the foregoing, any claim under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the Pennsylvania Human Relations Act, the Pennsylvania Wage Payment and Collection Act, the Pennsylvania Workmen's Compensation Act or any claim for severance pay, bonus, sick leave, holiday pay, vacation pay, life insurance, health or medical insurance or any other fringe benefit, workers' compensation or disability. 4.2 COMPANY RELEASE. Except for those obligations created by or arising out of this Agreement, and the Option Agreement, the Secured Promissory Note, the Amendment to Pledge Agreement, the Unsecured Promissory Note and side letter entered into contemporaneously herewith, agreements entered into by Executive based on his status as a stockholder of Company and the agreements listed on Exhibit "A" (except that, as to the Stock Purchase Agreement executed contemporaneously herewith, the sole exception to the release granted hereunder concerning the acquisition of the shares of stock of the Company thereunder shall be strictly limited to the representations and warranties of Executive under Section 5.2 thereof), Company hereby acknowledges full and complete satisfaction of and releases and discharges, and covenants not to sue, Executive from and with respect to any and all claims, agreements, obligations, losses, damages, injuries, demands and causes of action, known or unknown, suspected or unsuspected, arising out of or in any way connected with Executive's service as a member of the Board of Directors and, except as set forth herein, his position as Co-Chief Executive Officer or as any officer or director of any Company subsidiaries, or the separation from such positions, or any other transactions, occurrences, acts or omissions or any loss, damage or injury whatever, known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of Executive committed or omitted prior to the date of this Agreement which Company now owns or holds or has at any time heretofor owned or held as against Executive. Notwithstanding anything else herein, Company's release in this Section 4.2 does not apply to Company's payment of approximately $40,000 to Executive related to the reimbursement of his house sale expenses incurred in connection with his move to Pittsburgh, PA which has not been formally approved by Company's Board of Directors. Notwithstanding the foregoing, nothing herein shall give rise to any admission or implication that such payment, including the amount thereof, was not approved or authorized by Company's officers or otherwise improper. 4.3 INDEPENDENT ADVICE. Executive and Company hereby represent, warrant, and acknowledge to each other, that they have received independent legal advice from their respective attorneys regarding the advisability of executing this Agreement and giving the releases provided for herein. Executive and Company acknowledge that they are aware that they or their attorney may hereafter discover facts different from or in addition to the facts which they or their attorney now knows or believes to be true with respect to the subject matter of this Agreement but that it is their intention hereby to settle and release fully, finally, absolutely and forever any and all claims, disputes 5 and differences, known or unknown, suspected or unsuspected, which now exist, may hereafter exist, or heretofore have existed arising from, related to or in any way connected with the released matters set forth in Section 4.1 and 4.2 of this Agreement, and without regard to the subsequent discovery or existence of such different or additional facts except as expressly set forth herein, which do now exist or heretofore have existed between the parties. In furtherance of this intention, the releases herein given shall be and remain in effect as full and complete releases, except as expressly set forth herein, notwithstanding the discovery of any such additional facts. The parties, and each of them, hereby further represent, warrant, and acknowledge to the other party, that there is a risk that, subsequent to the date of this Agreement, they will incur damage or loss that they deem in some way attributable to the subject matter of this Agreement, or to the actions prior to the date of this Agreement, as the case may be, but which are unknown and unanticipated as of the date of this Agreement, or that damages presently known may become progressive, greater or more serious than is now known, expected or anticipated, or that facts alleged in the subject matter of this Agreement are found to be different from the facts now believed by them to be true. The parties hereby expressly accept such risks and agree that this Agreement is and will remain effective notwithstanding such risks, if they occur. 5.0 MISCELLANEOUS ------------- 5.1 GOVERNING LAW. It is agreed that this Agreement shall be governed by, construed, and enforced in accordance with the laws of the Commonwealth of Pennsylvania, other than the conflict of laws provisions thereof. If any provision of this Agreement is deemed unreasonable by a court of competent jurisdiction, the parties agree that said court shall have the power to reform the terms of this Agreement in order to satisfy the intent of the parties hereto. 5.2 ARBITRATION. Any and all disputes arising under or related to this Agreement shall be adjudicated by mandatory and binding arbitration in accordance with the rules of the American Arbitration Association governing employment disputes. 5.3 ENTIRE AGREEMENT. This Agreement shall constitute the entire agreement between Executive and Company and shall supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, including without limitation, the Employment Agreement and all earlier versions thereof. 5.4 MODIFICATION OF AGREEMENT. Any modification of this Agreement or additional obligation assumed by either party in connection with this Agreement shall be binding only if evidenced in writing signed by each party or an authorized representative of each party. 5.5 NO WAIVER. The failure of either party to this Agreement to insist upon the performance of any of the terms and conditions of this Agreement, or the waiver of any breach of any of the terms and conditions of this Agreement, shall not be construed as thereafter waiving any such terms and conditions, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. 6 5.6 ATTORNEYS FEES. In the event that any action is filed in relation to this Agreement, the unsuccessful party in the action shall pay to the successful party, in addition to all sums that either party may be called on to pay, a reasonable sum for the successful party's fees. Company also agrees to pay Executive's legal fees incurred in the negotiation and documentation of this Agreement. 5.7 COUNTERPARTS. This Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose. 5.8 FURTHER COOPERATION. All parties agree to cooperate fully and to execute any and all supplementary documents and to take all additional actions that may be necessary or appropriate to give full force to the basic force and intent of this Agreement and which are not inconsistent with its terms. 6.0 NOTICES. For purposes hereof, delivery of written notice shall be complete upon personal delivery, or upon mailing if mailed with proper postage paid by United States registered or certified mail, addressed to the party at the address set forth below, or to such other mailing address as the parties hereto may designate by written notice given in accordance with this Section 6.0. Notice may also be given upon receipt of electronic facsimile, provided that any facsimile notice shall only be deemed received if (a) the transmission thereof is confirmed, and (b) facsimile notice is followed by written notice, made either by (i) personal delivery thereof, or (ii) via deposit in certified mail return receipt requested, postage prepaid, within three (3) business days following the facsimile notice. Notices shall be addressed to the parties as follows: Executive: William Guttman 715 Maryland Avenue Pittsburgh, PA 15232 Fax: (240) 368-8735 Company: printCafe, Inc. The Crane Building, Fifth Floor 40 Twenty-Fourth street Pittsburgh, PA 15222-4683 Attention: President Fax: (412) 456-1151 Any party may change the address to which to send notices by notifying the other party of such change of address in writing in accordance with this Section 6.0. 7 IN WITNESS WHEREOF, each party to this Agreement has caused it to be executed as of the date set forth above. "EXECUTIVE" /s/ WILLIAM GUTTMAN ------------------------------ WILLIAM GUTTMAN "COMPANY" PRINTCAFE, INC., a Delaware corporation By: /s/ Marc Olin ---------------------------- Marc Olin, President 8 EXHIBIT "A" OUTSTANDING AGREEMENTS 1. Fourth Amended and Restated Investors Rights Agreement 2. Third Amended and Restated Voting Agreement 3. Third Amended and Restated Right of First Refusal and Co-Sale Agreement 4. Pledge Agreement dated as of November 8,1999, as amended. 5. Secured Promissory Note dated as of November 8,1999. 9 EX-10.27 21 j9249402ex10-27.txt LETTER RE: SECURED PROMISSORY NOTE/STOCK TRANSFERS Exhibit 10.27 WILLIAM GUTTMAN 715 Maryland Avenue Pittsburgh, PA 15232 April 26, 2001 printCafe, Inc. The Crane Building, 5th Floor Forty 24th Street Pittsburgh, PA 15222-4683 Re: Secured Promissory Note and Stock Transfers. -------------------------------------------- Gentlemen: As you are aware, the undersigned is the Borrower under that certain Secured Promissory Note ("Note") dated as of November 8, 1999, between the undersigned and Prograph Systems, Inc., a Pennsylvania corporation, the predecessor in interest to printCafe, Inc., a Delaware corporation (the "Company"), and that certain Secured Promissory Note ("Second Note") dated of even date herewith, in the principal amount of $641,582.63. The principal balance of the Note as of the date of this agreement, has been reduced from its original principal amount of $380,581.16 to $106,702.00. There is also interest outstanding on the Note. Under the Note, the Company may seek reimbursement from the undersigned for any deficiency in the event the value of shares secured by a Pledge Agreement ("Pledge Agreement") of even date with the Note, is insufficient to pay the full amount due, but only up to the sum of (i) 30% of the original principal balance of the Note, plus (ii) all interest accrued from the date of the Note to the due date. The purpose of this letter is to confirm the understanding of both the Borrower and the Company that any payments made prior to the maturity date would be applied against such reimbursement right, and, therefore, the substantial payments made to date have extinguished Borrower's personal liability thereunder. The Pledge Agreement is being amended by that certain Amendment to Pledge Agreement of even date to include a reference to the Second Note, as defined therein, and to release shares of Common Stock pledged thereunder because the Company is currently oversecured. Therefore, the parties acknowledge and confirm that, notwithstanding any provision to the contrary in the Note or any other loan document evidencing or securing payment of the Note, Borrower is not personally liable for the payment of any portion of the remaining indebtedness evidenced by the Note or any other documents securing the loan. The Company's sole recourse will be to the shares pledged under that certain Pledge Agreement, as amended by the Amendment to Pledge Agreement, as the same may be amended from time to time. PrintCafe April 26, 2001 Page 2 Further, the parties have entered into an Option Agreement of even date pursuant to which the Company has the right to purchase certain shares from Borrower under the terms of a Stock Purchase Agreement attached as an exhibit to the Option Agreement. The parties hereto acknowledge that, in the event the Company does not exercise its option to purchase shares of Common Stock under the Option Agreement and also fails to foreclose on the Second Note within fifteen (15) days of the maturity date of the Second Note. Borrower shall have the right to put the 427,722 shares securing the Second Note referenced in the Amendment to Pledge Agreement (including the right to cause the Company to convert Series A Preferred Stock to Common Stock and substitute the same for Common Stock subject to the pledge) to the Company in complete satisfaction of any and all obligations under the Second Note. By executing a duplicate original of this letter, the undersigned are confirming the authority of the Company to be bound by the interpretation set forth in this letter. In addition, pursuant to the transactions being undertaken by the Parties in connection with this agreement, and in reliance thereon, Company agrees to promptly re-title certain shares of stock held in trusts established by Borrower upon Borrower's forwarding appropriate documents to Company authorizing the same. In the event the Company brings suit or otherwise institutes any action against Borrower seeking an interpretation that the Note remains recourse to Borrower, Borrower is entitled to recover all of his reasonable professional fees (including attorneys' fees) in connection with such suit or action. Please confirm the above by executing and returning to the undersigned the duplicate original letter enclosed herewith. Very truly yours, /s/ William Guttman WILLIAM GUTTMAN cc: David L. Keligian, Esq. Sheila M. Muldoon, Esq. ACKNOWLEDGED AND CONFIRMED: printCafe, Inc., a Delaware corporation By: /s/ Marc D. Olin --------------------------- Marc Olin, President Date: April 26, 2001 -------------------------- EX-10.28.A 22 j9249402ex10-28_a.txt PLEDGE AGREEMENT (WILLIAM GUTTMAN) Exhibit 10.28(a) PLEDGE AGREEMENT THIS PLEDGE AGREEMENT, entered into as of November 8, 1999, between PROGRAPH SYSTEMS, INC., a Pennsylvania corporation (the "Company"), and WILLIAM GUTTMAN (the "Purchaser"). WITNESSETH: WHEREAS, the Purchaser has purchased from the Company 1,654,702 shares of the Company's Common Stock (the "Shares"); and WHEREAS, the Company has loaned to the Purchaser the sum of $380,581.16 which the Purchaser has used to pay the purchase price of the Shares; and WHEREAS, the Purchaser has executed and delivered to the Company a secured promissory note evidencing such loan (the "Note") and has agreed to pledge the Shares (the "Pledged Shares") to the Company as security for the payment of the Note: NOW, THEREFORE, it is agreed as follows: 1. The Purchaser hereby delivers to the Company one or more certificates representing the Shares, together with two Assignments Separate From Certificate signed by the Purchaser. The Purchaser hereby pledges and grants a security interest in the Pledged Shares, including any shares into which the Pledged Shares may be converted and all proceeds of the Pledged Shares, as security for the timely payment of all of the Purchaser's obligations under the Note and for the Purchaser's performance of all of its obligations under this Agreement. In the event of a default in payment of the Note, the Purchaser hereby appoints the Company as his true and lawful attorney to take such action as may be necessary or appropriate to cause the Pledged Shares to be transferred into the name of the Company or any assignee of the Company and to take any other action on behalf of the Purchaser permitted hereunder or under applicable law. 2. The Company agrees to hold the Pledged Shares as security for the timely payment of all of the Purchaser's obligations under the Note and for the Purchaser's performance of all of its obligations under this Agreement, as provided herein. At no time shall the Company dispose of or encumber the Pledged Shares, except as otherwise provided in this Agreement or the Stock Purchase Agreement dated as of the date hereof between the Company and the Purchaser (the "Stock Purchase Agreement"). 3. At all times while the Company is holding the Pledged Shares as security under this Agreement, the Company shall: (a) Collect any dividends that may be declared on the Pledged Shares and credit such dividends against any accrued interest or unpaid principal under the Note, as part payment; (b) Collect and hold any shares that may be issued upon conversion of the Pledged Shares; and (c) Collect and hold any other securities or other property that may be distributed with respect to the Pledged Shares. Such shares and other securities or property shall be subject to the security interest granted in Section 1 of this Agreement and shall be held by the Company under this Agreement. 4. While the Company holds the Pledged Shares as security under this Agreement, the Purchaser shall have the right to vote the Pledged Shares at all meetings of the Company's stockholders; provided that the Purchaser is not in default in the performance of any term of this Agreement, the Stock Purchase Agreement or Employment Agreement or in any payment due under the Note. In the event of such a default, the Company shall have the right to the extent permitted by law to vote and to give consents, ratifications and waivers and take any other action with respect to the Pledged Shares with the same force and effect as if the Company were the absolute and sole owner of the Pledged Shares. 5. Upon payment in full of the outstanding principal balance of the Note and all interest and other charges due under the Note, subject to the terms of the Stock Purchase Agreement, the Company shall release from pledge and redeliver to the Purchaser the certificate(s) representing the Pledged Shares and the Assignment Separate From Certificate forms. 6. In the event that the Purchaser fails to perform any term of this Agreement or fails to make any payment when due under the Note and such failure continues for 10 days after notice thereof (an "Event of Default"), the Company shall have all of the rights and remedies of a creditor and secured party at law and in equity, including (without limitation) the rights and remedies provided under the Uniform Commercial Code. Without limiting the foregoing, after an Event of Default, the Company may, after giving ten (10) days' prior written notice to the Purchaser by certified mail at his residence or business address, sell any or all of the Pledged Shares in such manner and for such price as the Company may determine, including (without limitation) through a public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery. The Company is authorized at any such sale, if it deems it advisable to do so, to restrict the prospective bidders or purchasers of any of the Pledged Shares to persons who will represent and agree that they are purchasing for their own account for investment, and not with a view to the distribution or sale of any of the Pledged Shares, to restrict the prospective bidders or purchasers and the use any purchaser may make of the Pledged Shares and impose any other restriction or condition that the Company deems necessary or advisable under the federal and state securities laws. Upon any such sale the Company shall have the right to deliver, assign and transfer to the purchaser thereof the Pledged Shares so sold. Each purchaser at any such sale shall hold the Pledged Shares so sold absolute, free from any claim or right of any kind. In case of any sale of any or all of the Pledged Shares on credit or for future delivery, the Pledged Shares so sold may be retained by the Company until the selling price is paid by the purchaser thereof, but the Company shall not incur any liability in case of the failure of such purchaser to take up and pay for the Shares so sold and, in case of any such failure, such Shares may again be sold under the terms of this section. The Purchaser hereby agrees that any disposition of any or all of the Pledged Shares by way of a private placement or other method which in the opinion of the Company is required or advisable under Federal and state securities laws is commercially reasonable. At any public sale, the Company may (if it is the highest bidder) purchase all or any part of the Pledged Shares at such price as the Company deems proper. Out of the proceeds of any sale, the Company may retain an amount sufficient to pay all amounts then due under the Note, together with the expenses of the sale and reasonable attorneys' fees. The Company shall pay the balance of such proceeds, if any, to the Purchaser. The Purchaser shall be liable for any deficiency that remains after the Company has exercised its rights under this Agreement. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to Pennsylvania choice of law provisions. 8. This Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and be binding upon the purchaser and the Purchaser's legal representative, heirs, legatees, distributees, assigns and transferees by operation of law. 9. This Agreement contains the entire pledge agreement between the Company and the Purchaser. 10. The Purchaser will execute any additional agreements, assignments or documents or take any other actions reasonably required by the Company to preserve and perfect the security interest in the Pledged Shares granted to the Company herein and otherwise to effectuate this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Purchaser has personally executed this Agreement. PROGRAPH SYSTEMS, INC. By /s/ Marc Olin ------------------------------- Marc Olin, President WILLIAM GUTTMAN /s/ William Guttman ------------------------------- EX-10.28.B 23 j9249402ex10-28_b.txt AMENDMENT TO PLEDGE AGREEMENT Exhibit 10.28(b) AMENDMENT TO PLEDGE AGREEMENT This Amendment to Pledge Agreement ("Amendment") dated as of April 26, 2001, is entered into between William Guttman, as "Purchaser," and printCafe, Inc., a Delaware corporation, as successor in interest to Prograph Systems, Inc., a Pennsylvania corporation, as the "Company," for the purpose of amending that certain Pledge Agreement ("Pledge Agreement") dated as of November 8, 1999, between Purchaser and the Company's predecessor in interest. RECITALS A. The number of Shares originally pledged to secure payment of the Note was One Million Six Hundred Fifty Four Thousand Seven Hundred Two (1,654,702). B. As of March 7, 2000, the outstanding principal balance of the Note was One Hundred Six Thousand Seven Hundred Two Dollars ($106,702.00), and interest due thereunder had accrued in the amount of Seven Thousand Four Hundred Forty Four and 80/100 Dollars ($7,444.80). C. As of the date hereof, the Company has loaned to Purchaser the sum of Six Hundred Forty One Thousand Five Hundred Eighty-Two and 63/100 Dollars ($641,582.63) under a Secured Promissory Note ("Second Note"). D. As of the date hereof, Purchaser and the Company acknowledge that the fair market value of the Shares is One and 50/100 Dollars ($1.50) per Share. E. Because of the significant partial prepayments made to date on the Note, and for other valuable consideration, the parties desire to amend the Pledge Agreement as set forth herein. NOW, THEREFORE, for valuable consideration, receipt of which is acknowledged, the parties agree as follows: AMENDMENT 1. Capitalized terms not otherwise defined herein are defined in the Pledge Agreement. 2. "Second Note" shall have the meaning set forth in Recital C above. 3. The number of Shares pledged to secure payment of the Note and the Second Note shall be reduced to Four Hundred Ninety Eight Thousand Eight Hundred Fifty Seven (498,857). Of this amount, Seventy One Thousand One Hundred Thirty Five (71,135) 1 Shares are pledged to secure payment of the Note and Four Hundred Twenty Seven Thousand Seven Hundred Twenty Two (427,722) Shares are pledged to secure payment of the Second Note. 4. The remainder of the Shares pledged under the Pledge Agreement shall be released therefrom and delivered to Purchaser free of all restrictions thereunder. 5. At such time as the Company notifies the Pledgor of an Event of Default, the Pledgor shall have the right to instruct the Company, upon delivery of the share certificate therefor, to convert Preferred Series A Stock then owned by the Pledgor to Common Stock, and the Company shall cause the conversion thereof to Common Stock of the Company at a conversion ratio of one to one, at the expense of the Company, and to substitute such converted Common Stock for a like number of shares of Common Stock pledged hereunder. 6. Except as amended herein, the Pledge Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Purchaser and the Company have signed, dated and delivered this Amendment as of the date and year first above written. "PURCHASER" /s/ William Guttman ----------------------------- WILLIAM GUTTMAN "COMPANY" PRINTCAFE, INC., a Delaware corporation By: /s/ Marc D. Olin ------------------------------- Marc Olin, President 2 EX-10.31 24 j9249402ex10-31.txt LICENSE AGREEMENT Exhibit 10.31 INFORMATION DENOTED BY [*] HEREIN HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THIS INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. LICENSE AGREEMENT This Agreement effective the 9th day of March 2000 is by and between Henry B. Freedman, an individual having an address of Box 2413, Springfield, Virginia 22152 (hereinafter "Licensor"); and printCafe, Inc., a Delaware corporation, having a place of business at 40 24th Street, 5th Floor, Pittsburgh, Pennsylvania 15222 (hereinafter" Licensee") (collectively, the "Parties"). Recitals WHEREAS, Licensor is the owner of the Licensed Patent; and WHEREAS, Licensee is desirous of acquiring from Licensor a non-exclusive license under the Licensed Patent; and NOW, THEREFORE, for and in consideration of the foregoing premises and of the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound, covenant and agree as follows: Definition As used herein the term "Licensed Patent" shall mean U.S. Patent No. 4,839,829 entitled Automated Printing Control System (hereinafter "the '829 Patent") and all divisionals, continuations, continuations-in-part, reissues, reexaminations, and/or extensions thereof including all foreign counterparts of the foregoing, and all other patents and/or patent applications that have been or shall be filed and/or issued in the United States and all foreign countries on any of the improvements included in the '829 Patent. Article I - Grant of License A. Licensor hereby grants to Licensee under the terms and conditions hereinafter stated (i) a non-exclusive right and license to make, advertise, have made, use and import into the United States systems (which may include hardware, software and/or combinations of hardware and software) embodying the claimed invention of the Licensed Patent (hereinafter "Systems") for its own use; and (ii) a non-exclusive right 1 and license to allow others ("End-Users") to make use of and/or to otherwise access (but not to copy, download, disseminate or otherwise obtain or appropriate) such Systems through Licensee's Internet Web Site ("Web Site Use rights"). As used herein, the term Web Site shall mean a computer-based resource, including the hardware and/or software thereof, which can be reached by other computers or network-capable appliances over one or more computer networks using a Uniform Resource Locator (URL) and a Web Browser or similar application, or by other such means. It is expressly understood and agreed between Licensor and Licensee that (i) Licensee may deploy Systems [*] that may be physically separate from Licensee's address noted above, (ii) Licensor reserves the exclusive right to grant further licenses to other users of Systems of the Licensed Patent, and (iii) third parties acquire no license or other rights to make or sell Systems under this Agreement. B. Licensee shall not have the right to grant any sub-license or other rights to third parties, other than the Web Site Use rights specified above, under the rights granted to it by this Agreement. C. Licensor hereby releases, acquits and forever discharges Licensee; its subsidiaries and affiliated companies; its successors in interest; its sales representatives, distributors and customer including End-Users (collectively referred to as "the Released Entities"); and each of the Released Entities' respective owners, agents, representatives, attorneys, employees, officers, directors, and stockholders from and against any and all claims, demands, causes of action or liabilities of any kind, character or nature whatsoever, for past and/or present infringements of the Licensed Patent arising out of the offering for sale, making, having made, using, selling or importing of Systems. The purpose and intent of this release is to ensure that Licensee, its various representatives, distributors and customers are immune from suit for any past and/or present infringement, including any claims of direct infringement, contributory infringement and/or inducement of infringement by others, of the License Patent arising out of the offering for sale, making, having made, using, selling or importing of Systems and/or parts thereof. 2 Article II - Compensation A. As consideration for the license granted herein and during the Term of this Agreement, Licensee agrees to pay Licensor [*] (the "License Fee") to be paid as follows: 1. [*] within ten (10) days after the effective date of this Agreement; 2. [*] by January 2, 2001; and 3. [*] by January 2, 2002. B. The payments of the Licensee Fee shall be made even in the event that there is a finding by a court of competent jurisdiction, that one or more claims of the Licensed Patent is/are invalid and such a finding shall not terminate, or give rise to any rights by Licensee to terminate, this Agreement. Licensee agrees that it will not challenge the validity or enforceability of the '829 Patent. Article III - Other Licensees A. From the effective date of this Agreement until the expiration of the '829 Patent, Licensor agrees that it will not, except upon consent of the Licensee in writing, license the Licensed Patent to other e-commerce printing entities [*] on more favorable terms than those agreed to between the parties concerning the Licensed Patent. [*]. Article IV - Warranties and Obligations A. Licensor warrants that, at the time of the execution of this Agreement, it has the legal right and power to grant to Licensee the rights granted under this Agreement. 3 B. Licensor warrants that it has not granted any rights or made any commitments relative to the granting of any rights, which are inconsistent with the rights granted to Licensee under this Agreement. C. Licensor makes no other representations or warranties, express or implied, and does not assume any liability with respect to infringement of patents or other rights of third parties due to Licensee's operation under the license granted herein. D. Licensor shall have no obligation to enforce the Licensed Patent against any third party or to defend any action or suit which challenges the validity of the Licensed Patent. Licensee shall have no right to enforce the Licensed Patent against any third party. E. The Parties agree to take reasonable steps to ensure the confidentiality of the terms of this Agreement and, accordingly, any release of information relating to this Agreement must be reviewed and approved in advance by each of the Parties, except that copies of this Agreement may be made available to government agencies in compliance with regulations thereof requiring the disclosure of material agreements. Neither party shall be liable for disclosure of the terms of this Agreement if made in response to a valid order of a court or authorized agency of government; provided that ten (10) days' notice first be given to the other part so a protective order, if appropriate, may be sought by such party. Furthermore, either party may disclose, in confidence, the terms of this Agreement to its financial consultants, tax planners and/or advisors, attorneys, underwriters, and/or third parties under an obligation to the disclosing party to preserve the secrecy of the disclosing party's confidential information, without the consent of the other party. Anything to the contrary notwithstanding, Licensor may disclose the terms of this Agreement under suitable confidentiality terms in connection with further licensing of the Licensed Patent. F. The Parties shall cooperate in reasonable efforts to publicize the '829 Patent through the joint dissemination of a press release in a form substantially similar to that attached hereto within sixty (60) days of the Effective Date. Nothing herein shall preclude further announcements by the Parties. 4 Article V - Marking Licensee shall mark and prominently display the legend "U.S. Patent 4,839,829" on all literature, users manuals and documentation produced that promotes the system under the Licensed Patent and on all web sites that promote or feature the system of the License Patent. Furthermore, Licensee must prominently list the Licensed Patent as licensed from Henry B. Freedman and must prominently list the web site and telephone number of Henry B. Freedman as the owner of the Licensed Patent on Licensee's Internet web site. Article V - Term and Termination A. Unless sooner terminated as provided below, this Agreement shall remain in effect until the expiration of the last to expire of the Licensed Patent (the Term). B. If Licensee, at any time, defaults in any payments due hereunder or breaches any material term of this Agreement, Licensor shall have the right to give notice of such default or breach to Licensee, in writing, and, if the default is not cured within thirty (30) days after receipt of the notice, Licensor, at its option, may immediately terminate this Agreement and license granted herein by giving written notice of termination to Licensee. Article VI - Administration A. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by Licensor and its successors in interest and assigns. This Agreement and the rights granted hereunder are personal to Licensee and Licensee may not sell, pledge, assign or transfer this Agreement and the rights granted hereunder nor delegate any duties or obligations hereunder, without the written consent of the Licensor, except that a change of ownership or control of Licensee (whether by merger, operation of law, a sale of all or substantially all of the assets of Licensee or otherwise) shall not be deemed an impermissible assignment of this Agreement. Licensee agrees to promptly notify Licensor of any change of ownership or control of Licensee. For purposes of this Article VII, a change in ownership or control with respect to Licensee means a transaction resulting in (i) the sale, disposition or other transfer of greater than fifty percent (50%) of 5 the outstanding voting securities of Licensee by the current stockholders of Licensee other than by way of merger, acquisition or operation of law; (ii) a sale of all or substantially all of the assets of Licensee; or (iii) the acquisition of the beneficial ownership (as determined with reference to Rule l3d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended, in effect on the date of this Agreement) of greater than fifty percent (50%) of the outstanding voting securities of Licensee. B. This Agreement shall be construed, interpreted and applied in accordance with the law of Virginia, without regard to that State's body of law regarding conflicts of law. C. The Parties agree that if in the event any either party shall need to pursue its rights under this Agreement and license in a court of competent jurisdiction, the court shall award to the prevailing party its cost involved in pursuing the dispute, including attorneys' fees, and such award shall be paid by the other party. D. In the event that any provision of this Agreement is determined by a court of competent jurisdiction to be unenforceable or invalid, the Parties hereto agree that such provision found to be unenforceable or invalid shall be enforced to the full extent permitted and, in any event, all other provisions of this Agreement shall remain valid and enforceable as if the unenforceable or invalid portion had never been made a part hereof. Furthermore, no damages for any act of infringement of the Licensed Patent by Licensee or any of the Released Entities shall accrue from the Effective Date. E. All notices required to be provided for by the terms of this Agreement shall be given in writing and shall be deemed to have been duly given if addressed and sent by registered or certified mail, return receipt requested, with the postage prepaid, or by overnight courier services to the address of such party as set forth above or to such other address as either party may, by written notice, appoint for that purpose with a copy to counsel for each party. Counsel are as follows: Licensor: Ronald L. Panitch, Esquire Akin, Gump, Strauss, Hauer & Feld, L.L.P. One Commerce Square 2005 Market Street, 22nd Floor 6 Philadelphia, PA 19103 Telephone (215) 965-1300 Licensee: F. With respect to the subject matter of this Agreement, the foregoing constitutes the entire and only understanding between the Parties, and this Agreement supersedes any prior or collateral agreements or understandings between the Parties with respect to the subject matter thereof. No terms, conditions or statements purporting to modify, vary or waive the terms of this Agreement shall be effective unless made in writing and signed by the Parties hereto. This Agreement is the product of an arms-length negotiation between the Parties, with each of the Parties being represented by legal counsel of their choice. Nothing in this Agreement and the negotiations leading to its consummation shall be construed as offering any tax-related advice to either of the Parties by the other party. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by its authorized representatives. Henry B. Freedman Date: 3-9-2000 /s/ Henry B. Freedman -------- ----------------------------- printCafe, Inc. Date: 3/9/00 BY: /s/ Marc Olin ------ ------------------------ NAME: Marc Olin ----------------- TITLE: President ---------------- 7 [*] 8 EX-10.32 25 j9249402ex10-32.txt SECURED PROMISSORY NOTE (GUTTAN 4/26/01) Exhibit 10.32 SECURED PROMISSORY NOTE $641,582.63 Pittsburgh, Pennsylvania Dated as of April 26, 2001 FOR VALUE RECEIVED, the undersigned, WILLIAM GUTTMAN ("Borrower"), promises to pay to the order of PRINTCAFE, INC., a Delaware corporation (the "Company"), the principal sum of Six Hundred Forty One Thousand Five Hundred Eighty Two and 63/100 Dollars ($641,582.63) with interest from the date hereof on the unpaid balance as specified herein. The entire unpaid balance of principal and interest shall be immediately due and payable, without notice, on the earlier to occur of (1) October 5, 2001, (2) breach of the Pledge Agreement dated the date hereof between the Company and Borrower, or (3) a date specified in a written notice provided by Borrower to the Company setting forth a date for repayment at least five business days after the date of such notice. The interest rate on this note shall be an annual rate of interest equal to four and 58/100 percent (4.58%) compounded semiannually. Interest shall be computed on the basis of a year of 365 days and the actual number of days elapsed, except that interest shall not be computed on the day of full repayment of this note. Interest not paid when due shall earn interest at the rate specified above. If payment is not made when due, and if action is instituted on this note, the undersigned agrees to pay Payee reasonable attorneys' fees and costs of suit, as fixed by court in connection with the collection of the outstanding amounts due under this note. The undersigned shall have the right to prepay all or any part of the unpaid principal amount of this note, without premium, at any time prior to the maturity hereof. This note is originally secured by a pledge of shares of Common Stock and Series A Preferred Stock of the Company pursuant to a Pledge Agreement dated November 8, 1999, as amended of even date herewith, which is on file with the Secretary of the Company. If one or more of the provisions hereof shall be declared or held to be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby and any such declaration or holding shall not invalidate or render unenforceable such provision in any other jurisdiction. In case this note shall become mutilated or defaced, or be destroyed, lost or stolen, the Borrower shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced note, or in lieu of and in substitution for the destroyed, lost or stolen note. In the case of a mutilated or defaced note, the Company shall surrender such 1 note to the Borrower. In the case of any destroyed, lost or stolen note, the Company shall furnish to the Borrower evidence to its satisfaction of the destruction, loss or theft of such note. Notwithstanding any provision to the contrary in the Note or any other loan document evidencing or securing payment of the Note, Borrower shall not be personally liable for the payment of any portion of the indebtedness evidenced by the Note or any other document securing the loan. The Company's sole recourse shall be to the Shares, as defined in that certain Pledge Agreement between Borrower and the Company of even date herewith. This note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to Pennsylvania choice of law provisions. IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this note as of the date and year first above written. /s/ WILLIAM GUTTMAN ------------------------------- WILLIAM GUTTMAN 2 EX-10.33 26 j9249402ex10-33.txt UNSECURED PROMISSORY NOTE (GUTTMAN 4/26/01) Exhibit 10.33 UNSECURED PROMISSORY NOTE $99,191.30 Pittsburgh, Pennsylvania Dated as of April 26, 2001 FOR VALUE RECEIVED, the undersigned, PRINTCAFE, INC., a Delaware corporation ("Borrower"), promises to pay to the order of WILLIAM GUTTMAN ("Payee"), the principal sum of Ninety-Nine Thousand One Hundred Ninety One Dollars and 30/100 ($99,191.30) with interest from the date hereof on the unpaid balance as specified herein. Payments of principal and interest shall be made on the fifteenth (15th) day of each month, commencing on May 15, 2001, in equal installments of Twenty-Five Thousand Dollars ($25,000), until the earlier of August 15, 2001, or such earlier date as Borrower shall have raised an additional Five Million Dollars ($5,000,000.00) in equity financing, upon which the entire unpaid principal and interest shall become due and payable. The interest rate on this note shall be an annual rate of interest equal to four and 58/100 percent (4.58%) compounded semiannually. Interest shall be computed on the basis of a year of 365 days and the actual number of days elapsed, except that interest shall not be computed on the day of full repayment of this note. Interest not paid when due shall earn interest at the rate specified above. Borrower acknowledges that any late payment to Payee will cause Payee to incur costs not contemplated by this note, including, without limitation, processing and accounting charges. Borrower and Payee further agree that proof of actual damages would be costly or inconvenient. Therefore, if any amount owing under this note is not paid within ten (10) days of the due date thereof, Borrower agrees to pay Payee a late payment fee in the amount of ten percent (10%) of any such amount due and not timely paid to Payee. If payment is not made when due, and if action is instituted on this note, the undersigned agrees to pay Payee reasonable attorneys' fees and costs of suit, as fixed by court in connection with the collection of the outstanding amounts due under this note. The undersigned shall have the right to prepay all or any part of the unpaid principal amount of this note, without premium, at any time prior to the maturity hereof. If one or more of the provisions hereof shall be declared or held to be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby and any such declaration or holding shall not invalidate or render unenforceable such provision in any other jurisdiction. In case this note shall become mutilated or defaced, or be destroyed, lost or stolen, the Borrower shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced note, or in lieu of and in substitution for the destroyed, lost or stolen note. In the case of a mutilated or defaced note, Payee shall surrender such note to the Borrower. In the case of any destroyed, 1 lost or stolen note, Payee shall furnish to the Borrower evidence to its satisfaction of the destruction, loss or theft of such note. This note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to Pennsylvania choice of law provisions. IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this note as of the date and year first above written. PRINTCAFE, INC., a Delaware corporation By: /s/ Marc Olin -------------------------------- Marc Olin, President 2 EX-10.34 27 j9249402ex10-34.txt OPTION AGREEMENT Exhibit 10.34 OPTION AGREEMENT THIS OPTION AGREEMENT ("Agreement") is entered into as of April 26, 2001, by and between WILLIAM GUTTMAN ("Optionor"), and PRINTCAFE, INC. a Delaware corporation ("Optionee). Optionor and Optionee are individually referred to as "Party" and collectively referred to as the "Parties." 1.0 RECITALS. 1.1 Optionor is the owner of those certain Shares of Common Stock and Series A Preferred Stock of Optionee as identified on SCHEDULE 1 hereto. 1.2 Optionee desires to obtain the right, but not the obligation, to purchase the Shares. 1.3 Optionor desires to grant to Optionee the right, but not the obligation, to purchase the Shares. 2.0 DEFINITIONS 2.1 "COMMON STOCK" shall mean the Common Stock of Optionee. 2.2 "OPTION" shall mean the option to purchase the Shares pursuant to this Agreement. 2.3 "OPTIONEE" shall mean PRINTCAFE, INC, a Delaware corporation. 2.4 "OPTIONOR" shall mean William Guttman, an individual. 2.5 "PARTY" and "PARTIES" have the meanings set forth in the preamble. 2.6 "SEPARATION AGREEMENT" shall mean that certain Separation and Mutual General Release Agreement of even date between the Parties. 2.7 "SERIES A PREFERRED STOCK" shall mean the Series A Preferred Stock of Optionee. 2.8 "SHARES" shall mean those certain shares of Common Stock and Series A Preferred Stock as identified on SCHEDULE 1 hereto. 2.9 "STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement between the Parties. 2.10 "UNSECURED PROMISSORY NOTE" shall mean that certain Unsecured Promissory Note from Optionee to Optionor in the form attached hereto as EXHIBIT "B." -1- 3.0 OPTION TERM. Optionor hereby grants to Optionee the right to purchase the Shares pursuant the terms of the Stock Purchase Agreement, attached hereto as EXHIBIT "A" commencing on the Termination Date, as that term is defined in the Separation Agreement and expiring thirty (30) days thereafter. 4.0 OPTION CONSIDERATION. As consideration for the option hereunder, Optionee shall pay to Optionor the sum of Ninety Nine Thousand Seventy Eight and 37/100 Dollars ($99,078.37) in the form of an Unsecured Promissory Note attached hereto as EXHIBIT "B." 5.0 EXERCISE OF OPTION. Optionee shall exercise the Option granted hereunder by providing written notice to Optionor, in the form of execution of the Stock Purchase Agreement, within the option term provided in Section 3.0 at the address set forth in Section 14 hereof at least two (2) calendar days prior to the date up on which Optionee desires to exercise the Option. 6.0 NO ASSIGNMENT: BINDING EFFECT. Neither Party may assign any of its rights, duties or obligations under this Agreement without the prior written consent of the other Party and any such attempted assignment shall be void. This Agreement and all documents executed and delivered pursuant hereto shall be binding upon and shall inure to the benefit of the undersigned Parties and their respective heirs, executors, administrators, representatives, successors, and assigns. 7.0 ENTIRE AGREEMENT. 7.1 SOLE AGREEMENT. This Agreement (including any attachments and exhibits hereto) contains the Parties' sole and entire agreement regarding the subject matter hereof, and supersedes any and all other agreements between them. 7.2 NO OTHER REPRESENTATIONS. The Parties acknowledge and agree that no Party has made any representations (a) concerning the subject matter hereof, or (b) inducing the other Party to execute and deliver this Agreement, except those representations specifically referenced herein. The Parties have relied on their own judgment in entering into this Agreement. 7.3 NO RELIANCE. The Parties further acknowledge that any statements or representations that may have been made by either of them to the other are void and of no effect. No Party has relied on any such statements or representations in dealing with the other(s). 8.0 MODIFICATIONS OR WAIVERS. 8.1 MUST BE WRITTEN. Waivers or modifications of this Agreement, or of any covenant, condition, or limitation contained herein, are valid only if in a writing that is separately signed or initialed by the Parties. 8.2 NO USE AS EVIDENCE. One or more waivers or modifications of any covenant, term or condition in this Agreement by any Party shall not be construed by any other -2- Party as a waiver or modification applicable to any subsequent breach of the same covenant, term or condition. Evidence of any such waiver or modification may not be offered or received in evidence in any proceeding, arbitration, or litigation between the Parties arising out of or affecting this Agreement, or a party's rights or obligations under it. This limitation does not apply if the waiver or modification is in writing and duly executed as provided above. 9.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to perform any and all acts and to execute and deliver any and all documents necessary or convenient to carry out the terms of this Agreement, consistent with the terms and conditions herein. 10.0 PROFESSIONAL FEES. If a lawsuit, arbitration, or other proceedings are instituted by any Party to enforce any of the terms or conditions of this Agreement against any other Party hereto, the prevailing party in such litigation, arbitration, or proceedings shall be entitled, as an additional item of damages, to such reasonable attorneys' and other professional fees (including but not limited to expert witness fees), court costs, arbitrators' fees, arbitration administrative fees, travel expenses, and other out-of-pocket expenses or costs of such other proceedings as may be fixed by any court of competent jurisdiction, arbitrator, or other judicial or quasi-judicial body having jurisdiction thereof, whether or not such litigation or proceedings proceed to a final judgment or award. For the purposes of this Section 10.0, any Party receiving an arbitration award or a judgment for damages or other amounts shall be deemed to be the prevailing party, regardless of amount of the damage awarded or whether the award or judgment was based upon all or some of such Party's claims or causes of action. 11.0 SEVERABILITY. If any part, clause, or condition of this Agreement is held to be partially or wholly invalid, unenforceable, or inoperative for any reason whatsoever, such shall not affect any other provision or portion hereof, which shall continue to be effective as though such invalid, inoperative, or unenforceable part, clause or condition had not been made. 12.0 GOVERNING LAW AND VENUE. To the extent not controlled by federal law, all questions concerning this Agreement, its construction, and the rights and liabilities of the Parties hereto shall be interpreted and enforced in accordance with the laws of the Commonwealth of Pennsylvania, without regard to Pennsylvania choice of law provisions, as applied to contracts which are executed and performed entirely within the state. For purposes of this Agreement, sole and proper venue shall be the County of Allegheny, Commonwealth of Pennsylvania. 13.0 INTERPRETATION. 13.1 PARAGRAPH HEADINGS. The paragraph headings of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any of its provisions. 13.2 CAPITALIZED TERMS. Except as otherwise expressly provided herein, all capitalized terms defined in this Agreement shall have the meaning ascribed to them herein. -3- 13.3 GENDER AND NUMBER. Whenever required by the context, the singular shall include the plural, the plural shall include the singular, and the masculine gender shall include the neuter and feminine genders and vice versa. 14.0 NOTICES. For purposes hereof, delivery of written notice shall be complete upon personal delivery, or upon mailing if mailed with proper postage paid by United States registered or certified mail, addressed to the party at the address set forth below, or to such other mailing address as the parties hereto may designate by written notice given in accordance with this Section 14.0. Notice may also be given upon receipt of electronic facsimile, provided that any facsimile notice shall only be deemed received if (a) the transmission thereof is confirmed, and (b) facsimile notice is followed by written notice, made either by (i) personal delivery thereof, or (ii) via deposit in certified mail return receipt requested, postage prepaid, within three (3) business days following the facsimile notice. Notices shall be addressed to the parties as follows: Shareholder: William Guttman 715 Maryland Avenue Pittsburgh, PA 15232 Fix: (240)368-8735 With required copy to: The Busch Firm 2532 Dupont Drive Irvine, California 92612 Attn: David L. Keligian, Esq. and Sheila M. Muldoon, Esq. Telephone: (949)474-7368 Facsimile: (801)469-6983 Optionee: printCafe, Inc. The Crane Building, Fifth Floor Forty 24th Street Pittsburgh, PA 15222-4683 Attention: President Fax: (412)456-1151 Any party may change the address to which to send notices by notifying the other party of such change of address in writing in accordance with this Section 14.0. 15.0 TIME OF ESSENCE. The Parties acknowledge and agree that time is strictly of the essence with respect to each and every term, condition, obligation and provision hereof. Failure to timely perform any of the terms, conditions, obligations or provisions hereof by any Party shall constitute a material breach of this Agreement by the Party so failing to perform. 16.0 RELATIONSHIP CREATED. Nothing contained herein or in any schedule, attachment, or exhibit hereto shall create any partnership, joint venture or other agreement between the Parties hereto. -4- 17.0 COUNTERPARTS. This Agreement may be executed in several counterparts, of which so executed shall be deemed to be an original, but such counterparts shall together constitute and be one and the same instrument. IN WITNESS WHEREOF, each Party to this Agreement has caused it to be executed as of the date set forth above. "OPTIONOR" /s/ William Guttman ----------------------------------- WILLIAM GUTTMAN "OPTIONEE" PRINTCAFE, INC., a Delaware corporation By: /s/ Marc Olin ------------------------------- Marc Olin, President -5- SCHEDULE 1 SHARES
Class of Stock Number of Shares Price Certificate Nos. - -------------- ---------------- ----- ---------------- Series A Preferred Stock 259,581 Shares $389,371.50 Common Stock 234,193 Shares $351,289.50
-6- EX-23.1 28 j9249402ex23-1.txt CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 11, 2002 in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-82646) and related Prospectus of Printcafe Software, Inc. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania March 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----