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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-14713
[LOGO]
INTERLEAF, INC.
(exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2729042
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
62 FOURTH AVENUE, WALTHAM, MA 02154
(Address of principal executive offices) (Zip Code)
(617) 290-0710
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's Common Stock, $.01 par
value, as of October 31,1996 was 17,459,219.
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INTERLEAF, INC.
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated balance sheets at September 30, 1996 and March 31, 1996 . . . . 3
Consolidated statements of operations for the three and six months
ended September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . 4
Consolidated statements of cash flows for the six months ended
September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to Vote of Security Holders . . . . . . . . .15
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . .15
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .15
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2
INTERLEAF, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30, 1996 March 31, 1996
In thousands, except for share and per share amounts (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,942 $ 12,725
Accounts receivable, net 15,890 19,771
Prepaid expenses and other current assets 2,013 2,112
-------- --------
TOTAL CURRENT ASSETS 22,845 34,608
Property and equipment, net 7,521 7,800
Intangible assets 7,864 6,164
Other assets 628 344
-------- --------
TOTAL ASSETS $ 38,858 $ 48,916
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 374 $ -
Accounts payable 2,982 2,908
Accrued expenses 13,804 13,252
Unearned revenue 11,444 15,986
Other current liabilities 4,830 1,348
-------- --------
TOTAL CURRENT LIABILITIES 33,434 33,494
Other liabilities 225 3
-------- --------
TOTAL LIABILITIES 33,659 33,497
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, par value $.10 per share, authorized 5,000,000 shares:
Series A Junior Participating, none issued and outstanding
Senior Series B Convertible, issued and outstanding 861,911
at September 30, 1996 and 923,304 at March 31, 1996 86 92
Common stock, par value $.01 per share, authorized
30,000,000 shares, issued and outstanding 17,459,219 at September
30, 1996 and 16,697,988 at March 31, 1996 175 167
Additional paid-in capital 76,224 72,348
Retained earnings (deficit) (71,085) (56,958)
Cumulative translation adjustment (201) (230)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 5,199 15,419
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 38,858 $ 48,916
-------- --------
-------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30 Six months ended September 30
1996 1995 1996 1995
In thousands, except for per share
amounts (unaudited) (unaudited)
REVENUES:
Products $ 4,614 $ 9,273 $ 11,660 $18,710
Maintenance 7,410 8,399 14,882 16,191
Services 4,561 5,639 9,097 11,537
-------- ------- -------- -------
TOTAL REVENUES 16,585 23,311 35,639 46,438
-------- ------- -------- -------
COSTS OF REVENUES:
Products 1,527 1,564 3,153 3,224
Maintenance 1,291 1,314 2,599 2,683
Services 4,362 4,767 8,562 9,576
-------- ------- -------- -------
TOTAL COSTS OF REVENUES 7,180 7,645 14,314 15,483
-------- ------- -------- -------
Gross Margin 9,405 15,666 21,325 30,955
-------- ------- -------- -------
OPERATING EXPENSES:
Selling, general and administrative 10,481 10,871 21,903 21,853
Research and development 4,306 3,931 8,576 7,857
Restructuring expense 4,800 - 4,800 -
-------- ------- -------- -------
TOTAL OPERATING EXPENSES 19,587 14,802 35,279 29,710
-------- ------- -------- -------
Income (loss) from operations (10,182) 864 (13,954) 1,245
Other income (expense) (145) 58 (173) 149
-------- ------- -------- -------
Income (loss) before income taxes (10,327) 922 (14,127) 1,394
Provision for income taxes - - - -
-------- ------- -------- -------
NET INCOME (LOSS) $(10,327) $ 922 $(14,127) $ 1,394
-------- ------- -------- -------
-------- ------- -------- -------
Net income (loss) per share $ (0.59) $ .05 $ (0.82) $ .08
-------- ------- -------- -------
-------- ------- -------- -------
Shares used in computing net
income (loss) per share 17,457 18,618 17,229 18,134
-------- ------- -------- -------
-------- ------- -------- -------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended September 30
1996 1995
In thousands (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(14,127) $ 1,394
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Restructuring expense 4,800 -
Depreciation and amortization expense 3,901 3,863
Loss from disposal of property and equipment - 20
Changes in assets and liabilities:
Decrease in accounts receivable, net 3,942 2,573
Decrease in other assets 341 293
Decrease in accounts payable and accrued expenses (49) (1,286)
Decrease in unearned revenue (4,493) (2,399)
Decrease in other liabilities (1,305) (1,662)
Other, net 113 (83)
-------- -------
Net cash provided by (used in) operating activities (6,877) 2,713
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,736) (441)
Capitalized software development costs (737) (2,352)
-------- -------
Net cash used in investing activities (2,473) (2,793)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net 374 -
Net proceeds from issuance of common stock 1,250 2,009
Repayment of long-term debt and capital leases (4) (1,674)
-------- -------
Net cash provided by financing activities 1,620 335
-------- -------
Effect of exchange-rate changes on cash (53) (50)
-------- -------
Net increase (decrease) in cash and cash equivalents (7,783) 205
Cash and cash equivalents at beginning of period 12,725 10,441
-------- -------
Cash and cash equivalents at end of period $ 4,942 $10,646
-------- -------
-------- -------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
INTERLEAF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Interleaf,
Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Interleaf, Inc. and its
subsidiaries are collectively referred to as the "Company." Certain 1995
amounts have been reclassified to conform to the 1996 method of
presentation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all
financial information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, these financial statements include all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
results of operations for the interim periods reported and of the financial
condition of the Company as of the date of the interim balance sheet. The
results of operations for interim periods are not necessarily indicative of
the results to be expected for the full year.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended March 31, 1996.
2. Net Income (Loss) Per Share
Per share amounts are calculated using the weighted average number of
common shares and common share equivalents outstanding during periods of
net income. Common share equivalents are attributable to stock options,
common stock warrants and convertible preferred stock. Per share amounts
are calculated using only the weighted average number of common shares
outstanding during periods of net loss. Fully diluted earnings per share is
not materially different from reported primary earnings per share.
3. Acquisition
On May 1, 1996, the Company purchased all of the outstanding equity
securities of The Learning Alliance, Inc. ("TLA") for $2,690,000. The
Company issued 341,500 shares of common stock to the selling shareholders
of TLA for the entire purchase amount. TLA provides sales training services
and develops and markets related software for the sales force automation
and integration marketplace.
The acquisition was accounted for using the purchase method of accounting,
whereby the purchase price was allocated to the assets acquired and
liabilities assumed based on their respective fair market values. The
acquisition resulted in goodwill of approximately $2.6 million which is
being amortized over five years and is included in Intangible Assets.
The operating results of TLA have been included in the consolidated
financial statements since the date of the acquisition. Pro forma
presentations have not been included as the acquisition was not material to
the results of operations of the Company.
6
INTERLEAF, INC.
4. Noncash Financing Activities
Senior Series B Convertible Preferred Stock holders converted 61,393 and
496,429 shares of preferred stock into 82,496 and 667,077 shares of the
Company's common stock during the six months ended September 30, 1996 and
1995, respectively. The Company issued 171,635 shares of common stock,
during the six months ended September 30, 1995, in connection with the
exercise of a warrant. The Company received no proceeds upon the conversion
of the warrant into common stock.
5. Credit Agreement
The Company has a revolving line of credit of up to $10 million from a
major commercial lender. The credit agreement also provides for the
issuance of letters of credit of up to $2 million. Borrowings from the line
of credit bear interest at the higher of 9% or prime rate plus 2% and are
secured by substantially all tangible and intangible domestic assets of the
Company. Outstanding letters of credit bear interest at 2%. The credit
agreement expires in May 1997, but may be extended annually for successive
one year periods with the consent of the lender. At September 30, 1996,
there was approximately $0.4 million outstanding under this line of credit.
Borrowings under the credit agreement are based on the level of eligible
North American accounts receivable, modified by cash collections during the
previous 90 days. As of September 30, 1996, approximately $1.0 million of
standby letters of credit were outstanding and the amount available for
additional borrowings was approximately $1.4 million. The agreement
contains certain financial covenants relating to the Company's current
ratio, tangible net worth, and working capital, as well as restrictions on
certain additional indebtedness, acquisitions, capital expenditures, and
dividend payments.
6. Restructuring
In July 1996, the Company announced a restructuring plan and recorded a
charge of $4.8 million to reduce employment by approximately 75 people, to
close or reduce space in seven sales offices, and to implement the second
and final stage of relocating corporate headquarters to smaller and less
expensive space. The employee terminations affected all groups throughout
the organization. Cash outlays are anticipated to be approximately $4.1
million of the total $4.8 million restructuring charge and will require
lease payments through December 2000. Approximately $1.3 million of the
restructuring charge was for employee termination benefits and $3.5 million
for other exit costs, primarily related to facility leases.
In October 1996, the Company announced a restructuring plan to further
reduce employment by approximately 100 people and to close or reduce space
in six sales offices. The employee terminations affected all groups
throughout the organization. During the third quarter of fiscal 1997, the
Company will record a charge of approximately $3.0 million to $4.0 million
to cover costs associated with the restructuring.
During the six months ended September 30, 1996, the Company paid
approximately $0.9 million for employee termination benefits and
approximately $0.4 million, net of sublease receipts, related to the July
1996 and fiscal 1995 restructurings.
7
INTERLEAF, INC.
7. Shareholders' Equity
On October 15, 1996, the Company issued 1,004,904 shares of newly
authorized Series C Convertible Preferred Stock ("Series C") at a price of
$9.9512 per share. The Company received net proceeds of approximately $9.4
million which will be used for working capital and general corporate
purposes. Each Series C share is initially convertible into 4 shares of
common stock, which rate is adjustable upon certain issuances of common
stock by the Company. Dividends of $0.24878 per share are payable on April
15, 1998 and October 15, 1998, and $0.49756 per share on each April 15 and
October 15 thereafter. Holders of outstanding shares of Series C Preferred
Stock are entitled to the number of votes equal to one-half the number of
shares of common stock into which the Series C shares are convertible.
Series C shareholders are entitled to receive upon liquidation an amount
equal to $9.9512 per share plus any declared or accrued but unpaid
dividends, which amount is payable prior to any payments to holders of the
Series B Preferred Stock and common stock. Series C shareholders must
convert their shares into common stock upon the consolidation, merger or
sale of substantially all assets of the Company or, subject to certain
conditions, if the Company's common stock trades for twenty consecutive
days above $3.7317. The Company may, at its option, redeem the Series C
shares on or after October 16, 1999. The initial redemption premium is 25%,
which decreases 5% annually until October 16, 2004.
On September 12, 1996, the Board of Directors authorized a repricing
program which allows employees to elect to reprice all or some of their
outstanding options, ranging in exercise price from $2.75 to $10.75 per
share, to the September 12, 1996 closing price of $2.5625. Any options
repriced may not be exercised until March 12, 1997. Options for
approximately 2.3 million shares are eligible to be repriced.
8. Contingencies
Interleaf's German subsidiary, Interleaf GmbH, has been notified that it is
liable for certain German withholding taxes related to payments remitted to
the United States from Germany. The Company is appealing this assessment,
however, approximately $1.1 million of the cash and cash equivalents
balance at September 30, 1996 is restricted for potential payment of the
German withholding taxes. The Company believes the final outcome will not
have a material adverse effect on results of operations of the Company.
8
INTERLEAF, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The Company recorded a net loss of approximately $10.3 million, on total
revenues of $16.6 million, for the second quarter and a net loss of
approximately $14.1 million, on total revenues of $35.6 million, for the six
months ended September 30, 1996. This compares with net income of
approximately $0.9 million, on total revenues of $23.3 million, for the
second quarter and net income of approximately $1.4 million, on total
revenues of $46.4 million, for the six months ended September 30, 1995. As a
result of the significant decline in revenues the Company has initiated two
restructuring plans, in July 1996 and October 1996, to reduce worldwide
employment and facility costs. A $4.8 million restructuring charge was
recorded in July 1996 and a restructuring charge of approximately $3.0 to
$4.0 million will be recorded during the third quarter. Combined, these
restructurings reduced employment by approximately 175 people,
approximately one-third of the Company's worldwide workforce prior to the
July restructuring. In addition, the Company has or will close or reduce
space in 12 sales offices and implement the second and final stage of
relocating corporate headquarters to smaller and less expensive space. See
Note 6 to the Consolidated Financial Statements.
REVENUES
Total revenues decreased approximately $6.7 million (29%) and $10.8 million
(23%) for the second quarter and six months ended September 30, 1996, when
compared with the same periods a year ago. Revenue has declined in all
geographic regions. Product revenue declined significantly during these
periods as sales of the Company's stand-alone products continue to decrease.
The Company has been refocusing its business strategy on providing document
management applications targeted toward specific vertical and horizontal
markets. While the Company has built well-accepted integrated document
management ("IDM") based solutions for individual customers, it has not yet
demonstrated the ability to develop, market and sell IDM applications. There
is no assurance that the Company will be successful in implementing its
9
strategy, and therefore the Company is unable to predict if or when product
revenues will stabilize or grow. Additionally, since the Company's services
and maintenance revenue is largely dependent on new product licenses, these
revenue components have also experienced downward pressure. This trend will
continue unless product revenue stabilizes.
Maintenance revenue, resulting from contracts to provide telephone support
and upgrades to the Company's software products, declined approximately 12%
and 8% during the second quarter and six months ended September 30, 1996,
respectively, when compared with the same periods a year ago, primarily due
to significant renewal contract volume in the second quarter of the prior
year which was not duplicated this year. Services revenue, consisting of
consulting and customer training revenue, decreased approximately 19% and 21%
for the second quarter and six months ended September 30, 1996, respectively,
when compared with the same periods a year ago. The Company leverages
software product licensing with services to provide IDM solutions to its
customers. In fiscal 1996, the Company had several large consulting
projects, which were completed during early fiscal 1996, that have not been
replaced with similar sized projects. This was primarily attributable to the
decline in product licensing over the past few quarters.
COSTS OF REVENUES
Cost of product revenues remained relatively stable as increased amortization
of capitalized software development costs was offset by lower direct product
costs associated with the decrease in product license revenue. Because of
the decline in product revenues, however, cost of product revenues increased
as a percentage of product revenues to 33% and 27% for the second quarter and
six months ended September 30, 1996, respectively, compared with
approximately 17% and 17% for the corresponding periods in the prior year.
Cost of maintenance revenues remained relatively stable in both amount and as
a percentage of maintenance revenues relative to the prior year. Cost of
services revenue decreased primarily as a result of a decline in services
personnel. However, cost of services revenue increased as a percentage of
services revenue to approximately 96% and 94% for the second quarter and six
months ended September 30, 1996, respectively, compared with approximately
85% and 83% for the corresponding periods in the prior year, as the decline
in services revenue discussed above was only partially offset by the decline
in services personnel.
10
OPERATING EXPENSES
Selling, general and administrative ("SG&A") expenses remained relatively
stable as a decline in selling costs were offset by increased investment in
marketing programs and advertising campaigns. Because of the decrease in
total revenues, SG&A expenses increased as a percentage of total revenues to
approximately 63% and 61% for the second quarter and six months ended
September 30, 1996, respectively, compared with approximately 47% and 47% for
the corresponding periods in the prior year. SG&A expenses are expected to
decrease as a result of the fiscal 1997 restructuring plans.
Research and development ("R&D") expenses increased approximately 10% from
the prior year primarily due to a reduction in capitalized software
development costs partially offset by lower personnel expenses. For the
second quarters ended September 30, 1996 and 1995, R&D expenses were
approximately 26% and 17%, respectively, of total revenues. R&D spending,
which excludes the offset for capitalized software development costs,
represented approximately 27% and 22% of total revenues for the second
quarters ended September 30, 1996 and 1995, respectively. For the six months
ended September 30, 1996 and 1995, R&D expenses were approximately 24% and
17%, respectively, and R&D spending was approximately 26% and 22%,
respectively, of total revenues. The Company's product development plans are
to focus on IDM-based product offerings as well as enhancements to existing
products. R&D spending is expected to decline as a result of the fiscal 1997
restructuring plans.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $4.9 million of cash and cash equivalents at
September 30, 1996, a decrease of approximately $7.8 million from March 31,
1996. The decrease was primarily attributable to the Company's operations
during the first six months of fiscal 1997 and payments associated with the
July 1996 restructuring. Capital expenditures of approximately $1.7 million
were principally for improvements to the Company's information systems
infrastructure. These cash outflows were partially offset by common stock
issuances related to the Company's incentive stock option plans and employee
stock purchase plan of approximately $1.2 million. Interleaf's German
subsidiary, Interleaf GmbH, has been notified that it is liable for German
withholding taxes related to payments remitted to the United States from
Germany in 1990. The Company is appealing this assessment. At September 30,
1996, the Company had approximately
11
$1.1 million of cash restricted for potential payment of German withholding
taxes, and approximately $0.3 million as collateral for various lease
commitments.
As part of the Company's strategy to develop sales force automation and
integration applications, the Company acquired The Learning Alliance, Inc.
("TLA") in May 1996 for $2,690,000. The Company issued 341,500 shares of
common stock to the selling shareholders of TLA for the entire purchase
amount (see Note 3 to the Consolidated Financial Statements for further
discussion).
Total accrued restructuring charges associated with both the fiscal 1995 and
July 1996 restructuring plans were approximately $4.8 million at September
30,1996. Cash payments related to these restructurings are anticipated to
continue until December 2000. As previously discussed, the Company announced
a further restructuring plan in October (see Note 6 to the Consolidated
Financial Statements for further discussion).
The Company has a revolving line of credit from a major commercial lender.
Borrowings from the line of credit are secured by substantially all tangible
and intangible domestic assets of the Company. At September 30, 1996, there
was approximately $0.4 million outstanding under this line of credit and the
amount available for additional borrowings was approximately $1.4 million. At
November 8, 1996, there were no loans outstanding under this line of credit
and the amount available for borrowings was approximately $1.2 million. See
Note 5 to the Consolidated Financial Statements regarding borrowing limits
and restrictive covenants associated with the credit agreement.
In October 1996, the Company sold Series C Convertible Preferred Stock in a
private placement resulting in net proceeds of approximately $9.4 million
(see Note 7 to the Consolidated Financial Statements for further discussion).
The Company had approximately $13.8 million in cash and cash equivalents at
October 31, 1996, which included restricted cash of approximately $1.4
million, and approximately $0.7 million oustanding under the line of credit.
The objectives of the Company's two restructurings in the last four months
and the Series C private placement were to enable the Company to return to a
sustainable profitable condition. However, due to the uncertainty among the
Company's customers and employees created by the Company's two
restructurings, along with the downward trend in the Company's revenue, the
Company is unable to predict with
12
certainty its future revenue. The Company will continue to closely monitor
revenue and manage its expenses and cost structure accordingly. While the
Company believes its current cash position will meet the Company's liquidity
needs for the remainder of fiscal 1997, there can be no assurance in this
regard, and there can be no assurance that the Company can fund its longer
term ongoing business operations. If the Company's cash resources are
insufficient to fund its operations at any time, there can be no assurance
that the Company will be able to obtain additional capital or, if it does so,
that such capital can be obtained at commercially reasonable terms or without
incurring substantial dilution to existing shareholders.
The Company has retained the investment banking firm Hambrecht & Quist LLC to
assist it in exploring long-term strategic alternatives.
RISK FACTORS
From time to time, information provided by the Company or statements made by
its employees may contain forward-looking information. The Company's actual
future results may differ materially from those projections or suggestions
made in such forward-looking information as a result of various potential
risks and uncertainties including, but not limited to, the factors discussed
below.
The Company's future operating results are dependent on its ability to
develop and market integrated document management software products and
services that meet the changing needs of organizations with complex document
management requirements. There are numerous risks associated with this
process, including the uncertainty among customers and employees created by
the Company's recent financial difficulties, rapid technological change in
the information technology industry and the requirement to bring to market
IDM solutions that solve complex business needs in a timely manner. In
addition, the existing document publishing, electronic distribution, and
document management markets are highly competitive. The Company competes
against a number of companies for sales of its software products on both an
individual product basis and integrated with services in large IDM solution
sales.
Sales cycles associated with IDM solution sales are long as organizations
frequently require the Company to solve complex business problems which
typically involve reengineering of their business processes. In addition, a
high
13
percentage of the Company's product license revenues are generally realized
in the last month of a fiscal quarter and can be difficult to predict until
the end of a fiscal quarter. Accordingly, given the Company's relatively
fixed cost structure, a shortfall or increase in product license revenue will
have a significant impact on the Company's operating results.
The Company markets its software products and services worldwide. Global
and/or regional economic factors, currency exchange rate fluctuations, and
potential changes in laws and regulations affecting the Company's business
could impact the Company's financial condition or future operating results.
The market price of the Company's common stock may be volatile at times in
response to fluctuations in the Company's quarterly operating results,
changes in analysts' earnings estimates, market conditions in the computer
software industry, as well as general economic conditions and other factors
external to the Company.
14
INTERLEAF, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
At the Annual Meeting of Shareholders held on August 8, 1996 ("Annual
Meeting") the shareholders of the Company elected the following three
nominees as Class III directors of the Company whose terms shall expire at
the Company's 1999 shareholder meeting: David A. Boucher, by a vote of
15,477,533 in favor to 1,287,369 against, Frederick B. Bamber, by a vote of
15,539,983 in favor to 1,224,919 against, and Ed Koepfler, by a vote of
15,567,271 in favor to 1,197,631 against. The Company also has two Class I
directors Clinton P. Harris (as a Preferred Class I director elected by the
Senior Series B Preferred Shareholders) and G. Gordon M. Large, whose terms
are set to expire at the annual shareholders' meeting in 1997, and one Class
III director George D. Potter, Jr., whose term is set to expire at the annual
shareholders' meeting in 1998. At the Annual Meeting, the shareholders
ratified and approved the amendment to the Company's 1987 Employee Stock
Purchase Plan to increase the number of shares of the Company's Common Stock
available for issuance from 1,750,000 to 2,500,000 under the plan, by a vote
of 14,799,328 in favor, 1,619,490 against, 86,577 abstentions, and 292,507 no
votes. The shareholders also ratified and approved the selection of Ernst &
Young LLP as the Company's independent auditors for fiscal 1997, by a vote of
16,591,663 in favor, 98,237 against, and 75,002 abstentions. A more complete
description of these matters appears in the Company's 1996 Proxy Statement,
dated June 28, 1996.
Item 5. Other Information
Effective as of November 12, 1996, G. Gordon M. Large has resigned as the
Company's Executive Vice President, Chief Financial Officer, Treasurer, and
as a Company Director. Effective as of the same date, the Board of Directors
has elected Robert M. Stoddard as the Company's Vice President of Finance and
Administration, Chief Financial Officer, and Treasurer. Effective November 4,
1996, Frederick J. Egan resigned as the Company's Vice President for
Asia/Pacific/Japan, and as an executive officer.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed in the accompanying Exhibit Index are filed as
part of this Quarterly Report on Form 10-Q.
(b) No reports were filed on Form 8-K by the Company during the quarter
ended September 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERLEAF, INC.
November 11, 1996
/s/ G. Gordon M. Large
-----------------------------------
G. Gordon M. Large
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
INTERLEAF, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
3(a) Restated Articles of Organization of the Company, as [v]
amended
3(b) By-Laws of the Company, as amended [v]
4(a) Specimen Certificate for Shares of the Company's [xiii]
Common Stock
4(b) Rights Agreement, dated July 15, 1988, between the [xiv]
Company and the First National Bank of Boston
10(a) Company's 1983 Stock Option Plan, as amended [v]
10(a1) 1994 Employee Stock Option Plan, as amended Included
10(a2) 1993 Incentive Stock Option Plan, as amended [viii]
10(b) Company's 1989 Director Stock Option Plan [i]
10(b2) Company's 1987 Employee Stock Purchase Plan, as Included
amended
10(c) Company's 1989 Officer and Employee Severance [i]
Benefit Plans
10(cc) Company's 1993 Director Stock Option Plan [v]
10(d) Agreements between PruTech Research and Development [ii]
Partnership III and the Company, dated October 21,
1988.
10(e) Exclusive Marketing and Licensing Agreement, between [i]
Interleaf South America, Ltd. and the Company, and
related Option Agreement, dated
March 31, 1989.
10(f) Distribution and License Agreement between Interleaf [i]
Italia, S.r.l. and the Company, and related Joint
Venture Agreement, dated October 31, 1988.
10(g) Preferred Stock Purchase Agreements, for the [ii]
issuance of 2,142,857 shares
of the Company's Senior Series B Convertible
Preferred Stock, dated
September 29, 1989.
10(h) Notification to Preferred Shareholder of increase in [iii]
conversion ratio, dated May 18, 1992.
10(i) Lease of Prospect Place, Waltham, MA, between [iv]
Prospect Place Limited
Partnership and Interleaf, Inc., and related
Agreements, dated March 30, 1990.
10(k) Letter Agreement between the Company and Richard P. [v]
Delio, the Company's former Sr. Vice President of
Finance and Administration and Chief Financial
Officer, dated March 30, 1994, concerning his
employment and severance with the Company.
10(l) Letter of Separation and Management Consulting [vi]
Agreement between the Company and Mark K. Ruport,
the Company's former President, Chief Executive
Officer and Director, dated July 25, 1994,
concerning his separation and consulting obligations
to the Company.
10(m) Letter Agreement between the Company and Richard P. [vi]
Delio, the Company's former Sr. Vice President of
Finance and Administration and Chief Financial
Officer and Acting President, dated August 3, 1994,
concerning his employment and severance with the
Company.
10(n) Letter of Separation and Management Consulting [vi]
Agreement between the Company and Peter Cittadini,
the Company's former Sr. Vice President Worldwide
Operations, dated July 27, 1994, concerning his
separation and consulting obligations to the
Company.
10(o) Executive Compensation Arrangement for David A. [vi]
Boucher, the Company's Chairman of the Board, dated
July 20, 1994.
16
INTERLEAF, INC.
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
10(p) Letter of Separation and Management Consulting [vi]
Agreement between the Company and Lawrence S. Bohn,
the Company's former Sr. Vice President, Marketing
and Business Development, dated September 20, 1994,
concerning his separation and consulting obligations
to the Company.
10(q) Employment and severance agreement between the [vii]
Company and Edward Koepfler, the Company's
President, dated October 3, 1994.
10(r) Loan and Security Agreement between the Company and [ix]
Foothill Capital Corporation, dated May 2, 1995.
10(s) Employment and severance agreement between the [ix]
Company and G. Gordon M. Large, the Company's
Executive Vice President and Chief Financial
Officer, dated June 5, 1995
10(t) Net Lease, dated August 14, 1995, between Principal [x]
Mutual Insurance Company and the Company.
10(u) Sublease, dated September 15, 1995, between [x]
Parametric Technology Corporation and the Company.
10(v) Employment and severance agreement between the [xi]
Company and Mark Cieplik, the Company's Vice
President, Americas, dated March 17, 1995.
10(w) Agreement between PruTech Research and Development [xii]
Partnership III and the Company, dated November 14,
1995.
10(x) Series C Preferred Stock Agreement between Included
Interleaf, Inc. and Lindner Investments, dated
October 14, 1996
11 Computation of Earnings Per Share Included
27 Financial Data Schedule Included
________________________
[i] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1989, File Number
0-14713.
[ii] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1990, File Number
0-14713.
[iii] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1992, File Number
0-14713.
[iv] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 8-K filed April 13, 1990, File Number 0-14713.
[v] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1994, File Number
0-14713.
[vi] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended September 30, 1994, File Number
0-14713.
[vii] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended December 31, 1994, File Number
0-14713.
[viii] Incorporated herein by reference is the applicable Exhibit to
Company's Annual Report on Form 10-K for the year ended March 31, 1995, File
Number 0-14713.
[ix] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended June 30, 1995, File Number 0-14713.
17
INTERLEAF, INC.
[x] Incorporated herein by reference is the applicable Exhibit to Company's
Registration Statement on Form S-2, File Number 33-63785.
[xi] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended September 30, 1995, File Number
0-14713.
[xii] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended December 31, 1995, File Number
0-14713.
[xiii] Incorporated herein by reference is the applicable Exhibit to
Company's Registration Statement on Form S-1, File Number 33-5743.
[xiv] Incorporated herein by reference is Exhibit 1 to Company's Registration
Statement on Form 8-A, filed July 27, 1988.
18